Record Profits – Are You Participating?
By Dallas Mount, UW Southeast Area Livestock Extension Educator
Almost every commodity market is showing near or record-high prices. The beef cattle markets have hit new record high prices, and as I write this prices have dropped significantly over the past few days. Who knows if this is the down turn, or just a bump in the road.
As cow-calf producers, with the prices being paid for calves, I hope you are making record profits on your ranch. Are you participating in the record profits?
A common statement among producers is: “Prices are high, but all my inputs have gone up, as well. I’m not making any more money than I ever have.” Sadly, this statement may be true for too many ranches. Inputs such as fuel, fertilizer and feed have gone up significantly, but is it really a surprise? If I had asked you 10 years ago if you thought feed, fertilizer and fuel would be cheaper today than it was then, what would you have answered? If I asked you that same question today, what would be your answer for 10 years from now? Has your ranch addressed this trend?
If you are one of the many ranchers who may not be participating in the record high profits, then what should you do to start participating? Or, how can you structure your ranch so that when prices come off these record highs there will still be profit on the table? My answer is that you need to become a low-cost producer, or have a low unit cost of production. My definition of a low-cost producer is one who can bring a hundred-weight feeder calf to market with less than $100 invested. This includes paying opportunity costs on owned pasture and paying market prices for all feeds, such as home raised hay. Some ranches have a unit cost of production less than $80 and many are over $120 per cwt of calf.
Being a low-cost producer does not mean being a low-production ranch. Unit cost of production is a ratio based on two values: total ranch production and total cost. The best ranches have good production and low costs.
If you want to lower your ranch’s unit cost of production (UCOP), where should you look first? The number most correlated with high UCOP is high hay cost per cow, and this gets us right back to lowering these inflating inputs into our operation. As you look out on the horizon, which inputs do you think will continue to rise, and how can you structure your operation to require less use of these inputs? These are the critical questions to which profitable ranches will find answers in the coming years. I continue to believe that a crucial step toward improving a ranch’s profit is to conduct a unit cost of production analysis on each enterprise on your ranch. Instructions on how to do this and benchmark datasets from ranches that have completed the process can be found here: hpranchpracticum.com/UCOP/UCOP.htm.
Also, the ranch practicum school is being offered in Powell this fall and winter in partnership with Northwest College. In the school, we walk participants step-by-step through calculating their UCOP for each enterprise and then we analyze the numbers to find areas to improve profitability of the ranch. Information on the school can be found at RanchPracticum.com.
I hope your ranch is making record profits this year, and that your ranch team is having fun doing it!