Extension Education: Cow/Calf Profitability or Lack Thereof
Last June when corn shot up and cattle markets softened, I think the profitability went out of the cow/calf segment of the beef business for most producers. Tight hay supplies and longer feeding periods made it even worse for the winter of 2012-13. Looking forward, I think there are possibilities, but still producers will need to be extremely diligent in managing costs to have anything left over after the bills are paid. In the article to follow I will present a representative overly simplified budget for the cow-calf business to illustrate how tight the margins are.
Let’s assume that every cow exposed to breeding produces $800 in gross income for the ranch. That would come from 470 pounds of calf weaned per female exposed, worth $1.55 on average plus the value of some culls.
Seems like a lot right? Where does it all go?
Expenses for one cow include:
Nine months grazing at $25 per month, for a total of $225. If you own land, that shows up as a payment to your land business.
1.5 tons of hay at $200 per ton, for a total of $300,
Cow replacement costs or cow depreciation at $200,
Livestock costs, including paid labor, fuel, vet, trucking, marketing, etc. equal $100,
Bull cost per cow comes in at $40
Interest on money invested in cow herd equals $75, which is opportunity interest if there is no cow note, and
overhead costs, which include machinery and building depreciation and repairs, reaches $50. Only the cowherd’s share is included.
The total expenses per cow reach $990.
I’m sure your costs are different than these, but I’m also sure you have costs in each one of these categories. Remember even if they are not cash costs, they are costs and should be considered.
If this business is to break even then it will need to find $190 worth of costs to cut while not impacting production or raise production $190 per cow without increasing costs. If it is going to make an economic profit, then it will need to do better than that. This is what has me concerned. Even with the good prices, it is very difficult to make a profit with the high input costs.
Where are your best opportunities for “managerial leverage”?
I love this term. Each ranch has places that some good minds and time spent on management in these areas will have a positive return. If you lay your costs next to the ones above and some areas are higher than the costs I’ve put forward, then that may be an opportunity. Some of the common areas for managerial leverage in the cow business include reducing fed feed costs, primarily hay, decreasing cow depreciation and attacking the overhead. Cow depreciation can best be reduced by increasing the value of your cull cows or by reducing the cost of a bred heifer entering the herd and her retention as a two-year-old.
The point of this article is not to depress you, but to challenge you to evaluate your own cow/calf business. After all the hard work you do in in producing a good calf crop, it makes good sense to spend the time to develop profit projections for your business.
If your business plan is simply the words “hope” and “luck,” then these numbers may give you a starting point to work from and provide you with a template for developing an economic analysis of your business. There are plenty of resources out there to help you do this, but it will take some dedication and work on your part as well. One staring point is the “How to Calculate Unit Cost of Production” tutorial on the High Plains Ranch Practicum website, which can be found at hpranchpracticum.com.
I hope rains found your grass this spring.