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Operating Costs

Riverton – At the recent meeting in Riverton that focused on managing operating costs through times of uncertain input costs, UW Soil Fertility Specialist Jay Norton spoke on crop fertility management.
    “It seems like, as inputs get more expensive and prices are uncertain, people think more about inputs. In some crops, fertilizer hasn’t been a big issue before. Farmers just put on enough you know they’d be safe,” said Norton. “Now prices are a lot higher and it’s worth thinking about, and to me that’s a good thing because it’s better for the soil to balance fertilizer inputs with the soil and the potential yield of the crop.”
    Norton outlined ways to build soil nutrients through other ways than just applying fertilizer, but he said soil testing is the keystone of doing anything different with fertility on crops.
    “Wyoming has these irrigated basins that are really where the most important and high value cropland agriculture is concentrated, and that’s where it’s important to think about what’s unique about these soils and what are the ways to manage them correctly to optimize inputs and production,” explained Norton.
    “On irrigated crops, water management is a huge factor in fertility management,” he said. “The high costs of fertilizers and fuels and labor are causing producers to take a closer look at their practices to reduce costs and increase profit.”
    “As I look at common practices, and standard operating procedures on Wyoming’s croplands, in most cases there’s some part of an operation where they could use a lot less fertilizer without reducing productivity and especially without hurting profit,” said Norton. “But that requires better knowledge of nutrient cycle processes and crop needs and that all starts with annual soil testing, which can really pay for itself.”
    He said the key is to understand different crops and what they need for nutrition in Wyoming soils. “Farmers need to understand residual soil nutrients – what’s left in the soil the following year. Fertilizer placement can also make some big differences in the efficiency and the use of that fertilizer by crops, and soil organic matter has a huge impact. It’s one of the basic soil properties that’s impacted by management, and in a big way.”
    “A typical soil has a big pool of nutrients in it,” said Norton. “but the actual part of that available to plants is relatively small. These plant-available nutrients are the end products of the decomposition of organic matter.”
    Depending on conditions, as this small part of this big pool becomes available, it also gets taken up back into the bigger pool by roots, plant residues and especially by soil microbes, said Norton. “They’re very competitive for these. It’s a small and transient pool, and that’s the one you often need to boost with fertilizers, especially because we’re farming desert soils in Wyoming.”
    He said even though the soils are irrigated them out, the pool isn’t as big as other parts of the country, particularly for nitrogen and the other nutrients in organic matter. “Our native organic matter contents are really low and the minerals tie up phosphorous and potassium, which tend to be high in our soils but very little is actually available.”
    Soil test-based fertilizer recommendations are based on the yield goal for a particular crop in a particular field. “A good way to calculate that is to take the last five years and aim for 105 percent of that,” stated Norton. “You don’t want to take the highest yield of all time as your yield goal every year because you’ll buy a lot of fertilizer that’s not utilized by the crop.”
    Norton said placement method has a big impact on what will be left in the soil for nutrients the next year, as well as what the previous crop was. “If it was a legume, it might have left more nitrogen than you need, and it also depends on how the crop did. If it got hailed out all your fertilizer might still be in the soil. And if your yield was very low the crop didn’t use all the nutrients because you were fertilizing for a particular yield.”
    For more information on soil testing and how it can affect your fertilizer application, contact Jay Norton at 307-766-5082 or This email address is being protected from spambots. You need JavaScript enabled to view it.. Christy Hemken is assistant editor of the Wyoming Livestock Roundup and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

In any cow/calf operation, a rancher’s primary goal is to get a live calf on the ground, preferably towards the beginning of the calving season. When this doesn’t happen, it may be time to pinpoint the problem, according to Richard Randle, beef extension veterinarian with the University of Nebraska. 

“The primary goal in any cow/calf operation is to get a high number of cows pregnant in a timely manner,” Randle said. 

If producers are starting to see too many open cows, late calving cows and a strung out breeding season without an explanation, they may need to study their breeding program more closely to determine the cause. 

Diagnosing the problem

“The producer may also need to work with a veterinarian to determine what is happening,” Randle continued. 

They will need to provide the veterinarian with information about their vaccination history, any herd additions or co-mingling, nutrition and feeding history, heifer development, the first calf heifer program, bull battery and the environment. 

“I like to ask ranchers lots of questions to gather data to start looking at these problems,” he explained. “Even if a producer has this information, troubleshooting reproductive issues can still be difficult.”

“Many times reproductive problems aren’t recognized until after the fact. It could be weeks or months between the inciting cause and recognition of the problem,” he explained. “At that point, diagnostic tests aren’t very helpful, and you usually can’t alter the course of the problem.” 

The best samples to diagnose the problem are aborted fetuses or placentas. 

“The problem is they are hard to find when they are fresh,” he said. “You usually find them when they are days to weeks old, but you really need to find them when they are only hours old. It is hard to find samples that are meaningful.”

He also cautioned producers that just because an organism is identified, doesn’t necessarily mean it’s the cause of the problem. 

Randle likes to work with paired samples. 

“I like to sample a number of affected cattle today and again in four weeks. Then, I look at if there is a change. It helps to have many samples to work with instead of just one or two,” he said. 

“What makes this difficult is this all costs money and takes time,” he continued. “But, our goal is to try and obtain answers to help the rancher move forward. Unfortunately, only 10 to 30 percent of the cases involving reproductive issues ever have a confirmed cause or causes.”

Big picture

When diagnosing reproductive issues, Randle said it is important to look at the big picture to find a starting point. 

One area of particular concern is a producer’s mineral and vitamin program. 

“We recognize there is a role of many vitamins and minerals in reproductive management,” he said. 

The most important vitamins and minerals to look at are copper, selenium, cobalt, manganese, iodine, phosphorus, molybdenum and vitamin E. 

Vitamins and minerals can have complex interactions with one another. 

“If there was a feeding problem during the winter and we are trying to diagnose a reproductive problem in the spring, the feed is gone so there is no way to evaluate whether or not it was the problem,” he explained. “If there was a copper problem, for instance, and you corrected it 45 days later, there is no residual effect to know if it was the cause.”

Protecting your herd

“Based on all this information, how do you protect yourself to reduce risk and minimize impact of a potential reproductive issue?” Randle asked. 

Ranchers should develop a sound reproductive management strategy, which includes maintaining a proper health program, performing a breeding soundness exam on all bulls, avoiding co-mingling, maintaining a short breeding season, performing a timely pregnancy diagnosis to determine something that could be a problem early on, maintaining and managing the cattle by breeding groups and maintaining good records.

Breeding soundness

All bulls that will be used during the breeding season need to undergo a breeding soundness exam at least 60 days prior to the breeding season. 

“If one bull is bad, it will give a producer an opportunity to either recheck the bull or find another bull so he doesn’t run short on bull power during the breeding season,” Randle explained. “Studies indicate as many as 15 to 20 percent of bulls tested for breeding soundness do not meet the minimum requirements. When observed for mating ability, an additional percentage fails to perform at expected levels for good reproductive performance.”

During a breeding soundness exam, bulls are checked for testicle size, mobility of sperm and the testicles are palpated and checked for any damage. 

“It is important that a breeding soundness exam is performed every year on the bulls,” Randle pointed out. “Things can change.”

Avoid co-mingling

Another factor in maintaining a good reproductive herd is to avoid co-mingling of animals. It is best to maintain a closed herd, Randle said, but if animals are brought into the herd, make sure they come from reputable sources. 

“It is best to bring in virgin animals,” he said.

Producers also need to maintain good fences for their cattle and keep breeding pastures away from periphery. 

“If cattle are co-mingled with a neighbor, remove them promptly and know where those animals go,” he said.

Preg check early

Randle also urged producers to pregnancy check the cows as early as possible when more options are available. 

Ranchers should also stage pregnancies. For instance, know how many cows became pregnant in the first 20 days, second 20 days, third 20 days, fourth 20 days and the number of opens. This will help determine early embryonic losses and pinpoint any other reproductive issues, like disease or bull injuries, which could lead to later calving or open cows, he said. 

Randle also felt it is important for producers to manage their cows by breeding groups, rather than an overall unit. 

For instance, an operation may have a 90 percent overall pregnancy rate, but by looking at individual pastures, a producer may find four pastures with over a 90 percent conception rate, while a fifth pasture may only have a 65 percent conception rate. 

A producer should look more closely at the pasture with only a 65 percent pregnancy rate to determine what the problem is. 

“If you find the problem early, you might also be able to contain it before it spreads to all the herd,” Randle said. 

Herd immunity

 

“Producers should develop a herd that is highly protected against anything that might come in,” Richard Randle, beef extension veterinarian with the University of Nebraska, said. “It is important for producers to use the appropriate products at the appropriate times in order to achieve this.”

A sound vaccination program also needs to be developed focusing on the young stock - replacement heifers and younga bulls. 

“Compare your replacement heifers and young bulls to children. When children start school, they have health records to show they have had the appropriate vaccinations to move into the main population. Producers need to do the same with their replacement heifers and young bulls,” Randle explained.

For replacement heifers, producers should also focus on vaccinating against reproductive diseases like the viral diseases IBR and BVD and bacterial diseases like Leptospirosis and Vibriosis. 

“Replacement animals should receive two to three vaccinations against reproductive diseases from weaning to breeding,” he continued. “A similar vaccination program should be in place for young bulls.”

For adult animals, Randle also recommends producers focus on the same four reproductive diseases – IBR, BVD, Leptospirosis and Vibriosis. 

Cattle should be vaccinated for all four diseases prior to breeding and for Leptospirosis during mid-pregnancy. 

Gayle Smith is a correspondent for the Wyoming Livestock Roundup. Send comments on this article to roundup@wylr.net.

Lingle – Cutting overhead costs can be a strategic way to increase profitability of an operation. Overhead or fixed costs are those costs incurred whether a producer owns one cow or a thousand. During the High Plains Ranch Practicum in Lingle, producers learned what overhead costs are and ways to reduce these costs to increase ranch profitability.
    According to University of Wyoming Extension Educator Dallas Mount, overhead costs can consist of machinery, buildings, depreciation and maintenance. Depending on the operation, land and labor can also be considered as a fixed cost, he said.
Cost of labor
    Labor can be one of the biggest hidden costs in an operation. In addition to a salary, many ranch hands also receive housing, benefits, beef and a vehicle. When they start the job, many times, they bring a few horses, which have feed costs that are paid for by the ranch. In addition, the ranch also pays payroll taxes for the employee, maintenance costs of the house he lives in and utilities.
    “Although the employee may be paid $24,000, the ranch may actually pay nearly $65,000 to $70,000 for that employee,” according to Aaron Berger, University of Nebraska Extension educator. “It is tough to make a 500 cow operation support two families these days with those kinds of costs.”
    Variable or direct costs are items like feed, mineral, vaccines and medicines that change with the number of cattle. Mount said producers need to determine how many cattle they have to sell to meet the direct and overhead costs to establish a break-even point. Anything above the break-even point is considered profit.
    “There are three ways to make money in a cattle operation,” Mount said. “Reduce overhead, reduce direct costs per unit, or increase return per unit or sell more units. The general way to make more money in the business is to decrease the overhead costs.”
Production costs
    During the Ranch Practicum, participants will learn how to determine their unit cost of production by figuring each segment of their ranch enterprise as a separate entity, such as cow/calf, yearling, hay and land.
    “When figuring a unit cost of production, count everything once and nothing twice,” Mount advised producers.
    In other words, costs need to be charged to only the segment of the business that utilizes those services. For example, a tractor may be used in the summer for haying and during the winter running the feeding equipment. If the tractor is used 50 percent of the time for the haying business, and 50 percent of the time for the cow/calf business, then each business is charged 50 percent of the tractor expense. On the other hand, if a producer decides to eliminate his haying business, then all the costs for the tractor would transfer to the cow/calf business where the tractor is then used 100 percent of the time.
    Mount also explained how to sell products raised on the ranch from one entity to another. For instance, if a producer raises hay and plans to feed everything he produces to his cattle, he would sell the hay to the cow/calf entity at market value. Mount feels it is important to use fair market value because if that rancher didn’t have a cow/calf enterprise and sold that hay to another producer, fair market value is what the hay would be worth.
    “The cow/calf operation needs to be charged for every AUM (animal unit month) they ingest,” Mount explained. “The cows need to be charged the same as what the producer would charge to run someone else’s cows.”
A look at land
    Many producers fail to understand how land can be a separate entity within a ranching operation. Mount used an example of the hay business to help producers understand its value.
    If a producer sold his forage standing in the field before it was swathed, it would have value. The hay business purchases the forage standing in the field from the land business. One of the entities, either the hay or land entity, must also pay for irrigating costs and fertilizer, he added. It is similar for a cow/calf entity, which must pay the land business fair market value for the grazing AUMs on the ranch.
    Figuring unit cost of production is a method for producers to break down each entity on their operation and analyze which ones are making money and what could be done to improve the profitability of each entity.
    “In today’s world, it is important to know your costs,” Berger said.
Leasing land
    Mount also advised producers to carefully consider leasing arrangements for grazing, especially if there is a drought or other natural occurrence.
    “Generally, flat cash leases are worth less than a month-to-month deal because you, as the lessee, are assuming more risk,” he explained.
    As an example, a rancher decides to cash lease his entire ranch for $100,000 a year. If someone leases that land for cattle and hay, and there is a serious drought like this year, that producer may only get 10 percent of normal production, but will still have to pay $100,000 for the lease.
    On the other hand, a producer that leases land month-to-month, may have to pay more for the lease, but if there is a drought or fire, he can take his cattle out of that pasture and is only responsible for paying for the lease that amount of time his cattle are utilizing the pasture.
    Gayle Smith is a correspondent for the Wyoming Livestock Roundup. Send comments on this article to This email address is being protected from spambots. You need JavaScript enabled to view it..

Casper – With the cattle industry in a buzz over expansion prospects, CattleFax Markets Analyst Troy Applehans said the cow/calf sector is expected to be extremely profitable moving into the next couple of years.

“Talk of expansion is a double-edged sword,” Applehans said. “If we expand too fast, prices will go down. If we don’t expand fast enough, we run the risk of not being able to fill orders for customers, so they go to alternate proteins.”

Applehans further predicted that, even if the herd expands to 30 or 31 million cows, cow/calf producers will still stay profitable. 

“If we increase demand one to two percent per year, we can increase the number of head and stay extremely profitable,” he explained. “We want more dollars, and $200 to $250 per head is an extremely respectable margin.”

Demand

On Jan. 1 of this year, Applehans noted that the all fresh retail price for beef sat at $5.36. Coupled with a six to seven percent increase in demand, he said the prediction is unprecedented.

“Demand strength has influenced the market to stay strong on fed cattle prices, feeder cattle prices and calf prices,” he explained. “It is a very rare occurrence that all three of these segments are profitable.”

More typically, the cow/calf producers, said Applehans, are in the driver’s seat, leveraging the rest of the industry.

Margins

“Stocker operators have the chance to be profitable, but their margins could be thinner because of the price of calves,” he continued. “The feedyard sector is going to be as thin a margin business as it has been.”

“There is only so much margin per animal,” Applehans said. “There are five segments – the cow/calf, stocker, feedyard, packer and retailer – all trying to get as much of the margin per animals as they can.”

When looking at which segment has the most leverage in the industry, he explained that cow/calf producers, which produce the base product, calves, are best poised in the industry.

Leverage

As supply continues to dwindle, cow/calf producers are best poised for continued profit. 

Jan. 1 U.S. feeder cattle and calf supply was down 700,000 head, and April 1 numbers show a deficit of 975,000 head.

“This means we are utilizing a smaller supply at a quicker rate,” Applehans said. “We can’t do that forever. We are pulling the smaller supply into feed yards.”

A continuing reduction in cost of gain has resulted  in more desire by feedyards to purchase calves, which leads to the question of whether feedyard supply will last into the summer and fall.

“Feedyards will bid all the profits out of cattle, so they can’t bridge a breakeven,” he commented. “That is good for cow/calf and stocker operators, and it shows the leverage they have in the market.”

Seasonality of markets

Though continued high prices are likely, Applehans said that risk management is still a necessary part of cattle operations. 

“Risk is a scary word for cow/calf producers, but we are managing risk in an era of record-high prices and volatility,” he explained. “Some of our risk management is just in knowing the seasonality of markets.”

When looking at market fluctuation through the year, Applehans noted that the trend is consistent from year to year. 

“If we know about the seasonality of our markets, we can get out of a lot of jams because they work 80 percent of the time,” he said. 

Timing

“When we look at the October to November timeframe, that is when most calves are sold,” he said. “We would expect prices to be lowest at that time. Does it make any sense to sell them? We don’t have to sell calves just because they are moving off summer pasture.”

Rather, Applehans urged producers to consider selling cattle during summer video sales for October delivery to garner additional value.

“Eight of 10 years, cattle sold during the summer months for October delivery were higher priced than in the spot market in October,” he commented. 

Profit potential

Applehans marked a 13 percent difference between market highs and lows through the year.

With current prices, he said, “We could have low $130s. We don’t feel like we will have to get that low, and we have very good support of the $135 to $136 area.”

“I believe that feeder cattle futures are going to go to $200,” Applehans predicted. 

With bearish sentiment toward corn prices, coupled with competition in the marketplace, he noted that 750-pound steers will likely bring the high prices. 

“Unless something happens drastically, I’m pretty sure the 750-pound steers will bring two bucks,” he commented.

Saige Albert is managing editor of the Wyoming Livestock Roundup and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..


SIDEBAR 1
Breakeven price

CattleFax Markets Analyst Troy Applehans also emphasized the importance of knowing the breakeven price.

“A breakeven can be a difficult number for cow/calf producers to come up with,” he said. “It isn’t something we can spend 10 minutes on to generate a number. It takes a process, and we have to have records.”

Without breakeven data, it is harder to decide what prices are acceptable to sell. 

“When we look at cow/calf returns from 1980 to 2000, we notice that basically, this is a breakeven business,” Applehans explained. “Since 2000, it has been much more prolific for profitability. We look at low-return producers, though, and they very rarely made money during that entire span. The high-return producer very rarely lost anything.”

The difference between the two, Applehans continued, is that high-return producers don’t cheat when it comes to nutrition, animal health or genetics.


SIDEBAR 2:
Cattle numbers

U.S. beef cow slaughter is down by 105,000 head, or 9.6 percent, year to date, and CattleFax Markets Analyst Troy Applehans said, “We expected beef cows to be down 250,000 to 300,000 head. Heifer slaughter is indicative of people keeping back more replacements and trying to expand or stabilize the herd.”

Heifer retention is projected to cause a drop of 600,000 head for 2014 and an additional 100,000 head above that in 2015. 

The result is the available 65 to 67 pounds of beef per capita dropping to only 54 pounds of beef available per person.

“This is a huge number in terms of the reduction that we’ve seen, Applehans noted. “There has been question of if we are going to price ourselves out of the market.”

However, the broiler and pork industries have facilitated continued market access with their similar increasing prices. 

“Our export market is also going to remain strong and important,” he continued. “We have less supply, so we need to increase the price in ratio to the smaller supply.”


 

Cheyenne – With economic uncertainty, food insecurity and new technology on the horizon, managing risk to remain in production is crucial, according to Executive Director of the Wyoming Ag Business Association and Wyoming Wheat Marketing Commission Keith Kennedy.
    “Risk is thinking about change and the possibility or probability of a bad outcome,” he said. “Risk management is about choosing among alternatives and what we do with management practices.”
    Agriculture risk, production risk, market risks, human risk and legal risk are factors that ag producers encounter daily, and at the Wyoming Farm Bureau legislative meeting on Feb. 28, Kennedy noted that there are opportunities to manage risk to avoid devastation, while still reaping rewards.
Transfer the risks
    “Producers can transfer risk with hedging, futures, options or contracting, for example,” he explained. “The basic idea is to take the valleys out of market fluctuations and set a floor under what you get.”
    Because of the market fluctuation, Kennedy mentioned that averages end up being about the same from year to year, but transferring risk protects producers from terrible losses. An important note, however, is that some loss may still be incurred.
    “It doesn’t protect from all the loss, and we give up some of the topside,” he said, “but we protect the places where we are most at risk, or where there are huge dips.”
Protection from the worst
    Insurance options are available to help producers ensure that a particularly bad year doesn’t break the operation, but Kennedy also cautioned against going too far. Crop, livestock and pasture insurance programs are all available to provide protection against risk.
    “If you’ve got a sure thing, there is no profit left and no upside anymore,” he explained. “Beyond 85 to 90 percent insurance coverage, we have covered our risks so well that our return is only what we get back from the policy.”
    Eliminating risk by over-insuring erases the possibility for larger profits, he said, and there are other ways to manage risk.
Diversification
    Diversifying an operation can provide multiple sources of income to mitigate devastating losses in a specific industry segment, but cautions are to be had in diversification, as well.
    “Don’t put all your eggs in one basket,” said Kennedy, but, at the same time, cautioned, “If you’re getting into something new, take baby steps.”
    He continued that jumping in to a new technology or an emerging market may prove to be unsuccessful, noting that often first-generation technology is slightly flawed, or emerging markets may fizzle.
    Producers are already aware of their options to diversify, and many take advantage of it, said Kennedy, encouraging that producers should also look into synthetic diversification.
    “The price of corn matters when you are in the cattle business, so think about, for example, setting a call on corn,” suggested Kennedy. “If the price of corn goes up, you can recapture some value, and it will show up.”
    “Even if you can’t grow corn or diversify in your own operation, having the right to some corn at a price where you make money on your feeder cattle will offset what you lose if the price of corn goes through the roof,” he continued.
Playing favorites
    In operations that are diversified, Kennedy noted that analyzing different aspects of an operation can identify areas for improvement.
    “We tend to do some things because we have to, and others because we enjoy them,” he said. “It’s easy to play favorites.”
    However, in paying more attention to one aspect of an operation, other areas will suffer and more risk will be incurred.
    Thinking about risk management strategies and goals is important for producers, and Kennedy mentioned, “Think about problems versus predicaments. Problems have a range of solutions, but predicaments have outcomes.”
    By solving problems and protecting an operation against predicaments, risk can be effectively managed and profits can be made.
    Saige Albert is editor of the Wyoming Livestock Roundup and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..