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Operating Costs

Matching the cow to the environment can add some dollars to the rancher’s pocket, according to University of Nebraska – Lincoln Beef Geneticist Matt Spangler. 

He recently presented a webinar on genetic considerations for the beef cowherd.

Ideal cows

Ranchers need to select cows that are fertile at a young age, have a short post-partum interval and can maximize production within a year, Spangler said. They also need to have maternal calving ease and the ability to adapt to stress from their production environment, like changes in temperature and moisture. 

He added that optimal milk production and docility are also important, as well as a cow that is an efficient grazer and can maintain her body condition. 

Spangler noted that most ranchers want cows that are docile, but they should also make sure those cows are protective and aggressive enough to care for their calf.

Efficiency

Producers should look at several factors when defining the efficiency of their cowherd. 

Factors like pounds of calf weaned per cow exposed, conception and calving rate, calf survival, lactation and growth to weaning are all important, he said. 

Energy consumed calf value per $100 of input cost is also important, although it is a harder value for producers to understand and determine. 

“Energy consumed is not easy to collect, so we don’t always do the best job determining that,” Spangler said.

“Robert Totusek of Oklahoma State University probably said it best,” Spangler continued. “Anytime the matter of cow efficiency becomes overwhelmingly complex, we should revert to the basics. Profit equals weaning weight multiplied by percentage calf crop multiplied by the price per pound, then multiplied by the number of cows minus the annual cost of cow-calf operation.”

“Really, what it comes down to at the end of the day is that we want to make money,” Spangler said. “To do that, we need to accurately determine our cow costs and become more efficient.” 

To do this, producers need to determine ways to increase the number of progeny per dam through either selection, heterosis from crossbreeding or better management. 

“The problem is we do a very poor job of measuring and valuing input,” he said. 

Energy requirements

Referring to a chart comparing the energy requirements of different food animals, Spangler showed a lot of the energy utilized by the cow is maintenance. 

“If we can improve the efficiency of maintenance, we can make a big improvement in our cow-herd,” he explained. 

However, he was careful to note that efficiency improvements don’t mean growth in cows. 

“That is not the target. We are not trying to grow our mature cows,” he said. “The target is maintenance requirements and efficiency.”

High maintenance cows with high visceral organ weight makes those cows have a higher maintenance requirement even when they’re dry. 

Fitting the environment

Selecting cows to fit the environment can be tricky, Spangler said. 

“Milk production level is important to how the cow will fit into her production environment. If ranchers live in a harsher environment, they should take caution when selecting bulls to use and keep milk production EPDs in an optimum window. What is hard to rationalize is the bull that works best for an operation may be below average in milk production.”

In areas where feed availability is high and stress is low, cows that are biologically moderate to heavier milking and moderate to large in mature size may work. 

“Higher output in those types of environments can be successful in terms of rebreeding and storing energy,” he said. 

However, in environments similar to Wyoming and Nebraska, these cows may need supplement, which may not make the most economical sense, he noted.

If feed availability is low and stress is high, producers should be more conservative. Cows that are more moderate in size with low to moderate milking ability may work better in this type of environment. 

Producing replacements

Spangler questioned if producing replacement heifers is economical in some situations. 

“By producing our own replacement heifers, are we producing a calf that is significantly different than the terminal calves we would like to produce?” he asked. “There is not a breed out there that does everything the best. That is why it is important to use complementary breeds to crossbreed.”

Spangler encouraged producers to focus on economically relevant traits, which are the traits that provide the best revenue source or input cost to the operation. 

“What is important is to understand are the differences between sources of information. EPDs and economic index values are more valuable than actual records or ratios,” he explained. “EPDs are seven to nine times more effective in generating a response to selection than actual measurements.” 

Spangler continued, “It can make multiple trait selection easier, but producers should use an index that matches breeding objectives.”

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


SIDEBAR 1:
Efficiency calculation

University of Nebraska – Lincoln Beef Geneticist Matt Spangler said that Robert Totusek’s formula for calculating cow efficiency is very useful and one of the more basic formulas for the calculation. 

Totusek, a professor at Oklahoma State University, uses the following calculation: 

Profit = Weaning Weight x Percentage Calf Crop x Price/Pound x Number of Cows – Annual Cost


SIDEBAR 2:
Maintenance requirements

What is the difference between high maintenance and low maintenance cows asked Univeristy of Nebraska – Lincoln Beef Geneticist Matt Spangler. The numerous differences between high and low maintenance cows impact profit.

Some of the differences can be seen in the table below:

High Maintenance Cows

Low Maintenance Cows

High Milk Production

Low Milk Production

High Visceral Organ Weight

Low Visceral Organ Weight

High Body Lean Mass

Low Body Lean Mass

Low Body Fat Mass

High Body Fat Mass

High Output

Low Output

High Input

Low Input


 

Casper — Although signs posting fuel prices out by the highway no longer read four dollars a gallon for diesel, fuel use reduction remains a strategy to reduce input costs on a ranch or farm operation.
    In December 2008 University of Wyoming Extension Beef Specialist Steve Paisley gave a presentation for University of Nevada Livestock Extension Specialist Ron Torrell, in which Torrell had run a series of budgets and spread sheets to decide whether he should purchase a smaller commuter truck to use in place of his four-door diesel when driving back and forth to his partner’s place 75 miles away.
    Torrell’s truck is a 2001 four-door pickup valued at $20,000. Based on that and four-dollar diesel, he determined it costs him 67 cents per mile, or $100 per round trip to go work cattle with his partner. “Of that $100, $40 was for fuel, $23 for depreciation, $19 for repairs and maintenance, $10 in interest and $5 in insurance and license fees,” said Paisley. “That’s what he thinks it costs him to keep that pickup and run it that 150-mile round trip.”
    Torrell used a spreadsheet from Texas A&M to set a framework on whether or not it would be profitable to park his big truck for a part of his mileage. Of the fallen gas prices, Paisley joked, “If diesel goes back up, the take home message is if you want to reduce your fuel cost, just wait a week. But some of his conclusions are interesting in that they aren’t what I would have thought initially.”
    Torrell figured that variable costs on the truck came out to 42 cents per mile, or $8,300 per year. Tires came out at three cents per mile, repair and maintenance to 12.5 cents per mile. Fixed costs were .5 cents per mile on license and tax, three cents per mile for insurance, 6.5 cents on interest and 15 cents on depreciation per mile.
    With the purchase of the smaller truck for $6,000 Torrell could save the four-door truck for pulling the trailer. “Whether he drives it or not the annual fixed costs stay the same at about $5,000,” said Paisley.
    Torrell also ran the spreadsheet with different miles driven per year and their affect on cost per mile. “It costs him 67 cents per mile driving 20,000 miles per year, going up to 25,000 miles the cost drops to 62 cents per mile. Dropping down to 10,000 miles per year brings the cost per mile up to 90 cents,” said Paisley. “You’re spreading the fixed costs over fewer miles and the operating costs per mile go up if we’re driving the vehicle less.”
    Next Paisley outlined the influence of miles per gallon on costs per mile based on four-dollar diesel. “If we’re getting 15 miles per gallon it’s 67 cents per mile, at 20 miles per gallon that decreases to 60 cents per mile. Ten miles per gallon, like in a loaded trailer situation, increases costs to 80 cents per mile,” he explained.
    “The price of fuel doesn’t affect the total cost as much as I would have originally thought,” said Paisley of other variables affecting total cost per mile. “That was the interesting thing to me. We’ve got so much built into fixed and overall costs on that vehicle that it’s not as influenced by fuel prices as you might think.”
    “So was the small Toyota truck worth buying for $6,000?” asked Paisley. “Even if you drive the four-door pickup only 5,000 miles per year you’ve still got the $20,000 purchase price, and fixed costs stay the same and the dollars per mile jump up dramatically at only 5,000 miles per year to $1.36 per mile for that vehicle. We also now own, insure and license two vehicles.”
    “The economy truck, which would be driven 15,000 miles per year, gets 26 miles per gallon. The total cost per mile on that truck is 34 cents, which is dramatically less than the four-door diesel, but we still own it and we need both of them around,” said Paisley.
    Following the spreadsheets through to the end costs brought Torrell to his decision point. “The first total for the four-door truck cost about $13,000 per year to run. Based on the fixed costs for both vehicles and the improved gas mileage, the annual price was driven down to $11,900, or about $1,400 in savings per year,” said Paisley. “There are some cost savings associated with having the second vehicle, but not as much as I would have thought. If you could buy that same smaller vehicle for less than $6,000, that would be another decision point to look at.”
    Paisley called the $1,400 in savings an opportunity cost. “There’s a convenience factor. If you’ve got one vehicle with your toolbox, winter clothes, towrope, jumper cables – are you willing to buy another vehicle and transfer that back and forth or insure another vehicle? There’s a decision to be made there. In Ron’s case he decided he liked to drive the four-door vehicle and he’d do some other things to reduce cost and get at the $122 per month in other economies.”
    To reduce costs in other ways Torrell weighed his trailer and the equipment he keeps inside and replaced some with lighter versions. He also now keeps a scoop shovel in the trailer to remove 200 or 300 pounds of manure from the trailer after he gets done hauling cattle.
    Paisley said the data shows that when you let a vehicle idle for 30 seconds it uses as much fuel to equal starting the vehicle. “If you’re going to idle more than 30 seconds just shut it off and you’ll save some gas rather than letting it idle 10 to 15 minutes,” he said.
    Keeping RPM’s under 2,000 also saves fuel, according to research. “Ron drove the three-hour trip to Reno at 60 miles per hour, keeping it under 2,000 and got 19 miles per gallon, which was a 20 percent improvement. The question is if that’s worth doing all the time,” said Paisley.
    Torrell also took a few other measures like adding extra mirrors to his trailer to reduce idle time when hooking it up and he now back hauls firewood for his cow camp when he drives the 150-mile round trip to work cattle.
    Paisley said other options are moving from caking every day to three or even two days a week. “It isn’t going to impact performance any by doing it two or three days a week, from a nutrition standpoint,” he said.
    He said to also consider alternative ways of delivering mineral, like using a four-wheeler instead of a truck, and putting pressure-release vacuum caps on fuel tanks and keeping them painted a light color and shaded.
    To obtain the spreadsheets used in the presentation contact Steve Paisley at 307-760-1561 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..

Casper – “Determining the value of a cow can help producers make better decisions because there might be situations where we are over or under value what an animal is worth,” noted Research Scientist Brian Lee, with the Agricultural Economics Department at the University of Wyoming (UW).

Lee spoke at the Progressive Rancher Forum during the Wyoming Stock Growers Association Winter Roundup on Nov. 30 in Casper, sharing an online tool developed at UW to help producers determine the value of a cow.

The tool uses a number of different factors to calculate the net present value of an animal, including the number of calves produced, the sale price of those calves, the cull price of the cow at the end of her useful life and the costs associated with feeding and maintaining the cow and her calves before they are sold.

Net present value

“The value of the animal depends on all future returns of that animal,” Lee explained.

To use the tool, the producer enters data, such as estimated costs and market prices, into a table to determine the net present value of a cow.

“Future dollars have different value than current dollars,” he said. “Net present value accounts for the time value of money, as well as the size of the stream of cash flow over the life of the investment, and in this case, that’s a cow.”

Net present value can also be used to determine the value of other investments, such as equipment or buildings. A positive net present value indicates that the investment is worthwhile.

Discount rate

Another factor the tool considers is the discount rate of the investment.

“The discount rate can be described as many things. It is the opportunity cost of capitol or the minimum rate of return required to justify the investment,” Lee commented.

The discount rate can be determined by comparing returns from a similar investment of equal risk. For example, if a producer is buying replacement heifers, the discount rate could be set equal to an alternative investment, such as a bank account that builds interest.

“If there is an investment that we can put money into and make an equal gain, that is what our discount rate should be,” he stated.

The higher the discount rate, the lower the net present value. The discount rate can also be described as a measure of risk for the investment.

Data input

Producers can adjust the discount rate when they use the online tool, along with the other predicted costs and market prices. Results are then calculated by year, providing a table of values based on productive years from the cow. A cow that produces three calves has a different net present value than a cow that produces seven calves.

“It goes year by year, so if we hold out a cow for more years, she is worth a little bit more in dollars because of the additional calves raised. The idea is, we are able to see in current-day dollars what the animal is worth,” Lee explained.

By using the tool, Lee hopes producers will be able to make better-informed decisions about buying replacement heifers or other management.

The tool can be found at uwyoextension.org/ranchtools/cow-valuation-tool. Other economic tools can also be found on the UW ranch tools website.

Natasha Wheeler is editor of the Wyoming Livestock Roundup and can be contacted at This email address is being protected from spambots. You need JavaScript enabled to view it..

Brighton, Colo. — With all the talk of how farmers and ranchers will increase their output to feed nearly 9 billion people by 2050, the director of sustainability research for the National Cattlemen’s Beef Association (NCBA) is confident beef will be part of the solution. 

“Beef will be a part of feeding the world,” Kim Stackhouse-Lawson stated. “In third world countries, as income increases 10 percent, red meat consumption increases nine percent. We will be in business in 2050.”

“We just may not keep as much of it here, domestically. We may ship it internationally, where people’s consumption of red meat will go up,” she confidently stated.

Stackhouse-Lawson talked to beef producers about sustainable beef and how it fits into meeting future demands during Beef Day at the Colorado Farm Show. 

Greenhouse gas

Some time ago, the European Union (EU) released a report discussing the causes of greenhouse gases and how enough food could be produced to meet this global demand. 

In the U.S., transportation is responsible for about 28 percent of greenhouse gases, while livestock accounts for three percent. 

Stackhouse-Lawson said EU’s objective was not to create a meatless Monday, but they were the first to recognize how much food will need to be produced to feed 9 billion people by 2050. 

“They were the very first to say we would need 70 percent more food than what we produce now,” she explained. “They also recognized that confinement and efficient agriculture would be the only way we would be able to accomplish this.”

The bigger issue

Since 2006, sustainability has become a bigger issue than greenhouse gases. 

In fact, greenhouse gases don’t even rank in the top 10 in sustainable perceptions, Stackhouse-Lawson commented. 

“We consider beef sustainability to be improvement over time. Sustainability is using our core resources to produce more because we have to feed a growing world,” she said.

“A zero impact is not possible,” she continued. “The food we eat, the clothes we wear, the car we drive and even the house we live in all cause an impact. Our goal needs to be to minimize that impact.”

“In agriculture, we don’t have all the resources in the world, and those we do have our dwindling, so we need to be thoughtful and scientific,” she said. “If we reduce an impact in one area, we need to make sure it doesn’t cause an impact in another area.”

Improving

Over the last six years, the beef industry has improved its sustainability by five percent. 

Stackhouse-Lawson said if only environmental and social aspects are focused on, the industry actually improved seven percent. 

“We got there through basic innovations including improvements in crop yield, improvements in machinery and irrigation technology, manure management, precision farming and animal performance,” she explained. 

Meat packers have accomplished a tremendous amount of work during the last five years with the advent of capturing biogas, which powers 60 percent of their energy consumption. 

Another area of improvement is right size packaging, which Stackhouse-Lawson says consumers will see even more of in the future. 

“Some ground beef is being sold in one pound packages that are vacuum sealed. By using the right size packaging, they are utilizing two times less plastic, while increasing the shelf life of the ground beef,” she said. 

Other companies are following suit. Stackhouse-Lawson said the company that makes Capri Sun also went to right size packaging, as have some potato chip companies. 

“Plastic is expensive,” she stated, “so everyone is starting to look at right size packaging.”

Feeding the world

As the U.S. looks at what it can do to help feed the world, Stackhouse-Lawson said a big issue is food waste. 

“The average American family wastes 40 percent of their food,” she stated. 

The average cost of that food waste is $2,500 a year. 

“If we could reduce beef waste by half, we could improve our sustainability by another 10 percent,” she said. 

The biggest culprit is the millennial generation, who are 18 to 34 years old. On average, they shop only once every three weeks, don’t know how to cook and most of them have small children, Stackhouse-Lawson said.

This wasted food creates additional environmental concerns once it’s disposed of in the landfills, Stackhouse-Lawson said. It causes pollution and can deteriorate water quality, she noted. 

“So stop throwing away food,” she said.

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..

The Kansas Farm Management Association (KFMA), in conjunction with Kansas State University, has been involved in farm-level decisions and record keeping for over 80 years. They publish annual reports based on actual producer records, which can be useful in analyzing the variation in how farms respond to changes in both weather and markets. 

Unfortunately, Wyoming does not have this detailed data, so we cannot perform a similar analysis for our state.  However, the trends in Kansas appear to be similar to anecdotal evidence I have seen across our state.

KFMA publishes a document comparing the top, middle, and bottom-third producers in terms of profitably by enterprise. I’ll focus this report on the comparison of cow/calf producers that market calves less than 750 pounds.  

In general, it is interesting to note that, over the last 40 years, returns over variable costs range from negative $76.40 to $589.50 per cow, with an average return over variable cost of $78.01 per cow per year. However, when accounting for total costs, including unpaid family labor, real estate taxes, and depreciation, the average returns are much lower.  Returns over total costs are negative $85.72 per cow on average, and have ranged from negative $286.71 to $233.35 over the last 40 years. 

There are farms, however, that have shown returns over total cost to be much higher than average over that period. In fact, KFMA records show that variation across farms in a given years is larger than variation in average annual returns over the 40 years. There are farms that make money in most years, and farms that lose money in most years.

From 2010-2014, there are a few characteristics that the higher profit firms tend to share.

First, they tend to be slightly larger and sell slightly heavier calves. The data implies some economies of scale for ranches but only up to about 550 cows. Farms larger than that do not realize additional economies of scale, as they tend to need larger equipment and more fencing, which negates some of the benefits from being able to spread fixed costs over larger herd sizes. 

Another interesting comparison is that high-profit farms tend to receive better prices, implying some level of management is likely dedicated to marketing. 

The combination of better prices and heavier weaning weights resulted in high profit farms receiving roughly 16 percent more revenue on a per-cow basis than their lower profit counterparts. 

Higher profit farms also tend to have lower costs than the lower profit firms, with total costs being roughly 24 percent lower than the low-profit firms.  The higher profit firms from 2010-14 did spend more on pasture or grazed feeds compared to the other firms, but were able to save money on fed feeds.

It is important to note that these results tend to change as both weather and market conditions change. 

For example, in 2015 in northwest Kansas, the results are somewhat different. The highest profit producers still received much higher revenues per cow, at $1,193 as compared to the middle, and lower-third operations, at $849 and $802, respectively.  This is due to the fact that the higher profit firms had heavier calves that were 582 pounds, and received the highest price per hundredweight seen in the chart below. 

The lowest-third profit producers actually had heavier weights, at 571 pounds, than the middle-third, at 530 pounds, but due to lower prices received, they had the lowest revenue per cow. 

Also of note is that the middle-third profit producers actually had the lowest costs seen in the lefthand column, followed by the high profit farms. The high profit firms spent more on veterinary care and medicine, as well as more time working with animals compared to the middle-third of producers, implying they were more likely to be involved in a pre-conditioning program, partly responsible for the higher prices received. 

The results are that the high-profit farms averaged returns to labor and management of $281.73 per cow, whereas the other two-thirds of producers actually lost money on a per-cow basis last year as seen in the righthand column.

In the meantime, I think there are a few things to think about as we deal with the current market condition. 

Remember, all the farms that are still in business and associated with KFMA have had to deal with years that were unprofitable. Those that are more profitable than others focus on both keeping costs low, as well as ensuring continued production and revenues through proper herd and marketing management. 

During the next few years, keep your sights on the long run and make sound business plans that are able to withstand a few down years. And remember to focus on both sides of profit, revenues and costs. Learning how to better market your animals is just as important as raising them cheaply.