Measuring profitability in cow/calf operations

2009-02-25T00:00:00Z 2011-01-11T20:33:05Z Measuring profitability in cow/calf operationsBy A. DiCostanzo Minnesota Farm Guide
February 25, 2009 12:00 am  • 

University of Minnesota Beef Team

Profitability in cow/calf operations is the result of a combination of economic (calf price and feed and other input costs) and biological (weaning weight and percentage) factors.

Similarly, one could argue that one of these economic factors (price) is not under the control of the rancher or farmer. Also, although input costs (e.g., price of supplements, hay, or fuel) are impacted by factors beyond the reach of the operator, managing them (e.g., inventories, supply, purchase date) is the full responsibility of the cow/calf operator.

Even in high or low price markets, the operator has some control of the price received either by preparing calves for market so they bring top dollar, or by deciding when to market.

This leaves weaning weight and percentage as the two management factors entirely under control of the cow/calf operator. The following discussion will focus on how economic and management factors interact to determine profitability; from these, recommendations are made as to how to measure profitability and focus management on what matters most.

Measuring profitability

Of the two economic factors affecting profitability (input costs and calf prices), calf prices are highly variable and dependent on other economic factors, namely beef supply and demand.

Supply of beef is reflected by prices of fed steers, cull cows, and feeder prices. These in turn are affected by input costs for feeding a calf from weaning to slaughter such as corn grain prices, cattle inventories, and demand for beef.

Demand for beef is, in turn, extremely dependent on economic conditions. On the other hand, corn grain prices are affected by weather, corn use for ethanol production, livestock feeding and exports.

Thus, calf prices are a reflection of several complex economic interactions, but the main indicator of feeder price is actually fed steer price. Many producer-accessed websites and trade publications give timely fed steer price information.

Thus, cow/calf producers are encouraged to keep an eye on fed steer price, especially as it fluctuates several times during the year, and between years.

In addition, and in effort to manage factors affecting profitability, producers should make an effort to keep track of at least out-of-pocket expenses to run their operations. Feed costs comprise the highest proportion of the total costs of running a cow; typically, 60 percent.

Therefore, an effort should be made to at least keep track of feed costs (hay, silage, grain, supplements). For home-raised feeds, a producer should at least consider costs of producing the crop or use the market price for the crop raised.

Beyond this, and under ideal conditions, producers should also keep track of costs associated with breeding and veterinary fees, and machinery purchase and maintenance costs. There are many feed business management associations in our states that would be more than happy to work with producers to keep track of feed and other costs.

Because in most cow/calf operations, cows are managed to produce one live calf yearly, and all expenses incurred to have calves reach weaning age are offset only by the sale of the calf at weaning, weaning weight and calf crop (number of calves alive at weaning) determine the gross income the operation will receive at sale time.

In turn, weaning weight is heavily dependent on the calf's ability to grow (genetics) and nutrition (milk yield and forage availability). Calf crop percentage is dependent on the success of the breeding system (fertility), nutrition of the cow (to successfully breed), and health (prevention of diseases affecting cow fertility or calf health).

These two factors interact to determine the effective weight the producer will bring to the sale barn. Example: if average weaning weights of calves is 550 lb, but only 90 out of 100 cows exposed to the bulls bring a live calf to weaning, the effective weaning weight is 495 lb (550 X 0.90).

Thus, the minimum records to keep for producers to generate effective weaning weights are number of cows exposed to bulls during the breeding season, number of calves alive at weaning, and weaning weight. More detailed records would be needed to correct for sales and purchases of cows entering or leaving the herd between breeding and weaning.

Equivalent values of

profit determinants

Once the effort is made to measure costs, weaning weight and calf crop, it is interesting to remember some interactions between profit determinants generated a few years back. These values can be used to evaluate management alternatives that permit profitability when changes in value of some of the other factors occur. The process to reach these equivalencies is long and tedious; thus, it will not be demonstrated herein.

Calf Weaning Annual Calf

Crop Weight Cow Cost Price

% units lbs. $ $/cwt.

10 50 40 5

1 5 4 0.5

These values indicate that when calf prices change $5/cwt, for the producer to retain the same profitability, annual cow cost must be moderated down by $40/cow, or weaning weight should be increased by 50 lb, or calf crop must be increased by 10 percentage units.

An alternative would be to compensate for this drop in feeder prices by compensating partially through all remaining components of profit. For instance, cow cost could be dropped $20/cow and weaning weight increased 25 lb to account for the drop in feeder prices.

It is clear from this analysis that calf price has the greatest impact on profit followed by weaning weight. Calf crop percentage is the result of the number of cows calving (success at breeding), and number of cows which weaned a calf (calf survival).

In most cases in Northern regions, breeding success is at least 90 percent, but calf losses exceed 5 percent. This would indicate that focusing on calf survival is an important area for producers to focus. Reducing calf losses from, say 7 percent to 5 percent would be equivalent to weaning 10 lb heavier calves or receiving $1/cwt more for calves.

As calf prices are affected negatively, compensating with greater calf survival, greater weaning weight, and reducing annual cow costs are strategies to retain profitability.

Additionally, if marketing on average markets at average prices, producers can also consider strategies that bring greater value to the calf crop by pre-weaning vaccination programs, spaying heifers that go into the feedlot, age and source verification, and marketing calves in markets where their value is appreciated and paid for.

Copyright 2015 Minnesota Farm Guide. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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