It is no secret that the past few years have been challenging times for many cow/calf producers.
One of the major factors contributing to that fact is that in the past 24 to 36 months, we have experienced extreme price volatility in some markets. Feeder cattle futures have ranged from approximately $85 per hundred pounds (cwt.) to $120/cwt. Over that same timeframe, live cattle futures have varied between $79/cwt and $105/cwt.
Crop prices experienced an even larger variation, as corn futures ranged from $3.10 to $7.50 per bushel and soybean meal traded for anywhere between $240 and $450 per ton in the past couple years.
Given the volatility in both input and output prices, it stands to reason that there would also be a wide range in profitability among Minnesota cow/calf operations. But, what determines an operation's profitability and what makes one producer more successful than another?
To help answer these questions, a visit to the FINBIN Farm Financial Database website is a good place to start (http://www.finbin.umn.edu). The FINBIN website was developed by the Center for Farm Financial Management and contains actual data from thousands of farms who use the FINPACK program for farm business analysis.
When looking at FINBIN financial data from 1,437 cow/calf operations for the past 10 years (2000-2009), there are a few key facts that become apparent. First, the average cow/calf operation has had a net return over labor and management of -$41.13.
But, while the average cow/calf operation has lost money over the past 10 years, there are some operations that have remained very successful and others that have really struggled. In fact, the most profitable 20 percent of producers have experienced a net return over labor and management of $158.25 per cow, while the least profitable 20 percent have lost $398.02 - that's a difference of $556.27 per cow per year.
Why are some operations so much more profitable than others? The most significant factor determining profitability is feed cost. According to the FINBIN data, the top 20 percent of operations had an annual feed cost per cow of $241.44 while the bottom 20 percent of operations were paying $374.72.
More specifically, the most profitable operations spent less money on alfalfa hay and corn than the less profitable operations. At the same time, feed costs between the two groups were very similar for other feedstuffs including grass hay, pasture, and corn silage.
According to the report, the average operation's feed cost accounts for slightly over 60 percent of its total annual cost. So, saving money by purchasing less expensive feedstuffs will have a direct effect on the profitability of the operation.
In addition to feed costs, overhead expense is another area in which there is much variation among cow/calf producers. While the most profitable operations had overhead expense of $67.37, the least profitable operations were paying $157.27 in overhead expenses per cow.
Some of this difference is likely due to the size of the operations since the top 20 percent of farms have an average of 88 cows and the low 20 percent maintain 53.5 cows. This by no means suggests that smaller operations cannot be profitable, but in this case, the smaller operations simply have fewer cows to spread out their overhead costs, resulting in a greater expense per cow.
There were some other management factors in which the top 20 percent of operations outperformed the bottom 20 percent. The most profitable farms had a higher weaning percentage, higher number of calves sold per cow, and a lower death loss. These three figures all reflect the same fact - there was a higher percentage of live calves at weaning time.
In addition, the top operations also had an average weaning weight that was 54 pounds heavier than the least profitable farms. This could be due to a number of factors, including calving season, cow health and milk production, pasture stocking density, herd health, genetics, etc.
Perhaps just as impressive as the variation in some factors is the lack of variation in others. For example, the most profitable and least profitable operations had very similar figures for many management benchmarks including pregnancy percentage, pregnancy loss, calving percentage, and culling percentage. The lack of variation in these categories suggests that even less profitable operations are probably already performing sufficiently in these areas.
So, given this information, what can cow/calf producers do to ensure that they are in the top 20 percent, rather than the bottom 20 percent?
First, control feed costs. Grazing cattle is cheaper than feeding harvested forage, so manage grazing to maximize production.
Also, avoid over-feeding expensive feedstuffs. Unless cows are in the last two months of pregnancy, are lactating, or need to gain weight, lower- to medium-quality grass hay is a sufficient alternative to more expensive alfalfa. This type of hay is generally cheaper to raise and/or purchase than high quality alfalfa. If alfalfa hay is to be fed, save it for the time of year when the cow's requirements are the highest.
In addition to feeding less expensive feedstuffs, minimizing waste is also a good way to reduce feed costs. Grinding hay will generally result in less waste than long-stem hay and feeding in bunks or bale rings will lead to significantly less waste than feeding on the ground. Bunk management is also important in order to minimize spoiled feed. These simple things will all lead to less wasted feed and a smaller feed bill.
While reducing costs is a good way to remain profitable, increasing revenue is equally important. A sound herd health program is crucial to any successful livestock operation. Healthy animals will milk better, breed sooner, and grow faster than unhealthy animals. Higher milk production and higher-performing calves will lead to heavier calves at marketing.
Also, cows in proper condition will breed sooner which will lead to a narrower calving window and a more uniform calf crop. Larger calves and a more uniform group should create more value at marketing time.
A more valuable calf combined with a lower feed bill will lead to higher profit and a more successful operation.