A Comparison of the High Profit Beef Cow Herds

 To The Total Herd Group

 

Steve Metzger

Carrington Area Farm Business Management Program

 

Introduction

With the current high prices in the beef cattle industry, there has been renewed interest in the management of beef cow herds so as to produce the greatest possible level of profitability.  Beef producers need to maximize profits at all levels of the cattle cycle to generate the dollars required in their farming or ranching business.  Producers need to more fully understand their level of inputs and their potential for generating more profits.  One way to view these items is to take a very serious look at how high-profit beef cow herds generate their above-average profits and to compare their production and financial numbers to those of a larger group of beef cow herds containing herds from all profitability levels.

 

Procedure

Data for this study was compiled through the Carrington Area Farm Business Management Program in conjunction with the North Dakota Farm Business Management Education Program.  The Carrington program is one of 13 programs in the statewide North Dakota system.  The data for this study was collected from area program members and summarized through the Carrington Area Program from 1994 to 2003 using the FINPACK farm analysis software program.  In a very few instances where some high profit group numbers were unavailable in the database, the average of those annual figures present was used after careful consideration and correlation with the high-profit numbers in both the local and regional reports.

 

The minimum number of producers involved in the study in any one year was 18 with a maximum of 27.  A total of 223 herds containing 24,976 cows were involved of which the high profit 20 percent were represented by 45 herds and 4,770 cows.  It is important to note that the 20 percent high profit herds are part of the overall total herd base and therefore, are also part of the average herd numbers.  The herd base was quite consistent over the 10years, with many of the same herds involved for the entire time.

 

While all costs were gathered on a 12-month basis, the income side of the enterprise, except for the sale of cull breeding stock, was terminated at weaning when the calves were physically separated and sold or transferred to a feeding enterprise.  While producers were encouraged to weigh all calves at weaning, it must be acknowledged that some producers did not weigh all calves when they were weaned and transferred to other enterprises.  For these calves, weights were estimated using the sale weights of herd mates or similar type calves.  All replacement breeding stock were held in separate enterprises and their costs and returns are not included with the beef cow-calf data contained within this study.

 

Results and Discussion

The cows in the high-profit herd group weaned heavier calves that averaged 587 pounds, as shown in Table 1, for an advantage over the whole herd group of 44 pounds per calf weaned.  An even more important statistic is the high-profit group weaned 548 pounds per exposed female, while the average for the whole herd group lagged 55 pounds behind at 493 pounds.  The average cow generated $418.42 while the high-profit cows generated $465.57 for an advantage of $47.15 per head.

 

 


 


High profit herds had a $17.83 advantage in net inventory change which meant they were able to maintain their herd numbers for an average annual cost of approximately $25.24 per cow compared to a cost of $43.07 for all herds in the group.  This cost figure is greatly influenced by such things as the initial cost for breeding stock, the cost of replacements, death loss, the value of culled breeding stock and the culling rate.  After consideration of net inventory change, the high-profit herds maintained a $64.98 advantage in their remaining gross return.

 

In the area of direct costs, the high-profit herds showed an advantage of $26.34 per cow with feed costs claiming $11.06 of that amount.  Overhead or fixed costs varied by only $4.39 per cow with the advantage again going to the high-profit herds.  While high-profit herds recorded an average of $7.54 less in non-operating interest costs, they did exceed the average of the total group by $3.36 in the amount expended for depreciation of machinery and livestock facilities.  Overall, the high-profit herds had a $30.73 per head advantage in combined lower direct and overhead costs.

 

With all income, costs and net inventory change considered, the high-profit herds, with a net return of $134.73, showed an annual advantage of $95.71 over the 10-year period.  Their cost of production per hundred-weight (cwt.), excluding net inventory change was $54.18 compared to $65.95 for the entire group.  When the cost of net inventory change is included the 10-year annual cost of production is calculated at $58.66 and $74.39 respectively.  Although this study did not dwell on the numbers associated with the 20 percent low-profit herds, it should be noted that for the group of 45 low profit herds the average annual net return over the ten year period was calculated to be a net loss of $103.56 per cow, which included $71.35 for the annual net inventory change.

 

An operator labor and management charge was annually assigned to each farm or ranch based on a specific formula after which it was allocated to the various crop and livestock enterprises based on their size as measured by assigned work units.  The average- and high-profit groups had operator labor and management charges of $43.95 and $48.04 respectively.  When compared to the average net return per cow, the high-profit group achieved an additional return of $86.69 above the operator labor and management charge.  The larger group made up of all the herds posted an average annual net return per cow of $39.02, which was $4.93 less than the calculated operator labor charge of $43.95 per cow.  Therefore, while the average cow herd was still profitable, it was not profitable enough to pay the average operator the full amount due him or her and it did not create any additional profit above the operator labor and management charge.

 

Summary

This 10-year period was selected because of its location within the two high ends of the cattle cycle.  It is reasonable to assume that the more years we spend at this end of the cattle cycle the better the net return might be for both herd groups.  Feeds fed during this 10-year period were assigned market values.  There may have been situations where feeds were fed for less than the cost of production and likewise, profits may have been generated by assigning values to the feeds above their specific cost of production on a particular farm or ranch.

 

If producers are depending upon their beef cow herd to generate profits above the bare amounts needed strictly for operator labor and management, they must understand that this is not likely to be accomplished by the average producer within this 10-year cattle cycle.  For increased revenue to be available for the farm or ranch, producers must move into the area delineated by the high-profit herds.  It must be noted that even average-profit generating herds do assist in the recovery of overhead or fixed costs in addition to providing an outlet for farm-raised feeds that might be unused or remain unmarketed except for the ability to efficiently and economically process them through a beef cow herd.  This economic benefit should not be ignored in viewing the large picture as beef cows can produce income by salvaging both forage and grain crops.

 

Three targets or goals are suggested for those producers aspiring to join the 20 percent high-profit group.  First they should aim for 540 to 550 pounds weaned per exposed female.  This would also be reflected in higher weaning weights but watching this on a per exposed female basis is a more true measure of productivity.  Secondly, producers should bring their net inventory change figure into the $25.00 to $35.00 range.  This implies a closer look at the cost of both raised and purchased replacement breeding stock.  Thirdly, producers need to bring their total direct and fixed costs into the range of $305.00 to 325.00 per cow.  With net inventory change included this would put all expenditures in the range of $330.00 to $360.00 per head.  By working towards these three goals, beef cow-calf producers can better position themselves to not only survive in the future but to grow and benefit in the beef cattle industry.

 

References

Metzger, S.S. Carrington Area Farm Financial and Enterprise Analysis Reports, 1994-2003. Carrington Area Farm Business Management Program, Carrington, ND and Carrington Research Extension Center, NDSU.

North Dakota Farm and Ranch Business Management Annual Reports for Region 3, 1994-2003.  North Dakota Department for Career and Technical Education, Bismarck, ND.