Costs and Returns for Cow-Calf Producers

Steve Metzger

 


Text Box: The current level of high prices within the beef industry and the current position of cow-calf producers within the cattle cycle has given rise to renewed interest in the management of beef cow herds to produce the greatest level of profitability possible.Beef producers need to maximize their profits at all levels of the cattle cycle to generate the profits needed to operate and grow their businesses throughout the cycle.Producers need to know and understand their own levels of production and expenses.A better understanding of how an individual producerís cow herd compares to others in both production and profitability is critical to the sustained operation and growth of their beef cow-calf business.One way to better understand production and profitability numbers is to review the production, income and expense numbers for average and high-profit beef cow-calf producers within the same geographic area.

 

Data for this study was compiled through the Carrington Area Farm Business Management Program in conjunction with the North Dakota Farm Business Management Program.The Carrington program is one of 13 programs in the statewide North Dakota system.The data of producers enrolled in the program from 1994 through 2004 was summarized using the FINPACK farm analysis software program.In some very limited instances where particular high-profit group numbers were unavailable in the database, the average of the annual figures present was used after careful consideration and correlation with the high-profit data in both the local and regional reports.

 

The number of producers involved ranged from 18 to 27 per year.A total of 245 beef cow herds containing 27,752 cows were included in the study for the years 1994 through 2004.The 20% high profit herds numbered 51 with a total of 5,488 cows.These high-profit herds were also included in the total herd group.The base of herds was quite consistent over the 11-year period with several herds being involved for the entire 11-year period.

 

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 separate feeding enterprise.While producers were encouraged to weigh all calves it must be acknowledged that some producers did not weigh all calves at the time of weaning and transfer out of the herd.For these calves, weights were estimated using the sale weights of herd mates and 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.

 

The cows in the high-profit herd group weaned calves that averaged 54 pounds more than the average of the whole herd group and enjoyed a $44.65 advantage.The annual average net cost per cow of replacing the breeding stock was calculated to be $24.88 for the high profit group and $41.55 for the total herd group.This is often referred to as the value of net inventory change.

 

The high profit group also claimed a $29.33 advantage in the area of direct costs.Of this amount $13.52 was provided by a lower feed cost.All non-grazing feed costs were listed at market value, while grazing costs were listed at the actual cost of production for the various range and pasture lands.Veterinary expenses and livestock supplies showed only a $2.57 difference between the two groups with the lower cost again associated with the high-profit herd group.Operating interest costs per cow were calculated to be $4.89 and $9.15 respectively for the high-profit and whole herd groups.Other interest costs which are part of the overhead costs were $9.64 and $17.37 per cow with the lesser costs again going to the high-profit group and reflecting a lower level of indebtedness to service.

 

The 11-year annual cost per cow was $330.46 for the high-profit group and $382.32 for the whole herd group.The average annual net return favored the high-profit group by $96.51 per cow as they achieved an average annual net return of $152.42 per cow while the total herd group gathered in an average profit of $55.91 per cow.It is interesting to note that this difference amounts to an additional $1,061.61 of profit per cow over the 11-year period.

 

Using 11 years of production and financial information on such a group of beef cow herds can help producers to really see how the beef cow business functions through a complete cattle cycle.It must be noted that some producers may also be more efficient in the production of feeds while other producers may find an advantage to purchasing more of the feeds needed.One other item of importance is that the beef cow herd can also provide a method of marketing damaged or weathered grains and forages that might command very little return on the cash market.

 

Setting both production and economic goals is an important task for producers.To achieve results that might more closely resemble those of the high-profit herds, producers would be encouraged to set their sights higher such as in pounds weaned per exposed female at 550 pounds.This would be close to that of the high-profit herds which achieved an 11-year average of 552 pounds.Setting goals of approximately $250.00 in direct costs and $60.00 in overhead costs will also contribute to increased profitability.With the inclusion of approximately $30.00 to $40.00 per year for net inventory change the average cow calf producer would have total annual costs of $340.00 to $350.00 per cow and would be well on their way to being included with the higher profit herd
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