Market Advisor

Lower Feed Costs Will Boost Cowherd Returns In 2014

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My current projections for the production of 2014 calves for this study herd suggest a slight increase in earned net returns, thanks to lower feed-cost projections for 2014.

As this is written at the end of November, calf prices continue to increase, but at a slowing rate. My mid-November sale-barn price analysis has 2013 prices only slightly higher than mid-October 2013 prices.

The red line in Figure 1 is my latest price analysis for eastern Wyoming/western Nebraska sale-barn prices as of mid-November 2013. The yellow line represents sale-barn feeder steer prices for November 2012. On a year-over-year basis, feeder-cattle prices are stronger. The trend is definitely in the right direction.

Further statistical analyses of November sale-barn prices suggest the quality of the feeder cattle sold is significant. Higher-quality feeder calves, labeled “fancy” by USDA’s Agricultural Marketing Service, averaged an $8/cwt. premium. Meanwhile, “fleshy” feeders merited a $5/cwt. average discount. Today’s buyers are paying top prices for feeders, and they want good-quality cattle.

weaned steer prices

Figure 2 presents this month’s suggested planning prices for use in evaluating alternative marketing programs for 2013 calves. Besides providing suggested planning prices for feeder cattle in 2014, the bottom two lines project slaughter-cattle prices through 2014. I encourage readers to use this table to project starting and ending prices for their alternative marketing programs.

planning prices for selling 2014 calves

For now, I’ll leave the estimation of costs of gain for your post-weaning marketing alternatives up to you. The economics of alternative marketing programs for 2013 calves will be the subject of next month’s column.

Let’s discuss my 2013 beef cow enterprise summary for my study herd. Last month, I presented a detailed analysis of 2013 gross income for my 250-cow study herd. This month, I’ll present an abbreviated economic summary of production costs and earned economic returns from the production of 2013 calves.

calculated steer pricesA beef cowherd can generate gross income from six different sources: steer and heifer calves sold, cull cows and cull bulls sold, cull open heifers sold, and inventory change. In my example herd, the total gross income from these six sources for 2013 totaled $1,074/cow, which is slightly revised from the number in last month’s column.

In order to calculate the unit cost of producing 100 lbs. of calf (UCOP), I need to divide gross income ($1,074) by steer calf price ($192/cwt.). This suggests that the $1,074 gross income from all six sources is equivalent to selling 5.58 cwt. of steer calves at $192/cwt. UCOP for this herd will be calculated with this 5.58 cwt. of steer calf equivalent.

Feed costs: I like to run the herd’s production year from weaning of one year to weaning the next year, which you may or may not be able to do in your accounting system. The cowherd’s winter feed costs running from weaning 2012 to grass in 2013 is charged to the 2013 calf crop.

According to my hay database, the market value of the hay consumed by the beef cowherd producing 2013 calves averaged $148/ton. (Alfalfa in large round bales during this period averaged $216/ton.)

feed disappearance for study herdOne of the hardest numbers to generate for a cowherd is the physical quantity of feed fed. Do not include the feed used for heifer development in the beef cow year-end analysis. In a future column, I’ll address exactly how I calculate feed consumption, but Figure 4 summarizes the identified feed disappearance for this study herd.

Salt was included in the protein and vitamin number. Farm-raised feeds should be priced in at local market prices and not cost of production. The difference between local market price and cost of production for farm feeds fed generates profit for farming — not for beef cows.

In the case of this study farm, the local market value of feed fed to the beef cowherd came to $391/cow for the business year. This is a historical high due primarily to the 2012 drought. This figures out to 70¢ in feed cost/lb. of calf produced.

Non-feed costs: Vet and medicine costs came to $18/cow. All other non-feed costs were lumped into the non-feed cost category. This covers such costs as:

  • Livestock supplies
  • Livestock leases
  • The beef cowherd’s share of fuel and oil, repairs, custom hire, marketing, operating interest, hired labor for the cowherd, farm insurance, utilities, interest, machine and building depreciation, and miscellaneous items. In my study herd, these cost categories totaled $202/cow.

production costs for study herdThe shocking cost category for me is the “replacement animal costs,” which includes the costs of retaining and growing replacement heifers, and the purchase of replacement bulls. These two costs averaged $301/cow, which is a slight revision downward from last month’s article.

High calf prices imply high costs of raised replacement heifers. The herd replacement cost becomes all-critical for any rancher currently contemplating herd expansion. Developing or purchasing high-cost heifers makes you a higher-cost producer.

Be sure the projected economic value of added heifers is greater than the projected economic cost of those replacement heifers. I don’t recommend subsidizing new cows with the economic earnings from existing cows.

The total cost of each pound of calf produced in this study herd comes to $1.63/lb. of calf produced. Total costs, including replacement animal costs, came to $912/cow for my study herd.

In summary, the breakeven selling price for steer calves calculates to $163/cwt. The sale-barn price at weaning was $192/cwt. The earned return to unpaid labor, management and facilities calculates out to $162/cow. This was a pretty good year for beef cows, but not a record-high year.

My current projections for the production of 2014 calves for this study herd suggest a slight increase in earned net returns, thanks to lower feed-cost projections for 2014. After three reasonably good years, herd expansion is now on this rancher’s mind. Stay tuned. 

 

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Discuss this Blog Entry 1

James McGrann (not verified)
on Jan 20, 2014

Why not include management return and cost of improvements in your cost of production? They sure do at the feed yard, packer and retail side of the supply chain.

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What's Market Advisor?

Harlan Hughes has spent a professional lifetime helping U.S. beef producers better manage the business end of their beef cow operations.

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Harlan Hughes

Harlan Hughes is a North Dakota State University professor emeritus and author of the monthly "Market Advisor" column that appears in BEEF magazine. He also consults and lectures widely,...

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