Market Advisor

Lower Net Returns Expected For Cowherds In 2013

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Due to last winter’s higher hay prices, Harlan Hughes projects lower net returns for beef cowherds in 2013.

The foundation of any beef cowherd’s economic analysis is the production factors behind it. Figure 1 presents the 2012 average production foundation for 101 beef cowherds in the Northern Plains. These herds, which take part in the North Dakota Farm Business Management Association, averaged 150 cows. Many of these operations also farm cash grain, but the averages presented here are for the beef cow enterprises only.

In the Integrated Resource Management (IRM) program of the 1990s, we identified critical success factors that herd managers could use to effectively analyze their herds’ production and profitability. We concluded that those three critical success factors were:

  • Number of females exposed to bulls
  • Percent calves weaned per female exposed
  • Pounds weaned per females exposed

The number of females exposed to bullsis taken from the previous year’s breeding season, and all females in the breeding herd at bull turnout date should be included. Females that are open in the fall are not subtracted out.

production factors of a cowherdThe percent calves weaned per female exposed averaged 88.6% for these Northern Plains herds in 2012. What I like about this measure is that it combines reproductive efficiency and calf death loss into one single production measure. I like to see the percent weaned at 85% or greater. If your herd’s number is lower, you need to determine if it’s a problem with breeding, calving or calf death loss.

In my past IRM work, I found that pounds weaned per female exposed was the best production proxy for profits. These Northern Plains herds averaged 467 lbs. weaned per female exposed. What I like about this production measure is that it combines weaning weights, reproductive efficiency and calf death loss into one single production measure. It has the highest correlation to profit of any production factor I’ve studied, but its statistical correlation to profit still is not extremely high.

A good goal is 500 lbs. weaned per female exposed. Once again, if you’re herd’s number is lower than this goal, you should analyze it further to identify and correct the limiting factor. 

Calf death loss should be calculated as a percentage of live calves born. I like to see this number below 5%. This number for these Northern Plains herds was 5.2%. In 2011, it was over 8%. I had to go back seven years to find an average calf death loss lower than this 5.2% for these herds.

These herds culled 15.8% of their cows in the Jan. 1 cow inventory. I have no recommendation for optimum culling rate.

It’s important to note that in the IRM databanks I compiled over an 18-year period, I’ve never found weaning weight to be highly correlated with profit. In fact, the correlations always were very low.

annual feed costs

I suggest that ranchers measure and manage profits directly through cost-and-return measurements, rather than look for a single production proxy related to profits. I honestly believe that a good production proxy for profits does not exist.

Let’s look at cost-and-return measurements. Feed costs are normally a herd’s largest production cost. The top half of Figure 2 presents the average forage cost for these Northern Plains herds. 

These 101 herds were fed corn silage, alfalfa hay and grass hay totaling 3.33 tons of hay equivalents. Tons of hay equivalent were calculated by dividing the total pounds of dry matter (DM) fed from all forages, and then adjusting this total DM back to tons of hay equivalent, based on hay at 90% DM.

livestock costsThe middle column in the top section of Figure 2 presents these herds’ average feed prices. Total winter forages were $152/cow. Remember, most of these forages were fed in the winter of 2011-12, before the 2012 drought and higher feed prices.

The bottom half of Figure 2 presents the rest of the feeds fed to the cowherds. At $118.62/cow, pasture cost is the biggest cost in the bottom section. The average annual total feed bill for these herds was $323/cow.

The livestock costs presented in Figure 3 are the non-feed direct costs associated with running these herds. The zero breeding fees are for artificial insemination; unfortunately, bull costs are included in the cowherd costs and aren’t sorted out separately in the annual Farm Business Management Summary.

Supplies, fuel and oil, repairs, etc., are the cowherd’s proportion of the total farms’ costs. These herds averaged $100/cow in livestock costs.

average overheadOverhead costs are just those allocated to the beef cow enterprise. Average total overhead costs averaged $81/cow (Figure 4). The single biggest overhead was the $28 machinery-building depreciation allocated to the cowherd.

Figure 5 presents the 2012 economic summary for these 101 herds. Gross income averaged $1,002/cow, which includes calf sales and all cull animal income — including cull bull sales. Annual pasture cost of $119, plus $205 winter feed cost, generates a total average annual feed cost of $323/cow. Annual feed costs were 39% of the total costs per cow.

Vet and medicine costs were $25/cow, while livestock costs were $100/cow. Overhead costs averaged $81/cow.

 

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economic cost of cowherdThe second-biggest cost was the replacement animal costs, which totaled $301/cow. This included the opportunity cost of not selling replacement heifer calves, the cost of developing these heifers and the purchase cost of any replacement females and bulls. Cull animal sales were included in the gross income number.

Total cost for these 101 study herds came to $831/cow. This calculates out to a $138/cwt. average unit cost of producing a cwt. of calf. Average market price for these herds was $166/cwt., generating an earned average net income of $171/cow.

It cost 83¢ to produce a dollar of gross income from these beef cows. This, in turn, suggests a 17% net income margin from these herds in 2012. The 2011 net income margin for these herds was 15.8%.

Due to last winter’s higher hay prices, I project lower net returns for beef cowherds in 2013. 

Harlan Hughes is a North Dakota State University professor emeritus. He lives in Laramie, WY. Reach him at 701-238-9607 or harlan.hughes@gte.net.

 

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Discuss this Blog Entry 2

A Vega (not verified)
on Jul 1, 2013

Good article, good data, but could be better presented. Economic analysis of a cow herd requires good data on both costs and revenues. The author does a good job in identifying the critical costs and production parameters determining the cowherd economic results, but his discussion complicates issues. Recall, a good article should be clear, short and nicely written.

Anonymous (not verified)
on Jul 1, 2013

A Vega-You can't get much clearer, shorter or better written. I suppose you write the article next time if you think you could do better, Harlan does a hell of a job.

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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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