Market Advisor

Costs & returns: Part I

RSS

Our national economic crisis is impacting beef-cow producers. In fact, my latest “monthly price analysis and management implications study” suggests all the economic profits from running a typical beef cowherd have disappeared.

When the economic profit of a beef cowherd is negative, it suggests that resources aren't being employed to their highest and best use — a red flag to any manager. Once this early economic red flag appears in a beef cowherd, it should no longer be “business as usual.”

As a precursor to today's conditions, this month begins a series focusing on my Integrated Resource Management (IRM) Easy (ez) analysis. The management concept behind IRMez is to provide ranchers with a simplified way to calculate an economic cost and return analysis of their beef cowherd. Knowing where you stand is the first step in managing a beef cow through tough economic times.

An IRMez herd analysis centers around five specific business analysis areas. They are: production profile, gross income generated, annual feed costs, livestock (non-feed) costs and overhead costs. Let's examine each of these, beginning this month with the production profile.

Any economic analysis must be based on an accurate production base centered on a set of production parameters accurately describing the production profile of the beef cowherd under study. Figure 1 illustrates how seven specific animal inventory numbers can generate four key production indicators of a specific beef cowherd. I expect every rancher I work with to have these seven specific numbers in their pocket calving books.

Item A in Figure 1 is the total number of bred females in the beef cowherd inventory on Jan. 1, 2008. It includes mature cows (three-year-olds and older) and newly bred heifers scheduled to have their first calves in spring 2008.

Item B is the number of 2007 heifer calves held back Jan. 1, 2008 as potential replacements.

Item C — Standardized Performance Analysis (SPA) adjusted females exposed — is a number not typically found in pocket calving books. National IRM-SPA guidelines suggest that the reproductive performance of a beef cowherd needs to be based on females exposed to bulls in the previous breeding season. The percent calf crop (Item I) should also be based on the females exposed (Item C).

Measuring reproductive efficiency and percent calf crop requires ranchers to count the females exposed to bulls on bull-turnout date. The number of mature cows and virgin heifers exposed to the bulls should be recorded in a manager's calving book on bull-turnout date. The sum of these two numbers, however, needs to be adjusted based on selected management actions taken after bull-turnout date.

IRM-SPA guidelines allow producers to subtract females tagged as culls before bull-turnout date, as such females are only there to raise the current calf at their side. In addition, producers should add any bred females purchased, and subtract any exposed females sold as bred females, after the bull-turnout date. The final adjusted number is referred to as “SPA adjusted females exposed,” a key number in calculating the cowherd's reproductive performance.

Producers should not subtract cows that died, or cows culled for poor performance, lightweight calves or being open.

Item D is the number of live calves born. I also encourage recording aborts, dead calves and cause of death when determinable.

Item E — the number of live steer calves, heifer calves and bull calves weaned — is generally readily available from calving books.

Item F is the number of cows to be replaced.

Item G is cows that died during the total year, while Item H is the number of calves that died from birth through weaning. Aborts and calves born dead should be recorded separately.

Four herd-performance indicators can now easily be calculated. The most important calculation with respect to profit generated is the “Percent calf crop,” (Item I) or the number of live calves weaned divided by the “SPA adjusted females exposed.”

Ranchers generally want to calculate percent calf crop based on the Jan. 1, 2008 number of females held to calve in 2008, but it says nothing about the herd's reproductive performance. In contrast, a calving percentage based on “females exposed” reveals much about reproductive performance and calf losses. My IRM databank suggests managing for percent calf crop — defined as the percent of females exposed that actually wean a live calf — is a key production factor sorting the high-profit herd managers from the low-profit managers.

Replacement rate (Item J), calculated as the percent of the Jan. 1 inventory replaced during that year, goes a long way toward determining the beef cowherd's cost structure. Replacement heifers are generally expensive — even raised replacements. In general, higher replacement rates in a herd mean a higher herd unit cost of production (UCOP). Remember that UCOP is the herd's breakeven calf price.

Cow death loss (Item K) is simply the number of cows that die during the year divided by the number of cows in the Jan. 1, 2008 inventory. Calf death loss (Item L) is the number of calves born live that die before weaning. Count aborts and stillbirths separately. Each death number can be used to generate a different management performance indicator.

This simplified production profile can reveal much about a beef cowherd's production performance. Future columns will illustrate how a rancher can conduct a simplified economic cost and return analysis of his beef cowherd based on his herd's production profile.

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.

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.

Contributors

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,...

Sponsored Introduction Continue on to (or wait seconds) ×