Market Advisor

Costs & returns: Part III

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This series of articles is designed to help ranchers manage through today's tough economic times as economic pressures build on the beef-cow sector. Part I (January issue) covered the analysis of a herd's production profile. Last month, we discussed generating a total gross income analysis of the beef-cow profit center. This month, we'll look at summer and winter feed costs.

Most ranchers utilize a business year based on the calendar year. But a beef cowherd's production cycle associated with producing weaned calves doesn't fit that format very well. A better option might be Nov. 1 through Oct. 31.

The fiscal year for my example ranch (Figure 1) is Jan. 1-Dec. 31, 2008. Notice how the beef-cow production cycle — conception through weaning — overlaps two fiscal business years. The cows were bred in the 2007 breeding season and the calves marketed in the 2008 business year.

I recommend that feed costs charged against the 2008 calves be based on the 2007 ranch-raised feeds fed to the beef cows in fall 2007 and winter 2008. Likewise, the 2008 ranch-raised feeds fed in fall 2008 and winter 2009 should be charged against the 2009 calves. This then suggests that feed costs of any calf crop lags the year in which the calves were weaned.

• Feed data collection. Summer and winter feed costs typically are 60-65% of the total economic costs of operating a beef cowherd; therefore, accurate feed disappearance (consumption and wastage) is a critical component of any herd's cost analysis. (I assume storage losses are charged against the feed profit center.) Annual feed costs are made up of summer pasture and winter feeding costs.

• Pasture costs. Pasture costs are based on the year the calves are weaned; this consists of deeded, rented and public land. While I've experimented with several data-collection systems for public land, I now only collect the total annual dollar lease payments made for public lands.

Rented pasture costs consist of acres rented and their going per-acre rental rate. If the renting rancher has to pay any associated costs — fencing, water development costs, etc. — this is handled in the “pasture maintenance” category.

Owned, deeded pasture costs are determined from the total acres utilized by the cowherd (a rancher may also have yearlings on additional acres), multiplied by the local going pasture rent. Pasture economic costs (opportunity costs) are based on the local going pasture rental rate and not the costs of owning the pasture. (A pasture profit center analysis compares the costs of owning the pasture vs. the going rental rate to determine the profit associated with ownership.)

In working with western ranchers, I use animal unit month (AUM) and rental rates per AUM instead of acres and costs per acre. The calculated results in the Integrated Resource Management EZ (IRMez) model (see January BEEF) are always expressed in AUMs, but the per-cow total dollar costs of summer pasture calculated via acres or AUMs comes out to the same dollar cost per cow.

• Winter feed disappearance. I've found few ranchers with a good handle on the disappearance of farm-raised feeds, something that must be known to calculate accurate feed costs. Thus, I developed a comprehensive feed data collection system designed around daily breeding herd rations adjusted for the second and third trimesters and lactation. These rations are then used to compile all feeds fed annual disappearance and feeding losses for the total breeding herd. This ration-based system provides considerable feeding diagnostic capability while still compiling the annual feed disappearance and the annual feed costs.

Figure 2 presents an annual feeding summary compiled for 600 head of 2008 spring-calving cows in western Nebraska. This breeding herd consists of 432 mature cows, 84 second-calf heifers, 84 first-calf heifers, 90 virgin heifers and 28 bulls (Jan. 1, 2008 inventory). The total herd was fed 2.33 tons/cow of hay during the annual feeding period.

This herd's annual feeding program cost $441/cow in the Jan. 1, 2008 inventory. Pasture costs accounted for 47% of total annual feed costs. The bottom line of numbers in Figure 2 presents the unit cost of each feed.

• Winter feed costs. There are several ways to calculate winter costs for a beef cowherd. One is to use the cash costs of producing the ranch-raised feeds. Most ranchers use this method, but it omits some critical costs.

Another is to use the total costs (cash plus non-cash such as depreciation, labor costs and investment capital costs) of producing the ranch-raised feeds.

A third is to use the opportunity costs — going local market price for the ranch-raised feed fed to the beef cows. This requires the least on-ranch data.

Opportunity cost is based on the concept that your cows have to pay as much for ranch-raised feeds consumed as a buyer would pay you for the feed. So, if the local going market for grass hay is $85/ton, your beef cows should pay $85/ton. If your beef cows can't pay as much for your hay as a buyer, then why are you feeding this hay to them?

In my IRMez economic analyses of beef cowherds, I use the local going market (opportunity cost) prices for ranch-raised feeds fed to the beef cows.

Let's look at an example of annual feed costs for a beef cowherd. A calculated feed cost analysis generated by my IRMez Cost & Return Model for an example herd found that summer pasture totaled $107/cow, while winter feed costs — hay, protein supplement and salt/mineral — were $210. Total annual feed costs were $317/cow or $59/cwt. of calf produced.

Feed costs per cow fluctuate by operation. For example, feed costs for my 2006 IRM herds analyzed averaged $274/cow with a range of $188 to $376/cow. The 2007 IRM herds I analyzed averaged $335/cow with a $265 to $401/cow range. This wide variation underscores why every rancher should calculate his herd's annual feed costs per cow.

Forage land rental rates seem to be paralleling corn land rental rates; the net result is higher annual beef cow feed costs. Clearly, feed costs per cow have risen the last few years as more pasture and hay land is diverted to corn production.

What was your feed cost per cow for your 2008 calves? What was your feed cost per cwt. of calf produced? You need to know.

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.

Figure 2. 2008 feeding program for a 600-cow herd in the Northern Plains
Beef herd components Head count Corn, bu. Cake, tons Salt/mineral, tons Grass hay, tons Alfalfa hay, tons Corn stalks, animal days Pasture, animal days
Heifers to breed 90 747 0.0 2.6 120 44 0 18,765
1st-calf heifer pairs 84 0 11.3 2.9 174 0 0 18,900
2nd-calf heifers 84 0 7.6 3.1 175 0 0 18,900
Mature cows 432 0 42.1 15.8 886 0 0 97,200
Bulls 28 0 0.0 1.4 0 0 0 13,104
Grass yearlings 0 0 0.0 0.0 0 0 0 0
Horses 0 0 0.0 0.0 0 0 0 0
Total 747 61.0 25.7 1,355 43.9 0 166,869
Total feed costs = $264,884 $2,616 $13,730 $3,855 $115,144 $4,388 $0 5,562
Feed cost/cow = $441 $3.50 $225 $150 $85 $100 $0.30 $22.50
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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