Market Advisor

Costs & returns: Part V

RSS

Given current economic pressures, it’s imperative that ranch managers work to increase profits from their beef cow-calf herds. One immediate action is to project your herd’s 2009 economic profits, which will allow you time to make major management changes before you market your 2009 calves.

The first four installments in this series explained the production parameters to document, and the economic costs you must assemble, for your herd. Table 1 presents my mid-March suggested 2009 planning prices for beef cow-calf producers in western Nebraska and eastern Wyoming. Adjust these to your specific region.

Using these figures, I can project the profits from the 2009 calves in my demo herd. The projected planning price for 550-lb. steer calves at fall 2009 weaning is $111. My demo herd intends to sell 657-lb. steer calves for $110/cwt., with a $10 discount for heifers. Using these planning prices, let’s project the profit from producing my 2009 calves.

• Production profile. My January issue column discussed building a production profile for a herd. I project a 90% calf crop and to wean 494 lbs. of calf per female exposed (Table 2). In general, this is a very productive herd well above the average of my Integrated Resource Management cooperator herds.
• Gross income. My February column detailed the calculation of a herd’s gross income, which consists of calf and non-calf income plus inventory change. I project a gross income per cow on this demo herd of $555/cow for a total accrual adjusted gross income of $92,069 for 166 cows (Table 3). This is a 12% decrease from the actual $104,590 gross income in 2007.

A hundredweight (cwt.) of steer equivalent number is used as a composite measure of this herd’s seven different sources of gross income. All unit costs of production are then calculated with this cwt. of steer equivalent number. This number is down from 5.12 cwt. of steer equivalents marketed in 2007. Calf and non-calf incomes are projected to be down in 2009.

• Feed costs. Article III (March issue) detailed calculation of feed costs associated with operating a beef cowherd. Home-raised feeds fed are priced at the going local price. Also, the winter feed costs for 2009 calves are for feeds fed from weaning in 2008 until going on grass in 2009.

Total feed cost is projected at $431/cow or $85/cwt. of calf produced. This herd will consume 2.39 tons of hay/cow in the Jan. 1, 2009 inventory (Table 4). Compared to the databank average for 2007 calves, this herd is a high-cost herd for feed. (This rancher should consider least-cost balanced rations to reduce annual feed costs.)

• Livestock costs. Livestock costs include all non-feed costs (except overhead costs) in the production of 2009 calves. Article IV (April BEEF) discussed details associated with livestock costs. Table 5 indicates livestock costs are projected to total $192/cow or $38.13/cwt. of calf produced, which are high based on benchmark data.
• Overhead costs. The April article also provided a shortcut for calculating overhead costs. This demo herd’s overhead costs are projected to be only $28/cow or $5.48/cwt. of calf produced (Table 6). This ranch family has $228,850 invested in the breeding herd and associated beef-cow equipment. This doesn’t include hay land, haying machinery, farming machinery or pasture land investment.
• Summary. Table 7 projects this herd’s economic summary for the production of 2009 calves on a per-cow and per cwt. of calf produced basis. A $555/cow gross income is projected, while total production costs are $651, generating projected earned returns to unpaid family and operator labor, management and equity capital of a minus $96/cow.

On a cwt. of calf produced basis, gross income is $110/cwt., and unit cost of production is $129/cwt., generating a projected earned net return per cwt. of calf produced of minus $19/cwt.

Thus, this herd’s “dollar value added” to the ranch resources by running beef cows in 2009 will be a minus $15,963 for its 2009 calves. It was a positive $16,572 in 2007.

Table 8 summarizes this herd’s critical success factors. In general, this very productive herd has good reproductive performance and high weaning weights. But its economic challenge is its production costs. Feed costs are high and projected to increase 18% over the 2007 mark. Second, livestock costs also are high, and projected to be up 34% from 2007.
High production per cow won’t make this herd profitable in today’s market. This manager needs to reduce production costs while maintaining the herd’s high production level, which is easier said than done.

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.

Using planning prices

Here how a rancher can use the Table 1 planning prices. If I were to run grass steers in summer 2009, I would use the spring 600-lb. feeder calf price of $107 going on grass and the September 850-lb. price of $92 coming off grass.

This $92 price for 850-lb. feeders is a median price extrapolated from the 800-lb. September price of $95 and the 900-lb. September price of $88. These planning prices suggest a buy/sell margin for grass steers of a minus $15/cwt. of initial weight.

Even before the animals are purchased, I can project a marketing loss of $90/head on the initial 600 lbs. This loss must somehow be recovered from low-cost gain on grass. Is it possible? That’s the challenge of grass cattle in summer 2009.

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) ×