Market Advisor

Increase Your Cowherd’s Gross Income

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In only a handful of cases in my 40-year career have I seen such economically favorable times as we have today. Because such good times don’t occur very often, I encourage every reader to take maximum advantage.

Most of the potential profit associated with 2011 calves is projected to be made at the ranch level, and I believe that will be the case for the next few years. So, what can you do at the ranch level to generate even bigger profits?

I’ve long preached that lowering production costs is one means of increasing profits. So, let’s assume your costs are as low as you can get them. That means we must increase gross income (GI) in order to increase profits in these good times.

Figure 1 presents my average historical GI for Northern Plains beef cowherds, along with conservative long-run GI projections for 2011 to 2015. The trend line suggests that GI has been trending upward for the last 17 years. Based on this long-run trend, GI is projected to average $766/cow for the 2011-2015 period. Such favorable GI projections should trigger expansion of the national cowherd.

My Northern Plains farm business management records indicate that gross income in 2010 averaged $800/cow – well above the trend line. I’m currently projecting a gross income in eastern and western Wyoming of $899 in producing 2011 calves.
Figure 2 depicts my current GI projection for a typical eastern Wyoming/western Nebraska beef cowherd in 2011. This projection is based on $159 for steer and $149 heifer calves, $71 cull cows, $73 cull bulls, and $120 cull open heifers. Bred females are priced at $1,400/head. The inventory value of the breeding herd cows is also $1,400/head.

This example herd consisted of 562 beef cows as of Jan. 1, 2011. Heifer replacement was built into the production parameters to ensure a static herd inventory for the year; thus, the herd ended the year with 562 cows in the breeding herd. The economic value of this beef cow inventory is summarized in line 14.

Column B summarizes the production parameters assumed for this example herd. Exposing 562 mature cows and 99 replacement heifers is projected to produce 575 live calves at weaning – 288 steer calves averaging 584 lbs. at weaning and 287 heifer calves averaging 554 lbs. at weaning. Of these heifer calves, 99 will be held back as replacements.

The bottom half of column B indicates that 661 females (562 mature cows and 99 replacement heifers) were exposed to the bulls in the 2010 breeding season. These 575 calves weaned gives an 87% calf crop and an average of 495 lbs of calf weaned/female exposed. This example herd had a 14% culling rate, an 80% heifer conception rate, and a 2% beef cow death loss.

However, calculating the GI from a beef cowherd isn’t a simple concept. A cowherd’s GI comes from six sources:

  • steer calves,
  • heifer calves,
  • cull cows,
  • cull bulls,
  • cull open heifers and
  • inventory change.

I use these six numbers to generate three different gross income measures:

• Value of animal production (VAP) is the sum of the market value of all calves produced, cull cows sold, cull bulls sold, cull heifers sold, breeding cows sold, plus inventory change. In this example herd, VAP comes to $1,044/cow (line 18, column G). The important distinction here is that this is a measure of the “value” of animal production; and, not all of this value was actually converted to cash.

• Total cash income (TCI) accounts for all the value that was converted to cash. Some heifer calves were retained and not sold for cash, nor was inventory change converted to cash, so the TCI totaled $899/cow (line 16, column G).

• Integrated Resource Management gross income (IRM-GI) is defined as TCI, plus inventory change. Since there was no inventory change in this example herd, IRM-GI is also $899/cow (line 17, column G). Note that the value of heifer calves kept for replacements is again not included.

Given the projected $159/cwt. price of steer calves, this $899 of IRM-GI is equivalent to 5.66 cwt. ($899/$159) of steer equivalent. This 5.66 number is a composite measure of the cwt. of calf produced from all six sources of GI for this beef cowherd.

My example rancher is projected to sell $159/cwt. weaned steer calves and $149 weaned heifer calves, which will make up 84% of 2011 IRM-GI. Today’s high cull cow and cull bull prices are projected to generate 16% of the IRM-GI generated in 2011 by this example herd. If this GI projection comes true, this will be an all-time high GI per cow.

Figure 2 can be used to simulate the GI impact of alternative production strategies. While space precludes me from going into detail here, I will provide three “food for thought” simulations. In each case studied, the basic cowherd was held to 562 mature cows.

• If percent calf crop (PCP) can be increased from 87% to 89% of the females exposed weaning a live calf, IRM-GI goes up $18/cow, an $10,116 increase for this herd. Conversely, if PCP was to drop to 80%, IRM-GI goes down $72/cow, or $40,464 for this herd. You can see that PCP is all-critical.

• Here is one that will surprise you. If heifer conception rate is increased from 80% to 85%, IRM-GI goes down $11 per cow, or down $6,182 for the herd due to less replacement heifers held back and less cull heifers to sell. Even growing and selling heifers as long yearling feeders is projected to make some money in these favorable times.

• Finally, if the number of heifers held back for replacement is increased by 25%, and that same number of bred females is sold at $1,400/head, IRM-GI increases $56 cow or $31,472 This suggests that developing heifers and calving them out in the home herd will be profitable for the next few years.

Clearly, the current economic rewards for thinking outside the box are at an all-time high. Can you increase the gross income for your beef cowherd? I’ll bet you can!

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.

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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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