Benchmarking is comparing your beef cow herd's production, financial and costs of production measures to those from a set of benchmark herds. Last month, I illustrated how benchmarking your production and financial measures can help identify your management strengths and weakness. This month, I will present some benchmarking details for implementing a cost-control program for your herd.
Cost control is in the details, so I'll devote this column to a set of cost-of-production benchmarks ranchers can use in benchmarking the costs of running their beef cow herds. These benchmark values are the averages of selected cost variables generated by 124 North Dakota herds participating in North Dakota's state-wide Farm Business Management associations.
As these are averages, these benchmarks should be attainable goals. Ranchers' goals should be to match or beat these values.
Benchmark herds' cost summary
Let's first look at the cost components listed in Figure 1 for these 2004 benchmark herds.
Pasture costs. The Integrated Resource Management Guidelines for calculating economic pasture costs call for using an opportunity cost for the economic cost of pasture. Opportunity cost for rental pastures is straightforward — it's the rental payment. Opportunity pasture costs for leased federal and state lands are also straightforward — the actual dollar payments made.
Owned deeded land, however, is more problematic. Opportunity cost on owned deeded pastureland is charged at the local going pasture rental rate. Be careful not to double-account — if the going rental rate you use places fence-repair on the landlord, don't add fence-repair costs to the opportunity pasture costs. If the going rental rate includes the tenant fixing the fence, then fence repairs should be included.
Pastureland taxes shouldn't be added to going rental rates. In a future column, I'll explain how I calculate pasture costs — it's not as straightforward as it seems.
Winter feed costs. Winter feed costs consist of feed disappearance attributed to the cow herd, times the local going market price for each feed. Feed disappearance includes the quantity consumed by the breeding herd, plus wastage. Don't include storage losses.
Calculating feed disappearance can be a challenge. I recommend a hydraulic oil pressure gauge mounted on the loader tractor and calibrated to measure the weight of each bale lifted. Other managers use scales on their feed wagon and typically tally feed disappearance on a regular basis.
Winter feed costs are priced on an opportunity-costs basis in that farm-raised feeds are valued at local going market prices — not cost of production. If farm-raised feeds weren't fed, they could be sold on the local market.
Figure 2 shows the forage-feed disappearance calculations for the benchmark herds. Annual pounds of each forage fed/cow are reported in “as is” pounds, and then totaled. Each forage feed is then adjusted for dry matter (DM) content and a total DM disappearance is calculated.
Finally, the total DM consumed is used to calculate the “tons-of-hay equivalent” that disappeared. Do this by dividing total DM pounds by the typical DM content of hay (90%) to obtain the total “as is” pounds of hay equivalent that disappeared (6,031/0.90)/2,000 = 3.35 tons).
This 3.35 tons of hay equivalent can be used to benchmark ranch's consumption of different types of forages.
Figure 3 presents the benchmark herds' annual $240/cow feed cost. The total winter forage program cost an average of $125/cow with the total winter-feeding program costing $158/cow. The summer feeding program averaged $82/cow.
As shown in Figure 1, this $240 annual feed cost is 47% of the total cost of operating these benchmark herds.
Vet and medicine costs averaged $14.50 on these 2004 benchmark herds.
Livestock costs. Figure 4 presents the cost details behind the $61 “livestock costs” for the benchmark herds. Each cost category includes only costs directly associated with the beef cow herd profit center.
Again, be careful not to double-account. Don't charge opportunity/market price for farm-raised feeds, plus the costs of raising those feeds. And don't include such farming costs as putting up hay and raising cash crops.
For example, fuel and oil costs for the beef cow herd is only for that portion of oil consumption directly associated with the beef cow herd — primarily what's used for feeding the beef cows, plus pickup fuel in checking cows in the pasture. Beef cow repairs are only those repair costs associated directly with the beef cow equipment, beef cow facilities and beef cow buildings.
Livestock leases cover the value of leased-cow payments when they're present. Most herds don't have leases. That's why this average lease cost figure is so low.
Overhead costs. Figure 5 presents the detailed average $55 overhead costs for the benchmark herds. These represent only the overhead costs associated with the beef cow herd.
For example, utilities costs are only those attributed to the beef cow herd. Don't include household utilities and non-cow herd utilities. Machinery and building depreciation includes only beef cow-related machinery (not haying equipment) and only beef cow-related buildings.
Replacement heifer costs. The $128 replacement heifer cost in Figure 1 is the total cost of growing a replacement heifer (including the market value of the heifer calf at weaning 2002), plus the purchase cost of any replacement heifer. It covers all costs up through preg-check time prorated out to all cows in the beef cow herd.
With a 15% replacement rate, the posted $128 heifer replacement cost/cow figures out to $853 for a preg-checked replacement heifer. This is based on a 2002-born heifer. Today's preg-checked replacement heifers based on 2003 and 2004 heifer calf prices will cost more than $1,000/head.
Costs total to $512/cow on the benchmark herds, given the $128 replacement heifer cost. This figures out to an $85 unit cost of producing a cwt. of calf (UCOP).
Ranchers should benchmark their production costs per cow to identify their business's cost strengths, and then apply management to capitalize even more on these strengths. Ranchers need to find their cost weaknesses and focus added management energies on removing them. Cost control is clearly in the details.
Harlan Hughes is a North Dakota State University professor emeritus. He lives in Lauramie, WY. Reach him at 701/238-9607 or email@example.com.