Ten years ago, I promised North Dakota’s beef cow producers I would spend the next decade dedicated to the IRM program. In that time, we saw some good times in the cattle industry and some bad times as we covered the biggest portion of the 10-year cattle cycle.
We learned that if beef farmers and ranchers want to know where money is earned in the operation they must divide the ranch into profit centers and treat each profit center as a stand-alone business. We then learned how to specifically calculate economic return, costs and cash flow associated with the beef cow profit center.
We learned a beef cow producer needs to count females exposed to the bulls in order to measure reproductive efficiency.
We learned that percent calf crop is calculated by taking the number of live calves weaned and dividing them by the number of adjusted females exposed. Some adjustments are allowed for females bought and sold after bull turnout date.
We learned herd performance records lead to more intensive management, which leads to more production. More production typically leads to lower unit cost of production (UCOP).
We learned that both profitability and net cash flow must be monitored, as they are distinctly different performance measures.
We learned business profitability can be measured only after a beginning and ending inventory are taken. True profitability can be calculated only by including a measure of inventory change. Profitability is made up of both cash and non-cash components. We learned that UCOP is the ratio of total herd costs divided by the total pounds of calf produced. We also learned that an adjustment first has to be made for non-calf income.
We learned UCOP varies substantially from herd to herd, yet most beef cow producers don’t calculate their UCOP, which is the cost of producing a cwt. of calf. In North Dakota’s case, it’s specifically a cwt. of steer calf.
We learned there are a lot of leased cows being run on the Northern Plains. Leased cow herds were typically high-unit-cost-of-production herds due to the fact that considerable amount of gross income was paid to the cow owner. The belief is that the capital cost of owning cows is the single largest cost. In reality, feed cost is the single largest cost of running cows.
It’s not uncommon for the cow owner to get 40% of the calf crop and all cull cow income. Given the fact that cull income can be 10-20% of gross income, more than 50% of the gross income typically goes to the cow owner.
We learned many cow leases were not equitable. I would define an equitable lease as one where the calf crop is shared in the same proportion that the costs are shared. If the cow owner provides 30% of the costs and working rancher provides the other 70%, then an equitable lease would call for 30% of the calf crop going to the cow owner and 70% of the calf crop going to the working rancher. We learned that the most common leases were 60/40 and our economic analyses showed that these 60/40 leases were typically not equitable.
Throughout the cattle cycle of the 1990s, we learned that big cows producing big calves can be very profitable with high calf prices. We also learned that big cows producing big calves can be very unprofitable with low calf prices.
We learned that there are four critical success factors for running a high-profit herd: calf weaning weight, low feed costs, high gross income and low overall costs. We also learned that beef cows will not support a lot of debt — probably less than 40% of the capital invested in the beef cow profit center.
We learned a beef cow manager can not manage what he doesn’t measure. If a manager doesn’t measure feed consumption, he can’t manage feed costs. Without measurement, how does he know if he is making progress?
Low-cost producers tend to know the nutrient requirements of their cows, know the nutrient quality of their feeds, and feed their cows according to the cows’ nutrient needs — when they need it. On-the-other-hand, we learned that high-cost producers dump feeds. If in doubt, they dump more feed. They typically don’t know the nutrient quality of their farm-raised feeds nor the nutrient requirements of their cows — particularly bred heifers. They typically feed the same ration in the second and third trimesters and in lactation. They also feed two-year-old heifers with the mature cows. We learned feed costs accounted for 60% of all production costs, but relatively few producers balance rations. We learned feed disappearance is a key determinant of unit costs of production.
We confirmed that the cost of farm-raised feeds is typically lower than purchasing feeds, with one exception. That’s when money is borrowed on the feed land and harvesting machinery. In this case, some producers could consistently purchase feeds at a lower cost than raising them. Machinery costs are the one cost that has inflated substantially over the years. As a result, the machinery cost is dragging ranching profits down.
We learned high-cost producers are high-cost in all categories. Debt costs were less on low-cost producers, but low-cost producers were not debt free. Debts on low-cost herds averaged $314/cow in 1996 while debts on high-cost herds averaged $574/cow.
We learned that one-third of IRM cooperators studied produced calves for less than $50/cwt. These low-cost producers made a profit with their beef cows in 1994, 1995, 1996, 1997 and 1998.
In summary, we learned that ranchers must weigh calves to measure herd performance. They must count cows on bull turn-out date and Jan. 1 of each year. They must treat their beef cows as a profit center.
We learned ranchers must measure production costs to manage production costs. Finally, we learned that conducting a comparative analysis of our beef cow herd against benchmark herds is the single most powerful ranch management tool available, bar none!