Increasing the net profitability of a cow-calf operation is simple on paper. Just reduce production costs, increase pounds sold, increase the price received per pound, or some combination of them all.
The tough part is figuring out how to accomplish any of it, says Tim Petry, North Dakota State University Extension livestock marketing specialist.
For instance, with cow-calf data reported through the North Dakota Farm Business Management Education program, Petry can tell you the average net return per cow last year was $64.87. But the average net return among the 20% least profitable operations was -$46.91/cow. Compare that to the $164.03 net return/cow for the 20% most profitable operations. That's a $210.94/cow difference.
Comparing specifics between the most profitable and least profitable, the most profitable operations weaned 51 lbs. more calf per cow exposed. They also spent a fraction more on veterinary expense, purchased more alfalfa hay for winter feed, and sold their calves for $2.34/cwt. more on average.
The most profitable operations also incurred 20% less direct expense per cow (feed, vet, marketing, etc.) and 23% less overhead expense (interest, hired labor, depreciation, etc.) per cow, he says.
Opportunities Vary By Operation
While the practices that make such efficiency possible can be identified, what works for one operation won't necessarily work for another, Petry says.
“The higher profit operations have lower costs, but it's all over the board as to which costs are lower and why the same costs are lower,” he adds.
For example, harsh North Dakota winters magnify the weight of winter feed costs. Some of the most profitable operations lower those costs by keeping cattle in better condition going into winter, which increases calving percentage and breed-back percentage later on. Some slash costs through lower equipment and overhead when it comes to harvesting, hauling and feeding hay. Others rely on lower-cost ingredients in formulating supplements.
“For North Dakota, we can't isolate how producers can reduce costs across the board,” Petry emphasizes. “It always goes back to the management and resource opportunities within individual operations.”
The same can be said on the revenue side. Petry says profitable producers increase saleable pounds in a number of ways, including genetics, nutrition and herd health. The only constant seems to be that the most profitable producers — those who receive more per pound selling calves than the least profitable producers — do more than just “sell” their cattle.
“They're more astute marketers,” Petry says. “Our assumption is they tend to get a higher price per cwt. because they're doing more to market their cattle than hauling them to a livestock market.”
For instance, Petry says some of the most profitable operations work with auction markets in advance, sorting cattle differently, administering pre-conditioning vaccinations and documenting that fact, or simply advertising that their calves will be selling a particular day.
Any Size Works
The other common thread, Petry says, is that efficiency and profit can be had by operations of any size. “There are very efficient small operations and very efficient large ones. Economy of size is not the key factor in profitability,” he says.
Consequently, increasing net profitability is neither a formula nor following a set of instructions. It demands understanding the cost and profit centers of a particular operation. That requires records.
“There are several programs that encourage producers to keep records and also give them the opportunity for comparative analysis,” Petry says.
He says being able to compare the economic performance of one operation to others is key to benchmarking where a specific operation currently resides on the profitability spectrum and how much opportunity there is for progress. Such systems also allow individual producers the opportunity to learn from their peers specifically about how they reduced costs or increased revenue.
As an example, while the practice hasn't yet taken hold in North Dakota, Petry points out some Canadian producers — bound by similar winter nutritional demands — are swath-grazing hayfields rather than baling as a way to cut hay costs. Unless a producer has a firm grasp of his specific costs, he's less likely to look at such options or have a basis for estimating the value of such a particular practice to his own operation, Petry adds.