A Comparison of the High Profit Beef Cow Herds
To The Total Herd Group
Carrington Area Farm Business Management
Program
Introduction
With the current high prices
in the beef cattle industry, there has been renewed interest in the management
of beef cow herds so as to produce the greatest possible level of
profitability. Beef producers need to
maximize profits at all levels of the cattle cycle to generate the dollars
required in their farming or ranching business.
Producers need to more fully understand their level of inputs and their
potential for generating more profits.
One way to view these items is to take a very serious look at how
high-profit beef cow herds generate their above-average profits and to compare
their production and financial numbers to those of a larger group of beef cow
herds containing herds from all profitability levels.
Procedure
Data for this study was
compiled through the Carrington Area Farm Business Management Program in
conjunction with the North Dakota Farm Business Management Education
Program. The Carrington program is one
of 13 programs in the statewide North Dakota system. The data for this study was collected from
area program members and summarized through the Carrington Area Program from
1994 to 2003 using the FINPACK farm analysis software program. In a very few instances where some high
profit group numbers were unavailable in the database, the average of those
annual figures present was used after careful consideration and correlation
with the high-profit numbers in both the local and regional reports.
The minimum number of
producers involved in the study in any one year was 18 with a maximum of
27. A total of 223 herds containing
24,976 cows were involved of which the high profit 20 percent were represented
by 45 herds and 4,770 cows. It is
important to note that the 20 percent high profit herds are part of the overall
total herd base and therefore, are also part of the average herd numbers. The herd base was quite consistent over the
10years, with many of the same herds involved for the entire time.
While all costs were gathered
on a 12-month basis, the income side of the enterprise, except for the sale of
cull breeding stock, was terminated at weaning when the calves were physically
separated and sold or transferred to a feeding enterprise. While producers were encouraged to weigh all
calves at weaning, it must be acknowledged that some producers did not weigh
all calves when they were weaned and transferred to other enterprises. For these calves, weights were estimated
using the sale weights of herd mates or similar type calves. All replacement breeding stock were held in
separate enterprises and their costs and returns are not included with the beef
cow-calf data contained within this study.
Results and Discussion
The cows in the high-profit
herd group weaned heavier calves that averaged 587 pounds, as shown in Table 1,
for an advantage over the whole herd group of 44 pounds per calf weaned. An even more important statistic is the
high-profit group weaned 548 pounds per exposed female, while the average for
the whole herd group lagged 55 pounds behind at 493 pounds. The average cow generated $418.42 while the
high-profit cows generated $465.57 for an advantage of $47.15 per head.
High profit herds had a
$17.83 advantage in net inventory change which meant they were able to maintain
their herd numbers for an average annual cost of approximately $25.24 per cow
compared to a cost of $43.07 for all herds in the group. This cost figure is greatly influenced by
such things as the initial cost for breeding stock, the cost of replacements,
death loss, the value of culled breeding stock and the culling rate. After consideration of net inventory change,
the high-profit herds maintained a $64.98 advantage in their remaining gross
return.
In the area of direct costs,
the high-profit herds showed an advantage of $26.34 per cow with feed costs
claiming $11.06 of that amount. Overhead
or fixed costs varied by only $4.39 per cow with the advantage again going to
the high-profit herds. While high-profit
herds recorded an average of $7.54 less in non-operating interest costs, they
did exceed the average of the total group by $3.36 in the amount expended for
depreciation of machinery and livestock facilities. Overall, the high-profit herds had a $30.73
per head advantage in combined lower direct and overhead costs.
With all income, costs and
net inventory change considered, the high-profit herds, with a net return of
$134.73, showed an annual advantage of $95.71 over the 10-year period. Their cost of production per hundred-weight
(cwt.), excluding net inventory change was $54.18 compared to $65.95 for the
entire group. When the cost of net
inventory change is included the 10-year annual cost of production is
calculated at $58.66 and $74.39 respectively.
Although this study did not dwell on the numbers associated with the 20
percent low-profit herds, it should be noted that for the group of 45 low
profit herds the average annual net return over the ten year period was
calculated to be a net loss of $103.56 per cow, which included $71.35 for the
annual net inventory change.
An operator labor and
management charge was annually assigned to each farm or ranch based on a
specific formula after which it was allocated to the various crop and livestock
enterprises based on their size as measured by assigned work units. The average- and high-profit groups had
operator labor and management charges of $43.95 and $48.04 respectively. When compared to the average net return per
cow, the high-profit group achieved an additional return of $86.69 above the
operator labor and management charge.
The larger group made up of all the herds posted an average annual net
return per cow of $39.02, which was $4.93 less than the calculated operator
labor charge of $43.95 per cow.
Therefore, while the average cow herd was still profitable, it was not
profitable enough to pay the average operator the full amount due him or her and it did not create any additional profit above the
operator labor and management charge.
Summary
This 10-year period was
selected because of its location within the two high ends of the cattle
cycle. It is reasonable to assume that
the more years we spend at this end of the cattle cycle the better the net
return might be for both herd groups.
Feeds fed during this 10-year period were assigned market values. There may have been situations where feeds
were fed for less than the cost of production and likewise, profits may have
been generated by assigning values to the feeds above their specific cost of
production on a particular farm or ranch.
If producers are depending
upon their beef cow herd to generate profits above the bare amounts needed
strictly for operator labor and management, they must understand that this is
not likely to be accomplished by the average producer within this 10-year
cattle cycle. For increased revenue to
be available for the farm or ranch, producers must move into the area
delineated by the high-profit herds. It
must be noted that even average-profit generating herds do assist in the
recovery of overhead or fixed costs in addition to providing an outlet for
farm-raised feeds that might be unused or remain unmarketed
except for the ability to efficiently and economically process them through a
beef cow herd. This economic benefit
should not be ignored in viewing the large picture as beef cows can produce
income by salvaging both forage and grain crops.
Three targets or goals are
suggested for those producers aspiring to join the 20 percent high-profit
group. First they should aim for 540 to
550 pounds weaned per exposed female.
This would also be reflected in higher weaning weights but watching this
on a per exposed female basis is a more true measure
of productivity. Secondly, producers
should bring their net inventory change figure into the $25.00 to $35.00
range. This implies a closer look at the
cost of both raised and purchased replacement breeding stock. Thirdly, producers need to bring their total
direct and fixed costs into the range of $305.00 to 325.00 per cow. With net inventory change included this would
put all expenditures in the range of $330.00 to $360.00 per head. By working towards these three goals, beef
cow-calf producers can better position themselves to not only survive in the
future but to grow and benefit in the beef cattle industry.
References
Metzger, S.S. Carrington Area Farm Financial and
Enterprise Analysis Reports, 1994-2003. Carrington Area Farm
Business Management Program,
North Dakota Farm and Ranch Business Management Annual
Reports for Region 3, 1994-2003. North Dakota Department for Career and Technical Education,