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COST CONTROL AN IMPORTANT MANAGEMENT TOOL Part 3

Dr. Steve Blezinger
Ph.D.

In the last couple of issues we have discussed a number of concepts relating to controlling costs and expenses on your cattle operation. I'd like to continue this discussion today and elaborate a bit more on some of the factors we've already looked at and a few new items up for debate.

1. Forage Production Expense Reduction -- Continued

In the last issue, I mentioned that steps should be taken to protect hay supplies and feed in such a way as to minimize losses. I stated that in feeding large round bales it is not uncommon to lose as much as 25 to 30 percent of a bale. Let's consider this for a minute: All things considered, cost of production of one 1,200 lb. round bale of bermuda grass normally equals anywhere from $15 to $20 per bale. Let's use the figure on the high side and say $20 per bale. On a per ton basis, this means this hay is costing $33.33 per ton. If you are able to get 100 percent utilization of this hay and a cow consumes 25 lbs. per head per day, your hay cost per day is equal to $.42 per head ($33.33/2000 = $.01666 X 25 = $.41666). Table 1 below illustrates how your hay feeding costs go up as more loss is incurred.

Table 1: Increased Hay Feeding Cost with Increased Hay Losses
Hay Cost/Ton % Loss Adjusted Cost/Ton Hay Cost/Head*
$33.33 0.0 $33.33 $.42
33.33 5.0 35.08 .44
33.33 10.0 37.03 .46
33.33 15.0 39.21 .49
33.33 20.0 41.66 .52
33.33 25.0 44.44 .56
33.33 30.0 47.61 .60

*Assumes 25 lbs. hay intake per head per day.

From this you can see that the difference between hay losses of 10 percent and hay losses of 25 percent equal $.10 per head per day. For a herd of 100 head this equals $10 per day or $1,200 over a 120 day feeding period. On a per cow basis, over the same period, reducing hay losses by 10 percent, resulting in a reduction of hay cost of $.10 per head per day will reduce the overall hay cost for that animal by $12. In some years, this alone could mean the difference between a profit and loss. In many cases it is very cost effective to take the necessary steps to reduce the amount of hay lost to weather exposure, having it stomped into the mud during feeding, etc. Simply stacking your hay and covering with a sheet of plastic can reduce hay losses significantly.

2. Feeding and Supplementation Cost Reduction Methods

We've gone over this area quite extensively in the past, but I feel that it's always helpful to reiterate on some of these concepts. To discuss efficient and cost-effective feeding and supplementation we have to go back to forage production practices. Remember, you can't just look at a pasture or a bale of hay and accurately estimate what the nutrient levels will run. This takes us back to the need for forage testing to know what's there. This also takes us even further back to the need for soil testing so we can fertilize pastures and fields accurately to maximize forage quality. Accurate fertilization, combined with good management practices will produce volumes of better quality forage at an acceptable cost. While we can't control rainfall patterns and infiltration of army worms and other environmental variables we can make informed, effective decisions to produce the best hay possible at the lowest price. Since forages act as our core nutrient source, if we do an effective job producing these forages, we can minimize supplementation and feed cost.

A. Feed and Supplement According to Forage Tests

As discussed, use forage testing information to determine what you have in your hays, pastures, silages, etc. Compare this to animal requirements as we have discussed in the past and provide protein, energy, minerals and vitamins as needed to make up the deficit. Seldom, if ever, is there a time of the year when no supplementation is needed at all. At the very minimum, a free-choice mineral needs to be kept out 100 percent of the time. Protein and energy supplements tend to be required in various amounts at various times of the year. But here again, this should be dictated by the changes in your forages and by the changes in your herd's production schedule.

B. Plan Feed and Supplement Purchases Well in Advance

Using past production histories, forage data, etc. you can anticipate a significant portion of the supplemental feeding needs your herd has. By anticipating and planning these needs (write it down!) you can determine when and how much will be required. For example:

1) As stated above, mineral supplementation is required year-round, based on the size of your herd and any anticipated changes that may be made, you can determine how much will be needed. With a well formulated mineral designed to match your forage program, you can anticipate consumption levels of .15 to .25 lbs. per head per day. That means that over a given month and year a cow will consume an average of 6 and 72 lbs. of mineral respectively. A herd of 100 head will consume about 600 lbs. per month and 7,200 lbs. per year. I normally recommend for producers to purchase no more than a 30 to 45 day supply at one time depending on the environmental conditions and storage facilities. While the minerals will remain intact for long periods of time (as long as they are kept dry) vitamins are susceptible to deterioration when subjected to heat, light, moisture. Ideally, you want to keep minerals stored in a relatively cool, dry area. Considering that the average cost of a free-choice mineral can range from $400 to $500 per ton or more, minimizing waste (also known as shrink) is very important.

For the most part, mineral pricing is pretty stable and does not fluctuate significantly unless a problem develops in the supply of phosphates or other major mineral components. We see pricing movements fairly regularly in items like cobalt or selenium or iodine but since these are added at very low levels, such movements have very little effect. Your greatest issue of concern is matching the mineral to the forage being fed to keep the intake of various minerals and vitamins consistent.

2) Watch protein and energy markets closely. You have heard me emphasize the importance of becoming a student of the feed and grain markets. By paying attention to how these markets move, what effect time of year, demand, plantings, harvests, export/import activity etc. have, you can better plan what and when to buy. I recommend for clients to find feed and grain suppliers that aggressively track the markets and stay on top of their purchasing. This helps insure that any feeds or supplements you purchase will be priced competitively.

3) Select potential suppliers carefully. Understand that feed companies have to add a margin for operating costs, overhead and for a certain level of profit, but often times you will encounter companies that routinely sell products that are priced higher than their competition. Something may be “out of whack.” What I mean by this is they are either adding a higher than normal margin, are not monitoring markets closely enough or are doing a poor job buying, have excessive overhead costs, etc. Conversely, beware of suppliers that are always significantly cheaper than the competition. You have to ask, why are they so much less expensive, is the quality of the product substandard? Is something in the formulation or manufacturing process being compromised, are products made according to tag guarantees? They may, in fact, simply be willing to take a lower profit margin but these are issues which must be investigated.

4) Purchase feeds in bulk if possible. Utilization of a storage tank, commodity bin, etc. is normally a good way to reduce costs incurred by bagging. Bags themselves normally add an additional $12 to $16 per ton to the total cost of feed. Labor to bag off feed, stack, etc. will typically add an additional $5 per ton. Total bagging costs can routinely add $20 to $26 to the cost of a ton of feed. The cost of storage facilities such as storage tanks, etc. is an added expense but is, under most circumstances, an excellent investment given you have suppliers in your area that can deliver the feed to you and can effectively unload it wherever necessary.

5) Keep your program simple. Use of numerous feeds and ingredients can be confusing not to mention expensive. Design your program to get by with as few ingredients or feeds as possible. I've seen feed formulas that look like rocket fuel and seldom is this ever justified.

6) If your operational size justifies the effort, consider buying a few of your own ingredients and mixing them yourself. This does not need to be a complicated situation and in many cases you can save hundreds or thousands of dollars per year by doing some of this yourself. Obviously, it helps to have the time to take on these extra tasks and that must be evaluated as well.

7) Consider feeding alternative feed sources. We've discussed use of by-product feeds and less than conventional feeding options fairly extensively in the past. By-products and co-products (these are synonymous) can be excellent sources of protein, energy, fiber, etc. are often much cheaper than corn, soybean meal, cottonseed meal, etc. in a feeding program.

A Few Points to Ponder

As we develop a better understanding of managing expenses in a cattle operation, there are several points we need to remember.

1) Like any other, a cattle operation is a business. Many operators use their farm or ranch for recreation, hobby purposes or simply as a “release” and therefore will say they are not concerned with making a profit. I think we can all agree that regardless of whether your cattle business is your primary means of income or is simply a sideline at the very least, you'd like to break even. If this is your entire “ball of wax,” you definitely want income to exceed expenses.

2) Cash flow is a major concern. Timing of income and timing of expenses becomes critical, especially at certain times of the year. This can also have an effect on your tax bill and prepayment of certain expenses can be useful. I recommend that clients work closely with their accountant to make sure they are taking advantage of every option possible.

3) If financing is necessary, shop for deals on loans just as you would any other expense. This is especially true when you look at the size of many asset and operational loans and what they will end up costing you over the long haul. A percentage point or two will have a major impact on long term profits.

4) Spend as much time or more on marketing as you would on shopping for the best cost on inputs. One of the major problems I have encountered is that many cattlemen will research and shop and haggle and pinch pennies until they make Lincoln scream only to load up their calves and haul them to the local auction without any consideration to other marketing avenues which could be substantially more profitable.

Operation of a profitable cattle operation is, and always has been, a challenge. I am encouraged, however, that profitability is not as elusive as many may think if we do our homework and put the time and effort in to planning. This includes not only what we need to do but how we spend the money and how we market the product.

Dr. Steve Blezinger is a nutritional and management consultant with an office in Sulphur Springs, TX. He can be reached at P. O. Box 653 Sulphur Springs, TX 75483, by phone at (903) 885-7992 or by e-mail at sblez@unicomp.net



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