by: Wes Ishmael

At the risk of sounding like the proverbial busted record, while revenue matters to the fortunes of cow-calf operations, cost matters more.

Since beef producers are price takers rather than price setters, profitability can be controlled best through cost management, says Dustin Pendell, Kansas State University (KSU) livestock economist.

“When compared to the revenue differences, the differences in costs between operations were much larger,” explains Pendell and co-authors of the Analysis of 2010-2014 Kansas Farm Management Association (KFMA) Cow-Calf Enterprise. “High-profit operations had a $282 per cow cost advantage over low-profit farms (24 percent advantage) and a $97 cost advantage over the mid-profit farms. High-profit operations had a cost advantage in every cost category compared to the mid-profit and low-profit operations, except for pasture.”

Combining the gross income and cost advantages for the high-profit farms results in a net return advantage of $415.03 and $189.26 per cow compared to the low-profit and mid-profit farms, respectively.

The purpose of the analysis was to break down the different factors between high-profit, medium-profit and low-profit cow-calf producers. It also updates a similar publication that analyzed cow-calf enterprises from 2008-2012. Data were compiled from available information about revenue and expenses from producers enrolled in KFMA.

In the current analysis, two-thirds of the differences between net returns come from costs; the remaining third comes from gross income.

The highest-profit beef producers in the analysis tended to allocate a higher percentage of their labor to livestock production when compared to crop production; they also tended to be more specialized. The highest-profit producers had larger herds, slightly heavier cows at marketing time and generated 16% more revenue per head (close to $134 more per head).

“It is important to point out that being a large operator does not guarantee low costs and high profits, as a number of mid-sized to smaller operations were competitive,” according to the analysis summary. “Operations that specialized in the cowherd enterprise, relative to crop enterprises, based on their labor allocation, tended to have lower costs and be slightly more profitable. The factor that is extremely important regarding profit and cost differences between producers is how well they manage their non-feed costs.”

Time perspective

Kansas beef producers enjoyed their largest average annual return in 2014 since 1975—$589.50 per head, according to KFMA data. Just six years earlier, the average annual return was the lowest in 40 years at a negative $76.40 per cow.

Pendell says there are several reasons for the almost $670 difference in average return per cow between 2009 and 2014, including: cow-calf herd expansion the past couple of years; decreased beef demand from 2008 to 2009; the widespread drought in 2012; increased in beef demand in 2014. All contributed to the fluctuations within a relatively short timespan.

“Using the KFMA data – the returns over total costs over the past 40 years – there were six years that had a positive (average) return,” Pendell says. “The other 34 years resulted in a negative return per cow.” So, six years of profit out of four decades.

Not for everyone, though.

“Even when the macroeconomic conditions led to an average loss of $119.65 per cow over this 5-year time period, the top third of the producers fared much better than the average (average gain of $81.62),” according to the study. “Furthermore, 21 of the 79 producers realized a positive return over total costs (average of $107.86 per cow) over this time period. In other words, even though cow-calf enterprise returns are highly variable over time due to hard-to-manage macro-economic factors, the variability across producers at a point in time is even larger. These larger differences across individual operations can potentially be managed and therefore represent opportunities.”

Natural and economic production limits

Keep in mind that various data suggest average production may be maxed out if an operation is already harnessing cost-effective opportunities to add weight to calves—things like implants, ionophores and crossbreeding.

David Lalman, Extension beef cattle specialist at Oklahoma State University, explained at this year's annual meeting of the Beef Improvement Federation, “On average, minimal improvement in weaning weight and no improvement in reproductive efficiency has been achieved in the nation's commercial cow herd over the 24-year time period evaluated. This is surprising because genotypic and phenotypic trends indicate substantial positive change in breed association data.”

Lalman shared results of an evaluation conducted by him and other researchers at OSU and KSU that looked at cow-calf benchmarking data from KFMA, as well as from the Southwest Standardized Performance Analysis coordinated by Texas A&M University, the Cow Herd Appraisal Performance (CHAPS) program at South Dakota State University and FINBIN, data from the Center for Farm Financial Management at the University of Minnesota.

Overall reproductive efficiency did not changed significantly throughout the time period in any of the datasets.

“This data suggests a substantial reproductive efficiency gradient declining from the northern to the southern Great Plains region of the United States,” Lalman explained.

Although regression analysis suggests that average weaning weight increased at the rate of about 1.1 lbs./year in the KFMA herds, it was unchanged in the other three datasets.

“Genetic improvement would be expected to lag in the commercial segment by several years,” Lalman and fellow researchers explain. “Regardless of the reason, commercial operators should be asking the question, ‘Does continued aggressive selection for growth improve my bottom line?' Certainly, potential antagonisms of continued aggressive selection for growth should be considered.” He cites increased appetite and maintenance requirements in retained females, as an example.

Moreover, based on these data, Lalman explained that the value of adding a pound of weaning weight is about the same as its cost over time.

Accurate Data Pays

Spinning another dog-eared album, it's plumb tough to manage costs without accurate records.

“If you're keeping records, that allows you to make better-informed management decisions,” Pendell says. “From a management standpoint, if producers track their records they can use those records to figure out if there's any opportunity for improvement, and that's probably going to come on the cost side.”

“Even in the good years, some producers are losing money, and even in the bad years some producers are making money,” say the study authors. “This is important because it indicates there are management changes producers can make to seek to improve their operations.…there is tremendous variability across producers, which means there is room for producers to improve their relative situations.”

“Although certainly not new or revolutionary, a shift towards more emphasis on minimizing production cost in the cow/calf enterprise is appropriate,” say authors of the evaluation presented at BIF. “This shift should not come at the expense of industry gains made in post-weaning characteristics over the past 20 years.”

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