Steps to Increasing Cow Herd Profitability
Barrett Simon, Livestock Agent
Understanding every financial aspect of your operation can be a daunting task. Feed, equipment, labor, and depreciation all enter into the equation. However, there are so many variables within those categories that a producer can often get exasperated and give in to what they deem is an insurmountable task.
Nevil Speer, Beef Magazine, recently published an article that highlighted profit margin research done by the Kansas Farm Management Association that shows only 1 year from 2005 – 2015 where Kansas cattlemen truly made a profit. Granted, it was a highly successful year where even producers with the highest inputs could have squeaked into “plus territory” due to record high calf sales. I think the graph below is enough to make most of us reflect on our production practices and hopefully take a closer look into our costs, both variable and fixed.
Of course, not every ranch sits right at the average. There is a wide window of producers from those with the desirable tandem of lowest input, highest revenue to those with a tougher system that yields the highest input, lowest revenue. Now for the burning question: Where do the differences lie and what does it take to jump into a more profitable sector in 2018? The first step is to realize that our industry is not an industry of “absolutes”, while many producers fall either into the category of chasing the lowest input or the highest gross income, the greatest number of producers who remain competitive year after year are those who understand profitability lies at the crossroads of the two.
While we all seem to know each year’s calf market like the back of our hand, cow costs are a number that are often put on the back burner and checked every 5-10 years. Yet data collected by the Livestock Marketing Information Center shows that annual cow costs have jumped more than $300 on average since 2010. Understanding the volatility and current inflation rate of the beef market is crucial beginning each year with a fighting chance.
How do we ensure that we are representing our finances accurately and truly understand cost benchmarking? The first step is to be completely open about all expenses that accumulate and the second is to remain organized in keeping track of those expenses. Include an account manager and build a relationship so that you can ask the tough questions and better understand issues when they come up. Clay Mathis of the King Ranch Institute reminds us that, “Feed and labor expenses are typically well understood, but depreciation is an expense often more difficult to grasp. The result is a considerable amount of unaccounted expense in livestock, equipment, and infrastructure depreciation. Managers should be aware of the effect depreciation of livestock, equipment, and infrastructure has on the long term equity of an operation. The ways to decrease livestock depreciation are: reducing purchase price of breeding stock, increasing salvage values, or increasing longevity of cows and bulls. Reducing equipment depreciation may be accomplished by sharing, renting, leasing, or contracting equipment.”
From there, producers should build, revise, and reference their own business plan. If your operations goal is to buy short term, broken mouth cows late in the fall and turn for a profit as spring pairs, the rest of your business plan should mesh with that; meaning that producers who aim to buy cows as cheap as possible probably do not need to buy the most expensive feedstuffs or mineral package. On the contrary, seedstock producers or those who strive to sell a premium product can be more willing to spend additional money on genetics and nutrition in order to ensure the cattle they aim to sell stand out amongst other lots. With that being said, always look closely at where exactly you’re spending money. If a low cost product does not meet the needs of your cows, it can turn into a high cost product awfully quick. If a more expensive product does not offer enough value to offset its cheaper competitor, then there is probably not a reason to spend the additional money. Every input should be tailored to exactly what your operation strives to achieve.
In addition to identifying the goals of your ranch, challenge your business to remain current with the applicable, proven production methods. Shortening the calving window, early weaning, intensive grazing, and late season protein supplementation are just a few options to explore to help jumpstart your operation. Assess what small change in production practices can reap the largest benefit to your business and then calculate the risk involved; the next step is putting your plan into action.
In short, the outline towards a more profitable system can be broken down into four steps: Define your business plan, understand costs completely, look for more efficient alternatives, and explore proven production practices.
Sources
• Mathis, C.P.; Machen, R.V. “Key Drivers of Cow Herd Profitability” King Ranch Institute for Ranch Management
• Pendell, Dustin; Herbel, Kevin “What’s the Difference Between High, Medium and Low-Profit Producers?” Beef Magazine http://www.beefmagazine.com/management/what-s-difference-between-high-medium-and-low-profit-producers 1/11/18
• Speer, Nevil “Whats Your Cost to Keep a Cow?” Beef Magazine http://www.beefmagazine.com/cow-calf/what-s-your-cost-keep-cow 3/17/16
For More Information
Barrett Simon
Post Rock Extension District – Livestock Agent
Barrett8@ksu.edu – (785)378-3174
Post Rock Extension District of K-State Research and Extension serves Jewell, Lincoln, Mitchell, Osborne, and Smith counties. Join us on Facebook at “Post Rock Extension” along with our blog site at postrockextension.blogspot.com. Follow us on Twitter @KSRE_PostRock. Also remember our website is postrock.ksu.edu
Understanding every financial aspect of your operation can be a daunting task. Feed, equipment, labor, and depreciation all enter into the equation. However, there are so many variables within those categories that a producer can often get exasperated and give in to what they deem is an insurmountable task.
Nevil Speer, Beef Magazine, recently published an article that highlighted profit margin research done by the Kansas Farm Management Association that shows only 1 year from 2005 – 2015 where Kansas cattlemen truly made a profit. Granted, it was a highly successful year where even producers with the highest inputs could have squeaked into “plus territory” due to record high calf sales. I think the graph below is enough to make most of us reflect on our production practices and hopefully take a closer look into our costs, both variable and fixed.
 |
| KFMA; Pendell & Herbel, BEEF Magazine |
While we all seem to know each year’s calf market like the back of our hand, cow costs are a number that are often put on the back burner and checked every 5-10 years. Yet data collected by the Livestock Marketing Information Center shows that annual cow costs have jumped more than $300 on average since 2010. Understanding the volatility and current inflation rate of the beef market is crucial beginning each year with a fighting chance.
How do we ensure that we are representing our finances accurately and truly understand cost benchmarking? The first step is to be completely open about all expenses that accumulate and the second is to remain organized in keeping track of those expenses. Include an account manager and build a relationship so that you can ask the tough questions and better understand issues when they come up. Clay Mathis of the King Ranch Institute reminds us that, “Feed and labor expenses are typically well understood, but depreciation is an expense often more difficult to grasp. The result is a considerable amount of unaccounted expense in livestock, equipment, and infrastructure depreciation. Managers should be aware of the effect depreciation of livestock, equipment, and infrastructure has on the long term equity of an operation. The ways to decrease livestock depreciation are: reducing purchase price of breeding stock, increasing salvage values, or increasing longevity of cows and bulls. Reducing equipment depreciation may be accomplished by sharing, renting, leasing, or contracting equipment.”
From there, producers should build, revise, and reference their own business plan. If your operations goal is to buy short term, broken mouth cows late in the fall and turn for a profit as spring pairs, the rest of your business plan should mesh with that; meaning that producers who aim to buy cows as cheap as possible probably do not need to buy the most expensive feedstuffs or mineral package. On the contrary, seedstock producers or those who strive to sell a premium product can be more willing to spend additional money on genetics and nutrition in order to ensure the cattle they aim to sell stand out amongst other lots. With that being said, always look closely at where exactly you’re spending money. If a low cost product does not meet the needs of your cows, it can turn into a high cost product awfully quick. If a more expensive product does not offer enough value to offset its cheaper competitor, then there is probably not a reason to spend the additional money. Every input should be tailored to exactly what your operation strives to achieve.
In addition to identifying the goals of your ranch, challenge your business to remain current with the applicable, proven production methods. Shortening the calving window, early weaning, intensive grazing, and late season protein supplementation are just a few options to explore to help jumpstart your operation. Assess what small change in production practices can reap the largest benefit to your business and then calculate the risk involved; the next step is putting your plan into action.
In short, the outline towards a more profitable system can be broken down into four steps: Define your business plan, understand costs completely, look for more efficient alternatives, and explore proven production practices.
Sources
• Mathis, C.P.; Machen, R.V. “Key Drivers of Cow Herd Profitability” King Ranch Institute for Ranch Management
• Pendell, Dustin; Herbel, Kevin “What’s the Difference Between High, Medium and Low-Profit Producers?” Beef Magazine http://www.beefmagazine.com/management/what-s-difference-between-high-medium-and-low-profit-producers 1/11/18
• Speer, Nevil “Whats Your Cost to Keep a Cow?” Beef Magazine http://www.beefmagazine.com/cow-calf/what-s-your-cost-keep-cow 3/17/16
For More Information
Barrett Simon
Post Rock Extension District – Livestock Agent
Barrett8@ksu.edu – (785)378-3174
Post Rock Extension District of K-State Research and Extension serves Jewell, Lincoln, Mitchell, Osborne, and Smith counties. Join us on Facebook at “Post Rock Extension” along with our blog site at postrockextension.blogspot.com. Follow us on Twitter @KSRE_PostRock. Also remember our website is postrock.ksu.edu
