Build A High-Profit Beef Business
Lessons learned from high-profit operations.
Harold Harpster
Published: Oct 28, 2011
Times are pretty good for cow-calf producers – except for those in drought-plagued regions. And, the future looks even brighter for at least the next several years.
So now's the time to plan for that future by studying successful components of profitable operations and avoiding those less successful. Consider a few lessons drawn from a 2011 study by Kevin Dhuyvetter, farm management economist at Kansas State University.
He boiled down five years (2006-2010) of production and profitability data from 88 cow-calf enterprises. He sorted out operations with average calf selling weights over 700 pounds, since that indicates a backgrounding operation instead of a true cow-calf operation.
Also excluded were farms with less than 10 cows, if cattle purchases were greater than 25% of their herd in any one year and if net sales (sales less purchases) of breeding stock were greater than 25% in any one year. Culling done, the remaining farms were ranked from high to low based on returns over costs.
Herds were corralled into three groups: high return (29); mid return (30); and low return (29). Average production and cost data were then summarized for each.
Cow-calf returns over variable costs have been positive for 23 of the last 32 years, notes Dhuyvetter. Feedlots would live a record like that!
Keep in mind that by "accepted cattleman accounting practices", most focus on variable costs. If “out of pocket” costs are more than covered, the year's a success.
But before you buy up neighboring herds, consider this: If you consider total costs (variable plus expenses such as depreciation, taxes, unpaid operator labor, and interest on assets), only four of those 32 years were "in the black".
Sizing them up
First, let’s look at size and productivity. More profitable operations tend be somewhat larger, and tend to “specialize” more in the cow-calf enterprise.
The percentage of total farm labor allocated to livestock is 46% for the high-profit group, 39% for the mid-profit and 25% for the low-profit producers. When more time is spent with crops and less with the cattle, it shows in the bottom line!
High-profit producers wean heavier calves, but only 25 pounds heavier than the mid group and 30 pounds heavier than the low group. Calf sale prices are surprisingly close among all three producer groups. That was likely since we're still in a period of low supply and high demand for calves.
Cost control is key
Spreading costs over more animals is where the separation of profit groups kicks in. Although the high-profit group had the heaviest calf weaning weights, they accomplished it with a variable cost of $451 per cow versus $546 for the mid-profit group and $599 for the low-profit group.
In other words, the high-profit group produced heavier calves for almost 25% less cost! Per-cow costs were consistently lower for the high-profit group. Again, comparing the high versus low group:
* Feed costs per cow were 21% lower;
* Interest costs, 44% lower;
* Vet medicine and drugs, 21% lower;
* Marketing and breeding costs, 31% lower;
* Machinery costs, 31% lower;
* Labor costs, 21% lower;
* Other expenses, 34% lower.
Overall, the average five-year return over variable costs per 100 cows would have been $11,661 for the high-profit group and a loss of $14,647 in the low-profit group. It all comes down to smart management and controlling costs without harming productivity!
The bottom line is . . .
Studying these results carefully, you'll come away with three take-home messages. One is that there's tremendous variability in the profitability of cow-calf operations, regardless of year. Top producers find a way to be profitable even in bad years, and poor producers find a way to lose money even in good years!
Secondly, cost control is absolutely essential. There was a much larger difference between top and bottom producers in total costs per cow than in total income per cow.
Finally, “benchmarking” provides the real value in studies such as this. Compare your costs and returns to those of these operations. Identifying where you can make the most cost-effective improvements in your operation puts you well on the road to success.
For a copy of that dollars-and-cents summary table for cow-calf returns, email Harpster at hharpster@das.psu.edu.
Harpster is a Penn State animal scientist and a beef cow-calf producer.
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Tagged: labor, farm, Drought, accounting, interest costs
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