NEWS for North Dakotans
Agriculture Communication, North Dakota State
University
7 Morrill Hall, Fargo, ND 58105-5655
January 8, 1998
Harlan Hughes, Extension Livestock Economist
NDSU Extension Service
[Part III in the series: "This Is the Year to Do Your Homework Before You See Your Banker" ]
Now that the cattle cycle has turned downward and beef price cycle has turned upward, it is imperative that you take a good hard look at the production and financial performance of your beef cow herd. After the last three years of low beef prices, your management challenge is to design an aggressive multiyear business plan that takes advantage of the next few years of favorable beef prices, a plan that focuses on maximizing profits rather than maximizing production. Maximizing profits requires that you know your costs of production.
A traditional multiyear plan that holds back additional replacement heifer calves in 1998, 1999 or 2000, in order to sell more calves after 2000, probably will not cut the mustard, because calf prices are projected to turn down around 2001 to 2002. Building a business plan that converts more home-raised feeds into more pounds of beef to be sold during the years of high prices probably will bring about a much better result. For many of you, doing this requires increasing the production and economic efficiency of your herd—and that's what this Market Advisor series is all about.
In my last two columns I presented benchmarks for evaluating your herd's production and economic efficiency. In this one, let's take an in-depth look at feed cost, since feed cost is the single biggest component in the unit costs of producing a hundredweight of calf.
National guidelines suggest that summer economic grazing costs should be based on opportunity costs. Opportunity cost is the rent that you could have collected from your pasture land if you had rented it to another rancher instead of using it yourself. Summer grazing costs for the total herd are calculated by multiplying the local dollar rent per acre by total acres used to support the herd, and dividing by the number of cows in the Jan. 1 inventory. In short, your cow herd's summer grazing costs should be based on your local pasture rental rate per acre and your stocking rate. This approach ensures that your cows are charged the opportunity costs of summer grazing.
Grazing costs for 1996 among Northern Plains benchmark herds averaged $68 per cow. Grazing costs for the low-cost third of these herds averaged $58 per cow, while grazing costs for the high-cost third averaged $81 per cow. Grazing costs for the high-cost third of the herds are 40 percent higher than for the low-cost third. Clearly, grazing costs per cow vary substantially from ranch to ranch.
If your pasture is fully stocked, your summer grazing costs should be near the average of the benchmark herds, but if it is understocked you probably will have above-normal costs. (Over the years I have analyzed several ranchers with understocked pastures that resulted in above-average summer grazing costs.) One of the simplest cost-reducing strategies that many beef cow producers can employ is to stock pastures up to the recommended levels for the specific grazing system. Grazing costs per cow are, indeed, manageable.
If you are already at the recommended stocking rates for your current grazing system, consider changing systems. Research demonstrates that stocking rates can be increased by switching from conventional systems to other kinds.
Another significant cost-reducer that relatively few Integrated Resource Management (IRM) cooperators take advantage of is aftermath grazing. Average aftermath grazing costs of "all" the benchmark herds ranges from $1 to $2 per cow. Those who used aftermath grazing significantly reduced their feed costs per cow.
Winter feed cost data reported in this Market Advisor are for herds wintered in drylots and on extensive range, and are for the 1995/1996 winter (not for the tough winter of 1996/97). Feed disappearance during the tough winter of 1996/97 should be applied to 1997 calves.
Winter feed costs for the benchmark herds varied substantially from one ranch to the next. Costs were from $143 per cow for all herds, $98 per cow for the low-cost third of herds, $164 per cow for the medium-cost third of herds, 67 percent more than for the low-cost third.
After studying the different feed costs for high-cost and low-cost herds over many years, I have concluded that some Northern Plains beef cow producers know the nutrient requirement of their beef cows, know that these requirements vary with trimester of pregnancy and lactation, know the nutrient content of their farm-raised feeds, and feed their cows according to their needs. I would suggest that this is the low-cost group of producers.
I would also suggest that on the Northern Plains are another group of beef cow producers who just dump feeds and, if in doubt, dump more feeds. They do not know the nutrient quality of the feeds being fed, do not know the specific nutrient requirements of their cows, spend considerable labor feeding cows but little or no management time determining what to feed. They just dump feeds. This, in my opinion, is the high-cost third of the group.
Total feed costs (winter plus summer) average $214 per cow for the benchmark herds, ranging from $156 per cow in the low-cost herds to $246 per cow in the high-cost herds. This $90 difference per cow is the typical profit potential. High-feed-cost herds tend to generate little or no profit.
Two common feed-cost efficiency measures are gross returns over feed costs per cow, and gross returns per $100 of feed fed. The average gross return over feed costs for these Northern Plains benchmark herds was $99 per cow in 1996, with the low-cost third herds averaging $202 and the high-cost herds only $10 per cow.
The benchmark herds averaged $146 in gross returns per $100 of feed fed, with low-cost herds averaging $177 and high-cost herds $104.
Feed costs averaged 61 percent of total costs of production for all of the benchmark herds, varying from 54 percent of total costs for the high-cost third of herds to 64 percent of total costs for the low-cost third.
If you are serious about increasing your cow profits in 1998, feed cost is the first essential area to focus on in your business plan.
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Source: Harlan Hughes (701) 231-7380
Editor: Barry Brissman (701) 231-7866
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