NEWS for North Dakotans
Agriculture Communication, North Dakota State
University
7 Morrill Hall, Fargo, ND 58105-5665
February 19, 1998
Harlan Hughes, Extension Livestock Economist
NDSU Extension Service
As beef cow producers prepare for the current upswing in the beef price cycle, now is an excellent time to add an economic focus to beef cow management programs. Lowering unit cost of production during times of increasing market prices is a powerful, powerful formula for generating high profits.
With this profit potential in mind, I have prepared two videotapes to help cattle producers establish an economic focus on their beef cow herds. These two videotapes cover North Dakota's Integrated Resource Management (IRM) program, currently being offered to North Dakota, Minnesota and eastern Montana beef cow producers. While I expect most IRM cooperators will be from these three states, cattle producers from other states are certainly invited to participate. Last year we had IRM cooperators from at least 9 states and two Canadian provinces.
Let's make a deal. If you send me your herd's IRM data for processing, I will put you on three of my mailing lists for a year. These mailing list are for the "Livestock Roundup" (monthly), "Livestock Monitor" ( a one-page summary on a hot beef topic every two weeks) and my "Market Advisor" (every two weeks). I will also process your herd's data and send you back a written report analyzing the production and economics of your beef cow herd. So, do we have a deal?
If so, you need to request a copy of my two videos from Lori at (701) 231-7399. She will send you the two videotapes, two accompanying publications, an IRM-FARMS Input form, a special form for calculating SPA Adjusted Females Exposed, and a bill for $25. If you let me analyze your beef cow herd, I will personally keep you informed on the economics of the beef industry for the next year.
The primary goal of North Dakota's IRM educational program is to provide IRM cooperators with an in-depth production and economic analysis of the costs and returns of their own beef cow herds. This educational program is specifically designed to help cattle producers identify current bottlenecks to profitability and then help them identify ways to remove these bottlenecks. The approach is to integrate production records and business management records in a single management information system that specifically focuses on lowering production costs and increasing profits.
What have the past 150 IRM cooperators learned from participating in North Dakota's IRM Program? The first and foremost thing that they have learned is how to separate their ranch or beef farm business into a stand-alone beef cow profit center. Second, they have learned how to calculate the economic returns, economic costs of production and cash flow associated with the beef cow profit center, a center that producers six different sources of income—steer calves, heifer calves, cull cows, cull bulls, open 2-year-old heifers, and inventory changes. Third, they have learned how to calculate their unit cost of producing a hundredweight of steer calf.
Unit cost of production is the ratio of total herd costs divided by the total pounds of calf produced. Together we have learned that "unit cost of production" is the single most important ratio that a beef cow manager can calculate. We have also learned that ranchers' unit costs of producing a hundredweight of calf vary considerably from one ranch to the next.
We learned that the unit cost of producing 1996 steer calves in the Northern Plains averaged $73 per hundredweight. We learned that the average unit cost of production for the low-cost IRM Cooperators was $43 per hundredweight of calf produced, and for the high-cost one-third $84, a $41 difference. We learned that a rancher's individual unit cost of production does more in determining his beef cow profits than does the market price that he receives for the calves. Yet most beef cow producers do not even calculate their unit cost of producing a hundredweight of calf.
We learned that the power of "unit cost of production" is that it can be directly compared to the steer market price to immediately determine profits. For example, the $73 per hundredweight average unit cost of producing steer calves for all 1996 IRM cooperators can be immediately compared to the October 1996 $65-per-hundredweight average steer price in the Northern Plains. We immediately know that it cost the average IRM cooperator $40 more to produce a 500-pound calf than what he received in accrual income in 1996.
We have learned that there are four critical success factors to running a high-profit herd. These four factors are 1) calf weaning weight, 2) low feed costs, 3) high gross income (calf plus non-calf income), 4) and low overall costs.
We learned that beef cows cannot support a lot of debt.
We learned that a beef cow manager cannot manage what he does not measure. If a beef cow manager does not measure feed consumption, he can not manage feed costs. We have learned that low-cost producers tend to know the nutrient requirements of their cows, and the nutrient contents of farm-raised feeds, and tend to feed cows according to their nutrient needs, when they need it. This is typical of the low-cost herd managers.
We have learned that high-cost producers seem to just dump feeds. If in doubt, they dump more feed.
We learned that feed disappearance is a key cost determinant and that very few of today's beef cow managers measure feed disappearance; thus, they do not have a handle on their feed costs. Are they feeding farm-raised feeds so feeds do not cost much? Wrong! We find farm-raised feeds do not necessarily come cheap, if we calculate the cash cost of raising them. If there is land debt and machinery debt, the cash cost of farm-raised feeds frequently exceeds the market price of that same feed.
Seven McKenzie county North Dakota producers collectively lowered their unit costs of production $19 per hundredweight from 1995 to 1996. Net returns for these seven producers went up in 1996—the toughest year so far in this decade.
One-third of my IRM Cooperators produced their 1996 calves for under $50 per hundredweight. We learned that low-cost beef cow producers made a profit in 1994, 1995 and 1996—the three lowest market price years in this decade's beef price cycle. I wonder how you did in these three tough years? What is your unit cost of production?
So, do we have a deal? If so, call Lori at 701-231-7399, order the videotapes for $25, complete the IRM input form and send me your herd's completed IRM input form. I will process your herd, send you a written report, and enter you onto my three mailing lists for a year.
How can either of us go wrong with a deal like this!
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Source: Harlan Hughes (701) 231-7380
hhughes@ndsuext.nodak.edu
Editor: Barry Brissman (701) 231-7866