NEWS for North Dakotans
Agriculture Communication, North Dakota State
University
7 Morrill Hall, Fargo, ND 58105-5665
April 16, 1998
Harlan Hughes, Extension Livestock Economist
NDSU Extension Service
Why is it that some beef producers are coming through the tough times of the last four years in good financial shape while others are suffering severely? I believe the answer lies in the fact that some are low-cost producers and some aren't. Certainly most beef cow producers perceive that they are managing costs, but my experience with Northern Plains IRM cooperators suggests that beef cow producers have to measure production costs before they can really manage them. To measure production costs they have to first measure calf production. It appears to me that high-cost producers are not doing either.
North Dakota, Eastern Montana and Minnesota Integrated Resource Management (IRM) cooperators are being taken through a comprehensive IRM-Financial And Reproductive Analysis Management System's (IRM-FARMS) analysis of their beef cow profit centers. The production analysis focuses on conception through weaning while the economic and cash flow analyses focus on the business year ( usually Jan. 1 through Dec. 31). Winter feed costs are an exception as they are based on the fall/winter season that the calf is born in. The average of these IRM cooperators' data is being promoted as the Northern Plains Benchmark Herds.
The averages of these Northern Plains Benchmark Herds for 1996 calves have been published in five Market Advisors and are currently on my Web page (www.ag.ndsu.nodak.edu/cow). The new preliminary averages for 1997 calves are attached to this Market Advisor. Non-IRM cooperators are being encouraged to compare their own herds' facts to these benchmark herds. A comparative analysis of your herd's facts with this benchmark data is the single most powerful ranch management tool available, bar none.
"I am now starting to get a handle on my herd's costs," said one Northern Plains Integrated Resource Management (IRM) cooperator recently. Some are typical comments received from IRM cooperators that work with me in analyzing their beef cow herds are, "Before I started working with you, I was not really on top of my production costs," and "Now you have me constantly thinking about my production costs."
The goal of these IRM analyses is this:
Once a cooperator can answer these two questions, his profit-increasing course of action becomes more evident.
The key in all of this is to use these IRM-FARMS analyses to increase profits. I am promoting "Learning Teams" as an effective way of taking these IRM herd analyses and identifying a tailored management action-plan for increasing that herd's profits. I have participated in enough of these learning teams to say that "it just works." Multiple heads around the kitchen table representing a wide variety of experiences is a powerful, powerful management tool. If you are interested in a publication about learning teams, please call Sandy at (701)-231-8642, or contact Web address http://ag.arizona.edu/AREC/WEMC/TodaysCattlePub.html and select the Learning Team hot button.
How can you trigger an IRM analysis of your beef cow herd? Place a phone call to Lori at (701)-231-7399 and ask her to send you my two IRM videotapes. In addition to these two videotapes, Lori will send you two accompanying publications, an IRM input form and a bill for $25. The first videotape describes North Dakota's IRM program and guides you step by step through the completion of the input form. You then mail your completed input form to me and we will process it through North Dakota's IRM-FARMS program and we will mail back your IRM herd analysis. The second videotape explains the IRM-FARMS analysis table by table.
My first goal, in conducting an IRM-FARMS analysis of your herd, is to get you to separate your ranch or beef farm into profit centers. I'll try to get you to think about your beef cow herd as a stand-alone profit center focusing on pre-weaning profits. Backgrounding calves, running stocker cattle, and retained ownership of your feeders are other profit centers that tell you your post-weaning profits. You need to know if you are making your money pre-weaning or post-weaning.
Forage production is also a profit center treated as a stand-alone business. The forages are sold to the beef cow herd at market price and the forage enterprise is credited with the market value of forage produced. Did I make money feeding my raised forage to beef cows? The bottom line of the beef cow profit center will answer that question. Did I make money raising these forages? The bottom line of the forage profit center will answer that question. Typically, it costs less to raise feed than to buy the feeds. It is not uncommon, however, that a producer, having borrowed money to buy the forage land and forage harvest machinery, for that producer to have cash costs of raising forages higher than the going purchase price of those forages. Today's cost of iron seems to be pulling some ranches down.
Each of the above business centers should be treated as a stand-alone business with its own cost and returns analysis.
In order to walk before we run, North Dakota's IRM-FARMS analysis focuses primarily on the beef cow profit center. North Dakota's beef cow profit center approach treats the mature cows, the replacement heifers and the heifer calves held over for replacements as the beef cow profit center.
The first step in analyzing a beef cow profit center is to document the beef herd's production. The production information goes from conception through weaning. How many females did you expose to the bull? What was your pregnancy percentage? How many calves were born? How many were born alive? What was your calf death loss? How many steer and heifer calves were actually weaned? And what did they weigh at weaning? This production information is used to calculate the total pounds of calf weaned and the pounds of weaned calf produced per female exposed. Remember, backgrounding and retained ownership become post-weaning profit centers. Weaned calves are sold to these post-weaning profit centers.
My goal is to get every IRM cooperator to know the bottom line in an IRM-FARMS analysis, which is the value added (earned returns) to the ranch family's unpaid family and operator labor, management and equity capital.
The key components of an economic analysis are gross income, feed costs, total costs, and total pounds of calf produced. After adjusting for the non-calf income, these numbers are then used to calculate the single most important ratio for a beef cow herd—the unit cost of producing a hundredweight of calf. The unit of cost production (UCOP) should always be in the units that you sell. You sell hundredweights of calves.
A specific procedure is used in the IRM-FARMS herd analyzer so that you can directly compare your unit cost of production to the price of steer calves. This then allows you to immediately calculate your profit or potential profit from the beef cow profit center in your head, by comparing your UCOP to the local market price for steer calves.
The analytical power of the UCOP ratio comes from the fact that all production factors and all cost factors are simultaneously taken into account in this one ratio. In my opinion, this is the ultimate ratio for running a high, high profit herd. I strongly encourage all commercial beef cow producers to calculate their UCOP for their herds. They will be surprised what they will learn.
Given all of this, I sure would like to analyze your beef cow herd. For program details call me at (701) 231-7380. To order, call Lori at (701)-231-7399 and ask for the IRM videotapes.
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Source: Harlan Hughes (701) 231-7380
Editor: Barry Brissman (701) 231-7866
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