NEWS for North Dakotans
Agriculture Communication, North Dakota State
University
7 Morrill Hall, Fargo, ND 58105-5665
April 30, 1998
The Market Advisor: Ten Critical Success Factors For Running A High-Profit Beef Cow Herd
I recently had an opportunity to give a presentation in North Platte, Neb., at Farmland's Pasture Seminar put on for people selling Farmland's feeds. My presentation, "Understanding The Costs Of Operating A Beef Cow Herd," emphasized costs of production and aimed to acquaint the audience with the "10 critical success factors" for operating a high-profit beef cow herd. I would like to share those factors with my readers.
The central theme of my presentation was that a herd manager's power lies in the herd facts that he measures and monitors. The more facts that he monitors, the more management power he has.
Let's first focus on the production side. The first critical success factor for production centers on the breeding herd inventory on bull turn-out day. The national Standardized Performance Analysis (SPA) guidelines allow the female exposed number to be adjusted for exposed females purchased and sold. The SPA females exposed can be further adjusted for why females are culled from the herd. A worksheet for calculating SPA adjusted females exposed is available from Sandy at 701-231-8643, by e-mailing agecon@ndsuext.nodak.edu , or via my Web Page at www.ag.ndsu.nodak.edu/cow under the "Harlan's Handouts" hot button.
The SPA adjusted females exposed for my demonstration herd was 185 head. Given that this manager weaned 154 live calves this year, he produced an 83 percent calf crop—well below North Dakota's CHAPS herds' 92 percent average and below the Northern Plains benchmark herds' 85 percent average. "Percent calf crop" was the first critical success factor presented to the Farmland Seminar participants.
My demonstration herd produced 79,820 pounds of weaned calves this year. If these total pounds are divided by the number of SPA adjusted females exposed (185), this herd manager weaned 431 pounds of calf per female exposed. "Pounds of weaned calf produced per SPA adjusted female exposed" is the second critical success factor. Both of these critical success factors are based on an inventory of females exposed.
A detailed outline for conducting a comparative production analysis of your beef cow herd is available in a publication entitled "Conducting a Comparative Analysis of Your Herd's Production Facts with Other Herds' Production Facts." If you would like a copy, again call Sandy, e-mail my department, or see my Web Page under the "Other Web Sites" hot button, then click the "Managing For Today's Markets" hot button.
Let's now turn to the economic side of the beef cow herd. An economic analysis of the beef cow herd should be based on the Jan. 1 number of bred females held for calving. Once in a while a producer will hold back some of his cull cows flagged during the fall preg-check to be marketed after the first of the year. These flagged cull cows are taken out of the January inventory. On Jan. 1, my demonstration herd had 156 females held for calving.
The third critical success factor for a beef cow herd is the "capital invested per cow in the Jan. 1 inventory." Since we are focusing only on the beef cow profit center, we include only investments in the breeding herd, pasture land, beef cow facilities and beef cow equipment. Farming machinery, such as the hay baler and the tractor to pull the baler, is not included. The baler and the tractor that pulls the baler are considered investments in the forage profit center. The forage profit center is credited with the market value of forage that is sold to the beef cow profit center at market price.
This demonstration herd had a capital investment of $2,233 per cow. In addition, $529 of this investment capital per cow was financed with borrowed capital. "Beef cow profit center debt per cow" is the fourth critical success factor.
Gross income from the beef cow herd is the sum of cash sales, capital gains income, and inventory changes from Jan. 1 through Dec. 31. Capital gains and inventory changes can be positive or negative depending on the specifics for the particular herd. This demonstration herd had an accrual income of $464 per cow. "Accrual income per cow" is the fifth critical success factor in operating a high-profit herd. Calculating the accrual income requires a manager to take a breeding herd inventory each Jan. 1.
Feed costs per cow is broken down into pasture costs, aftermath grazing costs and winter (stored) feed costs. Pasture costs are based on the going local pasture rental rates and winter feed costs are based on market price of farm-raised feeds fed plus the value of purchased feeds. The demonstration herd had a pasture cost of $87 per cow and a winter feed cost of $123 per cow, giving a total feed cost of $210 per cow. "Total feed costs per cow" becomes the sixth critical success factor.
If the nonfeed costs of $133 per cow are added to the feed costs, total cost per cow was $344 per cow for this demonstration herd. "Total cost per cow" becomes the seventh critical success factor for operating a profitable beef cow herd.
If one subtracts the $344 total costs from the $464 accrual income, this herd generated an earned return to the ranch family's three resources unpaid family labor, management and equity capital of $120 per cow. The ranch family's "earned returns" from the family's three resources consumed by the cow herd is the eighth critical success factor for running a high-profit herd.
The SPA guidelines suggest that we can use family living draw as a proxy for labor and management wage, allowing us to allocate the rest of the earned returns to the investment capital. This demonstration herd earned a 3 percent return on capital invested in the beef cow profit center. "Return on capital invested in the beef cow profit center" is the ninth critical success factor for running a high-profit herd.
After adjusting for non-calf income, this herd had a $68.25 unit cost of producing a hundredweight (Unit Cost of Production) of calf. "UCOP" is the tenth critical success factor for running a high-profit herd.
Unit cost of production gets its analytical power from the fact that it is a ratio of the herd's total production costs divided by the total pounds of calf produced by this herd. Unit cost of production can be lowered by either increasing production or lowering costs of production. Anything that you want to talk about is either measured in the numerator or denominator of this ratio. I suggested that UCOP is the single most important critical success factor for operating a high-profit herd. The catch is that in order to manage your UCOP, you have to first measure it.
Thanks, Farmland. I really enjoyed participating in your Pasture Seminar.
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Source: Harlan Hughes (701) 231-7380
Editor: Barry Brissman (701) 231-7866
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