NEWS for North Dakotans
Agriculture Communication, North Dakota State University
7 Morrill Hall, Fargo, ND 58105-5665
March 2, 2000
Harlan Hughes, Extension Livestock Economist
NDSU Extension Service
As I look back on a decade of analyzing the financial and reproductive management aspects of Integrated Resource Management (IRM) cooperators' herds, I find some things stand out in separating the high-profit herds from the low-profit herds. The one thing that stands out the most in my mind is the observation that the high-profit herd managers seem to pay attention to a lot of details relating to their beef cow herds. In fact, they pay attention to so much detail that they have to keep production and financial records to track it all. The low-profit herd managers, on the other hand, tend to track very little.
After 10 years of analyzing IRM Cooperators' herds, one herd at a time, I have elected to share with my readers my conclusions with respect to the management of beef cow herds. I will admit up front that not all of my conclusions are based on scientific analysis of my IRM databank. Instead, these conclusions are based on personal judgments and experiences supplemented with data analysis from my IRM databank.
I do not know how my readers would define management. I presume that each reader would define management differently. After working with many, many farmers and ranchers during the years, my simplistic definition of management is "paying attention to detail." The higher the management level, the more details that are monitored. When I go on to a farm or ranch of a well-managed herd, I find that manager monitoring all kinds of details--so many details that they can not keep it all in their head.
Production and financial records are routinely used to record the details in these high-profit herds. This detail is a very integral part of their management systems. The success of these managers seems to lie in two key areas: one, the management strategies developed from their records analyses, and two, the fact that management progress is routinely measured by these same records. It appears that business success in these high-profit herds tends to hinge on the fact that financial progress is continually measured and monitored.
As I have interacted with beef cow producers across the northern plains, I find them involved with one of four distinct management systems, which I have classified based on the amount of detail the producers are using to monitor their herds. First, I have visited farms and ranches that are "running cows," and the only data that these managers have are the sales slips from when they sold their calves at the salebarn.
Second, I have visited farms and ranches that "weigh calves." They may even have the weights on individual calves. Yes, they also have the salebarn slips from when they sold the calves.
Third, I have visited farms and ranches that have "each cow individually identified." They may even be managing by the individual cow. The herd inventory is a perpetual inventory, where every female in that herd is accounted for via record keeping. Each female in that perpetual inventory either has a calf or doesn't have a calf. If she has a calf, the date she calved and the weaning weight of that calf is recorded. If she doesn't have a calf, the reason for not calving is recorded. Calves are weighed and are even identified back to each cow. In fact, a cow may well have all of her life-time calf weights recorded back to that individual cow. That cow's production is even indexed against the rest of the cows currently in the herd. Yes, these ranchers weigh calves and they have their salebarn slips.
And fourth, I have visited farms and ranches that are "managing their cows by unit costs of production"--managing by the cost to produce a hundredweight of calf. These ranchers know which cows are their high-cost-of-production cows, and they know which cows are their low-cost-of-production cows. The cows are individually identified and calf weights are recorded against that cow; she also is indexed with her contemporaries. And yes, these managers have the salebarn slips too. When I visit these herds, the managers typically take from about 40 minutes to an hour showing me the details that they are monitoring on the herd. Then, we get up and go look at the cows (and I do like to look at cows). Those detailed records, along with the visual characteristics of the cows, then speak volumes--and what they say is that these herds are intensively managed herds.
What I find when I line up these four management systems is that as the management detail increases, the unit cost of producing (UCOP) a hundredweight of calf tends to go down and profits tend to go up. (See the accompanying chart.) My conclusion is that as attention is paid to more and more detail, UCOP tends to go down. Since unit cost of production combines both production and economic costs, a lower UCOP implies higher profit from the herd.
I sense that some ranchers are frustrated with my continued preaching on "unit cost of production." They often say to me: "Harlan, I have my costs are low as I can get them! What are you talking about?"
But I believe that there is a key point left out of statements like that. What I think they mean to say is this: "Given my management system, I have my costs as low as I can get them." I want you to notice that each step on my chart slopes downward and slightly to the right. This design serves to demonstrate how some beef cow producers can be operating at a lower cost level within each respective management system.
I have no problem with beef cow producers telling me that they have their costs as low as they can get them, implying that they are on the lower right end of one of the management steps. This suggests that they have their costs as low as can be expected for that particular management system. The real opportunity for beef cow managers, however, is to move to the next lower step.
The real challenge for those of us in Extension education is to motivate beef cow producers to move to that next management level, but I do not have THE solution for this reaching this educational objective. Just getting producers to weigh calves seems to be a major step. Getting producers to identify cows is even a bigger step. But is getting all producers to measure their unit costs of production impossible to accomplish? I sincerely hope not.
Producers tend to get locked into a level of management detail, and they do not want to intensify their management. Yet, management is what lowers their unit cost of producing a hundredweight of calf and tends to ensure financial survival.
The lack of intensified management systems is taking its toll in this industry. Survival through more than one cattle cycle is demanding intensified management via paying attention to more and more detail. This industry is rapidly becoming information driven. The days of just producing and surviving are coming to an end.
Since the mid-1970s, decreasing beef demand has driven profit margins lower in each successive cattle cycle. I presume most cattlemen do not fully appreciate the role that decreasing beef demand has played in lowering year-to-year profit margins in their own beef cow operations. The turnaround in beef demand in 1999, whether permanent or not, is a most favorable sign that profit margins per cow just might have bottomed out. For this to be true, however, this increase in beef demand needs to be permanent. Let's hope it's permanent!
Nowadays, beef cow managers are just assumed to have their production practices down pat. Yet, production alone will not cut it in today's economic environment. Managers not only have to be able to produce, their beef cow businesses must be economically sound and financially strong enough to make it though the next cattle cycle. These last two business characteristics do not automatically track with a production-only focus. The best way that I know to ensure an economically sound and financially strong beef cow business is to pay attention to detail. In other words, paying attention to detail makes economic cents.
###
Source: Harlan Hughes (701) 231-7380
Editor: Dean Hulse (701) 231-6136
Click here for a pdf version of this graphic. (10KB b&w diagram)