Knowing your production costs: The economics behind the cow

2010-03-24T00:00:00Z 2011-01-03T16:56:11Z Knowing your production costs: The economics behind the cowBy Dr. Ryon S. Walker Farm and Ranch Guide
March 24, 2010 12:00 am  • 

University of Minnesota

Beef Research and Extension Center

(While tables do not accompany this news article, they can be found in the March 26, 2010 edition of Minnesota Farm Guide.)

It's inevitable that cow/calf producers will continue to see increases in the cost of production for their operation.

Cow/calf producers across the U.S. have seen an increase in cost of production due mainly to the rise in feed, fuel, and fertilizer while seeing weak calf markets.

While any cow/calf producer knows that production costs are on the rise, how many actually know what their own production costs are? How many producers can actually say how much it costs to raise a calf, what is their winter feeding costs, or do they even have an idea on what their direct expenses are for the year?

It is easy to figure out what income a producer is bringing in, but often times tougher to formulate direct and overhead expenses per cow/calf pair.

One of the most detailed tools that producers have to compare cost of production in the state of Minnesota is the Farm Business Management Annual Reports that are put out by the Northland Community College and Central Lakes College in Minnesota.

The Farm Business Management annual report provides a detailed livestock enterprise analysis for beef cow/calf operations.

If you look at the annual reports for the last five years (Table 1), you will see that while cost of production (total direct and overhead expenses, w/out labor and management) per cow/calf pair in-creased $129.69 over the last five years, net return also decreased $281.44 for all 119 herds.

The same trend is seen with producers that fall into the top 20 percent in net return where cost of production in-creased $174.99 and net return de-creased $247.30 per cow/calf pair.

The significant decrease in net return was in part attributed to the decrease in market prices for calves since 2006.

This low in calf market prices has not shown any sign of rebounding, nor has fat cattle prices.

While producers have little, if any, impact on market prices, some management practices can be employed to reduce the cost of production.

If we look deeper into Minnesota Farm Business Management's most recent data (2008 Annual Report) on 119 farms, we can evaluate differences for producers that fall in the top 20 percent for net return compared to the average of all farms.

Table 2 gives more detailed information about differences in production between producers that fall in the top 20 percent versus the average of all farms.

While we evaluate the data in Table 2, what stands out the most is the difference in average weaning weight and feed cost per cow.

With a difference in 33 pounds of calf weaned and the market price listed at $100.94/cwt, producers that fall in the top 20 percent had a profit of $33.31 over all producers combined.

If you look at the difference in feed cost per cow, producers in the top 20 percent had a $51.39 /cow advantage in feed bill. Combine those two together and the producers in the top 20 percent had a difference in cost and revenue that equaled $84.70/cow.

Today, that is a big number when we are dealing with high production costs and weak calf markets.

Evaluating those two areas, there are obviously differences in feeding management to reduce feed cost per cow, as well as genetic differences to report a 33 lb advantage.

In Table 1:

If we broke the total cost down (from the 2008 Annual Report) to determine total feed and supplement cost, it would be $350.75, which is over half of the total cost (Table 1). Of that feed and supplement cost, summer feed and pasture costs make up approximately 15 percent, or $52.61.

So a large portion of production costs comes from winter feed and supplement costs, approximately 53 percent of the annual cow cost. The more feed you have to provide to that cow during the winter months, the more cost of production goes up/head.

In Table 2:

As the rise in production costs has weighed in on the pockets of most producers over the last couple of years, producers have started to look at ways of reducing production costs by adjusting winter feeding strategies with alternative feeds or by-products, utilizing alternative feeding systems, and extending the grazing season.

Some of these practices can help to reduce overall production costs, but not all producers can realize these advantages depending on location.

Proximity of some of these alternative feeds or by-products, change in market prices due to market demand, weather conditions or disease outbreaks, or weather conditions affecting forage production can all affect one's ability to utilize these alternative practices.

Most production changes today focus on cutting the corners in those areas. However, there are areas of management that offer opportunities to reduce production cost in a cow/calf operation. These include extending the grazing season, managing to reduce DM loss, or cow size.

Visit the University of Minnesota Beef Center at www.extension.umn.edu/beef/ to learn more about practices that can reduce overall production costs.

Copyright 2015 Farm and Ranch Guide. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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