Economics: June 2003 Other Economics Articles

With calf prices at a profitable level for most cow-calf producers, you might wonder why it is important to reduce production costs. Unless you have already determined that you are a low-cost producer, or plan to sell your cows in the next two or three years, looking at ways to reduce cost should be important. It may be the only way you'll be in business the next time we have high calf prices.

Over the last ten years, Texas A&M University, Oklahoma State University and the Noble Foundation have measured more than 400 cow herds in Oklahoma and Texas for production and financial performance. This work has measured significant differences in production costs in the region.

Cow-calf producers who are low cost producers, or have reduced production costs, tend to use one or more of the following management techniques:

• Commit to business management. Specific financial and production goals are measured and monitored.
   
• Make wise purchase decisions to reduce investment in depreciable assets, such as machinery and vehicles.
   
• Avoid industry fads that are not cost effective.
   
• Develop systems for total resource management, including wildlife.
   
• Reduce investment in horses if you expect the cows to pay their expense.
   
• Avoid hay production by buying hay.
   
• Cut feeding losses.
   
• Improve grazing utilization.
   
• Monitor and control purchased feed expenses.
   
• Don't overstock grazing land.
   
• Focus on reproduction (weaning percent based on exposed females). This is the No. 1 production factor for cow-calf producers.
   
• Control breeding seasons for best use of grazing.
   
• Buy replacements and use terminal cross bulls if you are a small producer.
   
• Stay clear of seedstock production. It loses money for most operations.
   
• Use proven health practices to ensure sound herd health. Develop a written preventive health program, have it reviewed by a veterinarian and then follow it.
   
• Evaluate opportunities to participate in cattle marketing alternatives.
   
• Don't spend money to reduce IRS taxes if they aren't sound investments that will increase after-tax equity. It doesn't make sense to spend a dollar to save 30 cents.
  For IRS compliance, make sure to keep the ranch bank account separate from your personal account.
   
• Consider location when acquiring land for appreciation. Non-cattle uses of land are more important than grazing cattle for land appreciation.
   
• Get a good inventory and manage accounting systems to accurately measure and monitor performance.

One or more of these practices are evident within those operations that are financially successful. I would encourage you to consider any or all of the activities. Better yet, contact your Noble Foundation consulting team to determine how these techniques might fit into your operation.

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