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Rising Costs Will Affect Break-Evens on Cow-Calf Enterprises

Posted Jun. 30, 2006

We've all noticed our wallets aren't as full when we go to gas up at the pump, but how many producers know the magnitude inflation has on the break-even of their operations? Cow-calf producers have seen interest rates and energy, fertilizer, freight, corn and hay prices increase over the past few years. There doesn't seem to be any relief in the immediate future. As cost per cow increases, so do break-even prices for weaned calves. How sensitive are the break-evens to fluctuations in costs? What can producers do to improve their operations?

In their annual cow-calf and stocker survey, Cattle-Fax found the annual cash cost to carry a cow increased from $315 in 2004 to $351 in 2005. Assuming a producer has a weaning percentage of 85, an average weaning weight of 500 pounds and an average cost of $325 per cow, it would take an average price of $76.47 per hundredweight to break-even. What happens to the break-even if the cost of carrying a cow jumped to $375/cow? It would take $88.24/cwt to break-even, which is an increase of $58.82/calf. Is the solution to minimize cost per cow to maximize profits? No! To maximize profit, don't minimize cost nor try to maximize revenue. Too often, people get caught up in one or the other trying to achieve the universal goal of generating as much profit for the assets as possible. To maximize profits, it's necessary to consider both costs and revenues to find the optimal point where costs are being minimized and production is being maximized relative to each other.

The largest cost associated with carrying a cow through the year is feed, but livestock specialists will be the first to say "starving a profit" into a cow cannot be done. As soon as a person starts cutting corners on nutrition to lower the feed cost, they decrease the calving percentage dramatically. A cow's first objective is to take enough nutritional value from what she consumes to hold a good flesh condition. If that requirement is met, she will go into reproduction mode. Without getting the nutrition she needs, she will not breed, might abort a fetus or won't produce sufficient amounts of milk for her calf. It is important to minimize the cost of feeding while still maintaining the nutritional value the cattle require.

Producers know it is important for cows to bring a calf to the weaning pen each year. Statistics show the most profitable producers are those whose herds have a higher weaning percentage. The difference in the break-even price (assuming a cost of $350/cow) between herds with a weaning percentage of 90 and those with one of 80 are $87.50/cwt and $77.78/cwt, or $48.61/calf. On a similar note, the break-even price difference (assuming a cost of $350/cow and an 85 percent weaning percentage) between herds with an average weaning weight of 550 pounds and those with one of 500 pounds is $82.35/cwt and $74.87/cwt, or $41.18/calf.

The take-home message is that inflation and rising energy costs are decreasing everyone's margins. Cow-calf producers need to keep adequate records to monitor the increase in their average cost per cow. Try to reduce costs, but not at the expense of the nutrition and productivity of the herd. Know what it costs to produce your own hay, and make sure it can't be purchased cheaper off the farm. Testing the quality of hay will help you know what the supplement requirements will be. Remember, not all $30/bale bermudagrass is created equal. A livestock specialist can help you determine the nutritional value your herd needs to keep you from over- or under-feeding. Using perennial pastures can save you dollars in comparison to annual grasses. Shopping around for the best price on medicine and supplemental feed can also save a producer a considerable amount.

Don't always assume that it's best to market cattle at the closest auction. A lot of producers see the cost of hauling a semi truckload of calves to Oklahoma City and think, "I can save that freight and market the calves up the road." However, consider this example: 89 head of 550-pound steers could be hauled to Oklahoma City for $375 (100 miles at $3.75/load mile). That is $4.21/head in freight cost. To make it up, the calves would have to bring an extra $0.77/cwt. The average price for a 550-pound steer sold at Oklahoma City National Stockyards was as much as $12/cwt ($66/head) higher than some of the small reported sales during the week of May 22, 2006.

Also, try to increase the productivity of the herd through increased weaning percentage and higher weaning weights. Before each breeding season, have a veterinarian perform a breeding soundness exam, because a bull with a low semen count can really hurt the herd's conception rate. A higher-quality bull with expected progeny difference (EPD) information can provide a reliable increase in the weaning weights of the calf crop that can quickly pay for the increased cost of that bull. Also, consider the use of growth implants, which can add as much as 10 percent to a calf's weaning weight (talk to a livestock specialist before purchasing the implants).

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