Since 2008, the cattle market has made dramatic adjustments as calf and feeder cattle prices decreased and the feedlot sector experienced significant losses. At the same time, other input costs have risen, taking cow costs to historic highs. Throughout this period, cattle numbers have continued to decline.
Since cow-calf producers have little control over factors outside the ranch, the best approach is to focus on ranch management decisions. Keep in mind that some cow-calf operations will make a profit with $80/cwt., 500-pound calves, while others can lose money with 500-pound calves bringing $150/cwt.
Each operation must assess its viability by determining their unit cost of production. Calculating unit cost of production will also make known the margins generated by the operation's income and expense. (See the annual difference between calf price and calf costs per cwt. in the chart.)
What is the difference between a high margin producer and a low margin producer? A high margin producer considers all of the inputs, while maintaining a higher level of production. For an operation to be competitive and profitable in the long run, it will need to produce calves with high market value. This means using superior genetics and best management practices to create identifiable value. At the same time, controllable costs must be managed to create the greatest margin.
Most cow-calf operations were unprofitable in 2008, but how do you compare? It has become vitally important for each producer to make adjustments to attain improved margins. To do so, each operation must either increase revenues, decrease costs or both. To determine how your operation is doing and how you can improve your margins, give the Noble Research Institute a call.