Build A High-Profit Beef Business
Posted by Unknown in Beef, Business Plan, Cattle and Livestock, Meat Animal on Saturday, 26 January 2013
Lessons learned from high-profit operations
Written by
Harold Harpster
(Farm Progress) Times are pretty good for cow-calf producers – except for those in drought-plagued regions. And, the future looks even brighter for at least the next several years.
So
now's the time to plan for that future by studying successful
components of profitable operations and avoiding those less successful.
Consider a few lessons drawn from a 2011 study by Kevin Dhuyvetter, farm
management economist at Kansas State University.
He
boiled down five years (2006-2010) of production and profitability data
from 88 cow-calf enterprises. He sorted out operations with average
calf selling weights over 700 pounds, since that indicates a
backgrounding operation instead of a true cow-calf operation.
Also
excluded were farms with less than 10 cows, if cattle purchases were
greater than 25% of their herd in any one year and if net sales (sales
less purchases) of breeding stock were greater than 25% in any one year.
Culling done, the remaining farms were ranked from high to low based on
returns over costs.
Herds
were corralled into three groups: high return (29); mid return (30);
and low return (29). Average production and cost data were then
summarized for each.
Cow-calf
returns over variable costs have been positive for 23 of the last 32
years, notes Dhuyvetter. Feedlots would live a record like that!
Keep
in mind that by "accepted cattleman accounting practices", most focus
on variable costs. If “out of pocket” costs are more than covered, the
year's a success.
But
before you buy up neighboring herds, consider this: If you consider
total costs (variable plus expenses such as depreciation, taxes, unpaid
operator labor, and interest on assets), only four of those 32 years
were "in the black".
Sizing them up
First,
let’s look at size and productivity. More profitable operations tend be
somewhat larger, and tend to “specialize” more in the cow-calf
enterprise.
The
percentage of total farm labor allocated to livestock is 46% for the
high-profit group, 39% for the mid-profit and 25% for the low-profit
producers. When more time is spent with crops and less with the cattle,
it shows in the bottom line!
High-profit
producers wean heavier calves, but only 25 pounds heavier than the mid
group and 30 pounds heavier than the low group. Calf sale prices are
surprisingly close among all three producer groups. That was likely
since we're still in a period of low supply and high demand for calves.
Cost control is key
Spreading
costs over more animals is where the separation of profit groups kicks
in. Although the high-profit group had the heaviest calf weaning
weights, they accomplished it with a variable cost of $451 per cow
versus $546 for the mid-profit group and $599 for the low-profit group.
In
other words, the high-profit group produced heavier calves for almost
25% less cost! Per-cow costs were consistently lower for the high-profit
group. Again, comparing the high versus low group:
* Feed costs per cow were 21% lower;
* Interest costs, 44% lower;
* Vet medicine and drugs, 21% lower;
* Marketing and breeding costs, 31% lower;
* Machinery costs, 31% lower;
* Labor costs, 21% lower;
* Other expenses, 34% lower.
Overall,
the average five-year return over variable costs per 100 cows would
have been $11,661 for the high-profit group and a loss of $14,647 in the
low-profit group. It all comes down to smart management and controlling
costs without harming productivity!
The bottom line is . . .
Studying
these results carefully, you'll come away with three take-home
messages. One is that there's tremendous variability in the
profitability of cow-calf operations, regardless of year. Top producers
find a way to be profitable even in bad years, and poor producers find a
way to lose money even in good years!
Secondly,
cost control is absolutely essential. There was a much larger
difference between top and bottom producers in total costs per cow than
in total income per cow.
Finally,
“benchmarking” provides the real value in studies such as this. Compare
your costs and returns to those of these operations. Identifying where
you can make the most cost-effective improvements in your operation puts
you well on the road to success.
For a copy of that dollars-and-cents summary table for cow-calf returns, email Harpster at hharpster@das.psu.edu.
Harpster is a Penn State animal scientist and a beef cow-calf producer.
