Benchmarking and identifying a cow/calf operation’s strengths and weaknesses is the first step to deciding where to focus management efforts, said Dustin Pendell and Kevin Herbel, agricultural economists at Kansas State University.
The pair made their assertions in a report on their study of Kansas cow/calf producers and the things they do to vary their profitability.
The economic returns to beef cow/calf producers vary considerably over time because of a variety of factors, including the cattle cycle, they said.
The 2014 record high average return was the result of a drought and strengthening beef demand, the economists said. Although 2015 beef demand was relatively strong, and the 2016 herd expansion led to larger supplies, lower cattle prices and lower returns to cow-calf enterprises resulted.
The 2012 to 2016 Kansas Farm Management Association summary of data from cow/calf enterprises has lessons for producers given the wide range of variability inherent to this industry.
For example, over the last 42 years there has been an average $233 difference in net returns per cow between the good (top 1/3) and the bad (bottom 1/3) years, they said. This is a large amount of variability, but this risk is difficult to manage because much of it stems from factors and conditions that typically are beyond the control of individual producers.
However, it is much more important that the variability across producers at a point in time is much larger than the variability over time, the economists said. In other words, even in the “good years” some producers are losing money and even in the “bad years” some producers are making money.
That is important, because it indicates there are management changes producers can make that might improve their operations, they said.
MORE IMPORTANT THAN PRICE, WEIGHT
This analysis suggests that while price and weight of calves do affect profit, they are much less important in explaining differences between producers than costs.
The data showed that economies of size exist such that larger operations tend to have lower costs and hence are more profitable than smaller operations.
However, it is important to point out that being a large operation does not guarantee low costs and high profits, the economists said. Many mid-sized to smaller operations also were cost competitive.
Operations with higher labor allocation relative to crop enterprises, tended to have lower costs and be more profitable, but the factor that is important regarding profit and cost differences between producers is how well they manage their non-pasture feed costs.
Producers that had a lower percentage of their total costs as non-pasture feed had significantly lower costs and hence significantly higher profits, they said.
There is tremendous variability in costs and returns across producers, which means there is room to improve their relative situations.
CATTLE, BEEF RECAP
Cash cattle traded Monday through Tuesday at $119.50 to $121 per cwt on a live basis, mostly $120, down $1.50 to $2 from last week. Dressed-basis trade took place at $192, down $3.
Fed cattle then sold Wednesday on the Livestock Exchange video auction at $119.
The USDA’s choice cutout Thursday was down $0.99 per cwt at $209.07, while select was off $0.28 at $202.95. The choice/select spread narrowed to $6.12 from $6.83 with 91 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Wednesday was $148.81 per cwt, down $2.76. This compares with Thursday’s Jan settlement of $143.82, down $0.55.