Category: Costs

Beef’s greatest talent is protein upcycling

By Lacey Newlin Jan 7, 2020

“There are some really highly educated people out there who are actively against the beef industry,” said Tryon Wickersham, associate professor of animal nutrition at Texas A&M University. “I don’t think there is going to be anything we can do to change that. I think they will be against everything we do, no matter how we do it, but that doesn’t mean we shouldn’t mount a defense or stop educating the consumers about the value we bring to their plates.”

Wickersham spoke recently at the Oklahoma State University Beef Conference in Stillwater, Oklahoma, in a presentation called “Beef’s job title.” He says beef’s job title is to be a protein upcycler, which means to improve the value of protein.

Beef’s greatest talent is protein upcycling

 

 

 

 

Tryon Wickersham, associate professor of animal nutrition at Texas A&M University, spoke recently at the Oklahoma State University Beef Conference about beef’s job title of protein upcycler. (Journal photo by Lacey Newlin.)

Wickersham says, on average, it takes 770 pounds of corn to get a beef animal ready for slaughter. Corn is the primary source of human edible protein, or HEP, we feed and the main competition for food sources between cattle and humans. HEP does not necessarily mean tasty protein, but it is protein a person could consume. For example, grass is a source of non-HEP. Soybean meal, though we would not want to consume it, is a great source of HEP. Some people challenge agriculture for raising corn-fed cattle and believe we should be feeding all that corn to humans.

“If we didn’t feed corn to cattle, we wouldn’t compete with humans for that much food,” he said. “To justify corn-fed beef, we have to be able to say it is a better use of corn to feed it to cattle instead of children.”

He says children are used in his model because they have high amino acid requirements and they grow rapidly. The 770 pounds of corn we normally feed to one beef animal would meet the indispensable amino acid requirements of three children, according to Wickersham. Indispensable amino acids must be consumed in a diet to meet your protein requirements. If a child does not consume them, growth will be stunted.

“We don’t think a lot about stunting in the United States, but it’s a real problem in the world,” Wickersham said. “The world is not deficient in calories, it’s deficient in protein and other micro-nutrients and beef happens to be a really good source of those things. If you want to be a vegetarian in the United States you can, and you can meet your requirements and not be deficient, but not everyone is in the United States.”

Wickersham says corn is also high in calories, so those children would have to consume a lot more calories to meet their amino acid needs. In fact, it would be essentially impossible for a child to eat enough corn to meet their requirements.

On the other hand, if we feed the corn to cattle, through the value of protein upcycling we could feed 17 children and easily meet their protein requirements by feeding that one beef animal the 770 pounds of corn. Furthermore, ruminants can utilize sources of biomass that other meat-producing animals, such as fish, pigs and chickens, cannot.

“We’re really dependent on ruminal microbes to convert low-quality sources of protein into a more valuable source of indispensable amino acids,” Wickersham said. “Our animals can eat things that those other animals can’t and convert them into steak.”

Balancing the pillars of sustainability

Another method Wickersham uses to measure protein upcycling is net protein contribution or NPC. It estimates how a production system is contributing to meeting human protein requirements. Wickersham says this metric does allow us to address social sustainability. Sustainability is built on three pillars: social, environmental and economic sustainability. Wickersham says producers cannot pick just one pillar to focus on, they must balance them all.

“The beef industry does a really good job of addressing economic sustainability because everyone wants to stay in business,” he said. “We think about environmental sustainability indirectly as a result of improving economics. However, we rarely think about social sustainability of beef cattle production.”

According to Wickersham, methane production and HEP consumption are inversely related. The more HEP we feed cattle, generally methane production goes down. Conversely, if we feed them less HEP, methane goes up.

“We want them to balance each other,” Wickersham said. “We don’t want to go too far down on NPC. We want to have something counter balancing and pushing against NPC, so we are making the best decisions for the environment too.”

Another important figure is protein quality ratio or PQR, which determines if we are improving the protein quality of the product produced. As an example, the input PQR of corn is 36.8 and the output of beef is 112, by the end of the process, the beef animal has improved the protein quality three-fold. Wickersham says corn is about as bad as you can get when it comes to HEP and PQR and beef is at the best. Beef is a fixed biology; we cannot change the amino acid profile for the output. We can, however, change the input.

“We want the protein produced to be better than the protein we fed,” Wickersham explained.

Wickersham says we can determine if beef is competing with humans for HEP if we multiply HEP by PQR which will equal the NPC. If it is one or above, it is contributing to the human protein supply. Beef is usually around three, but at times it rises or falls, depending on phases of the beef cycle.

Wickersham says beef has a really great story to tell, but most of the time we fail to tell that story very well. He says NPC is a useful tool for defining the value of beef production systems.

“It gives us social sustainability and allows us to tell a compelling story that beef cattle are producing improved-value protein,” Wickersham said. “It also gives us an environmental sustainability and efficiency of nutrient utilization and provides us a way of capturing the benefit of having cows grazing our pasture. That brings value to humans. We are taking that grass that we have no way to utilize and turning it into steak.”

Lacey Newlin can be reached at 580-748-1892 or lnewlin@hpj.com.

$1000 plus Cow Costs –

Where are Your Costs?

Here is a PDF of the

Estimated Cow Costs for the Nebraska area for 2019.

Where are you at.

Screen Shot 2020-01-03 at 9.24.07 AMDifferences Between High-, Medium-, and Low-Profit Cow-Calf Producers: An Analysis of 2014-2018 Kansas Farm Management Association Cow-Calf Enterprise – A Review

This study by Whitney Bowman, Dustin L. Pendell Ph.D. and Kevin L. Herbel can be found at the Kansas State University AgManager.info website. Review and summary by Aaron Berger, Nebraska Extension Educator.

Whitney Bowman together with Dr. Dustin Pendell and Kevin Herbel recently published a paper that highlighted the differences between 71 different producers with cow-calf enterprises that are part of the Kansas Farm Management Association. The paper examined both returns over variable costs and returns over total costs in 2014-2018. The authors broke out participants in the study into three groups of high-, medium- and low-profit producers. Here are differences that stood out between producers from the data when looking at returns over total costs.

  • Differences in costs between operations significantly outweighed revenue differences. High-profit operations spent $259.93 less per cow than low-profit operations in this study.
  • High-profit operations generated more revenue per cow, $152.32, than low profit operations.
  • Major differences in costs between high profit and low profit herds were found in feed expense. High-profit herds spent a total of $418.66 per cow on grazed and harvested feed, while low-profit herds spent $543.92. This is a difference of $125.26 per cow!
  • Labor, depreciation, machinery and interest expenses were all lower on a per cow basis for the high-profit operations than the low-profit operations. High-profit producers spent on average $100.95 less on these items than low-profit producers.
  • High-profit operations generated on average an annual positive net return to management of $60.53 per cow, while low-profit operations had a negative return of -$351.72 to management over the five year period.

The Kansas Farm Management Association cow-calf enterprise data provides insights into the differences between high-, medium- and low profit producers. Participants in the data set have the necessary production and financial records to know what their production costs are and then can use that information to make management decisions to improve profitability. In this data set, producers who aggressively controlled costs while producing more pounds of calf to sell per cow than their competitors were the most profitable.  Good production with cost control differentiated the most profitable producers from those that were the least profitable.

A one page sample budget titled Estimated Annual Cow Costs for Nebraska 2019 is a tool that can be used to help producers to begin to estimate what their own cow costs are.  Good accounting and record keeping can help producers track their costs and know their cost of production.

For producers interested in learning more about this topic, a Unit Cost of Production Workshop is scheduled for February 5 & 6 at the Cedar Creek Church which is in the Burwell area.  For more information contact Aaron Berger at 308-235-3122.

Interviews with the authors of BeefWatch newsletter articles become available throughout the month of publication and are accessible at https://go.unl.edu/podcast.

Why Water Freezes

Water density changes with temperature. Its densest at 2°c (meaning cold water sinks) just until before it freezes at which point again its density changes and becomes less dense and freezes at the top (ice floats).

On a water tank where the water is being heated by the ground; the warm water will circulate by it self to the top because is less dense than the water exposed to the cold wind.

When this system stops working is when the water exposed to the cold outside air is being cooled at a faster rate than the ground heating effect which means 2 things, your hole in the ground is not big enough or the surface of water exposed to the cold is to large.

Hence why most insulate the top and only allow a small square for cows to stick their heads in to drink.

Check this site out. There is more information and Ideas here that will help with the Freezing Water Issue.

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5 Keys to Quality Cattle

by Dave Pratt

Here are the keys to producing quality (high gross margin) cattle, or any species of livestock for that matter:

  1. Fit the enterprise to the resource. It doesn’t matter how productive your cows are if you shouldn’t have cows. You can cram a square peg in a round hole, but it is expensive, exhausting and unsustainable.
  2. Fit the production schedule to the environment. Why don’t elk in Montana calve in March? It’s because nature’s production cycle is in synch with the seasonal availability of forage and because photoperiod has a big effect on the seasonal fertility of ALL grazing animals. This isn’t to say that everyone should be calving in late May or June. But being able to reduce hay feeding by $200-$300 per cow probably adds more value to most ranches than the extra $100 you might get for the calf weaned by the cow that consumed all that hay.
  3. Find animals that fit the environment. Hot and humid or cold and dry, subtropical or temperate, prairie, mountain or desert, a cow that works in one environment may not be suited to another. That goes for the production schedule too. A cow selected to be productive in a March-April calving program may not be fit for a May-June calving program.
  4. Hit depreciation head on. For most producers the biggest cost of keeping a cow isn’t feed, rent, or labor. It’s depreciation. We rarely even think of depreciation as a cost of keeping a cow, let alone the biggest cost! In a typical herd, depreciation averages $250-$350 per cow per year. That’s $250-$350 ON EVERY COW EVERY YEAR! Many Ranching For Profit grads have drastically reduced depreciation in their herds. Some have even eliminated it. In my mind’s eye, cattle that don’t depreciate are quality cattle.
  5. Come up with a replacement strategy that works. Most cow/calf producers have no idea of the REAL cost of raising their own replacements. The gross margin of a productive cow is almost always at least a couple hundred dollars higher than the gross margin of H1’s or H2’s on the same ranch. There are alternatives to raising your own replacement heifers. You can contract with someone else to raise them, buy them, or buy older, depreciated cows as your replacements. It is a breakthrough for some producers to realize that they don’t need replacement heifers. It’s not heifers they need to replace, it’s cows. That paradigm shift opens the door to several profitable opportunities.

These five principles can help you improve the economic efficiency of any kind of livestock. Please share with me and ProfitTips readers the principles you’ve found essential to producing quality (high gross margin) livestock.

Animal Unit Months

Here’s more math for figuring out how to feed our livestock while making a good living on leased pasture. Even if math isn’t your strong suit, we take it one step at a time so that it’s as easy as it can be.

AUM Breakdown

Animal Unit Months

Figuring pasture use rates by Animal Unit (AUM) is more common in the western United States where it is the basis for public lands leased to ranchers for their stock. The nice thing about this method is that it makes it easy to plug numbers into a formula to give you a good idea of how many animals you can feed for how long. The formula factors in pasture quality, and the market price of hay so that you can come up with something fair to both parties.

An Animal Unit Month (AUM) is the amount of forage required to sustain a 1,000 pound cow with her calf at her side for 30 days. That works out to about 26.1 pounds per day. Forage requirements for all the other classes of livestock are shown in relationship to that 1,000 pound cow and her calf.

Here’s the formula:

Number of Animal Units x Average Hay Price Out of the Field Per Ton x Pasture Quality Factor = Rate Per Head Per Month

Pasture Quality Factor(Note: This formula works well for irrigated pasture, but may over-estimate non-irrigated, arid range rental rates where there is less forage and very little infrastructure.)

Here’s an example of what the formula looks like using a 1200-pound cow with her calf, during a time when hay is going for $10o per ton, and you’re hoping to rent an excellent grass and legume pasture:

1.20 AU x $100/ton x .20 Quality Factor = $24/AUM

From here the landowner and prospective lease can negotiate price based on expectations for management of the pasture, past experience, water and fence infrastructure and other requirements.

Don’t like that formula?  Here’s another option:

Hay Value Per Ton / 8.5 Rule of Thumb Forage Equivalent x Animal Unit = Rate Per Animal Unit Per Month

Using the same cow-calf pair and hay price, here’s that formula in action:

($100 per ton/8.5) x 1.2 = $14.12 per AUM

This is also just a starting point and depending on the result may point out whether you’ve over- or under-estimated the value of your hay.

Sharing Profit and Risk

If you intend to graze Stocker Cattle, establishing a rental rate based on pounds gained means that the landowner and the lease share the profit if there is one, and the risk if gain isn’t as great as expected. If you’re considering this method, you’ll have to have base values for the cost of gain, the expected gain, how long the animals will graze, and the per animal costs for caring for them through the grazing season.

All of the formulas I found for this method start with a Pasture Charge per Head per Month, also called a Seasonal Cost.  None of them told me where they got that number, but they all started with $10.  So starting with that as my full disclosure, we’ll go through this figuring process.

Pasture Charge Per Head Per Month x Number of Months = Seasonal Cost

$10 x 6 months = $60 per head

We use this as our base and then we divide by the pounds of gain we expect. This will change depending on the kinds of animals you’re running, grazing management, health and parasite load of the livestock and forage quality. This is where the risk sharing comes in. Let’s say that we think our stock will gain 200 pounds each while they’re on pasture.  Now our formula looks like this:

($10 x 6) / 200 pounds = 30¢ per pound of gain.

Thirty cents per pound is our break-even price and if the animals all gain 200 pounds each, that’s what the landowner gets. If the stock gain more, say 240 pounds, here’s what the landowner gets per animal:

240 x .30 = $72 per head

But if the animals only gain 175 lbs each, the landowner gets less money per animal:

175 x .30 = $52.5 per head

2019 Nebraska Cow-Calf Pair and Stocker Rental Rates

Recent findings published from the Nebraska Farm Real Estate Market Highlights 2018-2019 indicate changes in cow-calf and stocker monthly rental rates trended slightly lower when compared to 2018 (Table 1). Nebraska monthly grazing rates represent a typical fee for one month of grazing during the summer. Many leases run for a five-month grazing season subject to annual weather conditions.

The University of Nebraska-Lincoln Department of Agricultural Economics annually surveys Nebraska land professionals including appraisers, farm and ranch managers, and agricultural bankers. Results from the survey are divided by rental rate class and summarized by the eight Agricultural Statistics Districts of Nebraska (Figure 1).

Reported rates for cow-calf pair and stocker from the Nebraska Farm Real Estate Market Highlights include by district the average, high third quality, and low third quality. The range in these averages reflect the differences in the quality of the grazing land. Features influencing the quality of the grazing land might include the mix of the forages present during the growing season, livestock water sources, fencing upkeep, and general market competitiveness for the area.

To determine a cow-calf pair rental rate for a five-month period, the monthly rate for a district would be multiplied by five to calculate the seasonal rate. For example, the Central District average cow-calf pair monthly rental rate of $50.70 multiplied by five would be $253.50 per cow-calf pair for the 2019 grazing season.  This rate would vary depending upon the district of the state and provisions considered as part of the lease.

Negotiations on contractual terms for the grazing season include considerations on the landlord and tenant’s willingness to provide fencing maintenance, weed or brush control, and monitoring or providing water. Depending upon the willingness of either party to maintain, control, or provide these resources as part of the lease, the final rental rate may vary accordingly as panel members noted.

In addition, panel members also reported on the need for reviewing leases to account for different kinds of weather-related disasters such as flooding or drought. Reviewing these provisions by the appropriate agency or organization providing disaster assistance ensures compliance on grazing land in the case of an adverse weather event.

Survey results shown and discussed in this report are findings from the University of Nebraska–Lincoln 2019 Nebraska Farm Real Estate Market Survey. Complete results from the survey may be found at the Nebraska Farm Real Estate website: http://agecon.unl.edu/realestate.

Please address questions regarding preliminary estimates from the 2018-2019 Nebraska Farm Real Estate Survey to Jim Jansen at (402) 261-7572 or jjansen4@unl.edu.

Jim Jansen, (402) 261-7572
Agricultural Economist
University of Nebraska-Lincoln
jjansen4@unl.edu

Jeff Stokes, (402) 472-1742
Professor, Agricultural Banking and Finance
University of Nebraska-Lincoln
jeffrey.stokes@unl.edu

 

Interviews with the authors of BeefWatch newsletter articles become available throughout the month of publication and are accessible at https://go.unl.edu/podcast.

The 3 Secrets For Increasing Profit™

by Dave Pratt

There are three, and only three, ways to increase profit in any business. Stan Parsons called them The 3 Secrets For Increasing Profit™ and introduced them to Ranching For Profit students in 1980. Lately I’ve seen more and more articles by industry pundits that incorporate the 3 secrets in articles and conference proceedings. They rarely if ever acknowledge the source. Worse yet, they don’t always get them right. I’m going to use this ProfitTips to go back to basics and explain the 3 Secrets.

There is a common belief that profit is a function of weather and prices PERIOD. But weather and prices are, for the most part, beyond our control. If we believe that profit is determined by things beyond our control, it becomes easy to see ourselves as helpless victims.

In Ranching For Profit we don’t accept for one moment that we are helpless. Even if we can’t influence the market or make it rain, we can create and structure enterprises to fit this uncertain and volatile environment.  In selecting our enterprises and building our business for profit we need to understand the 3 Secrets:

  1. Reduce overhead costs
  2. Improve the gross margin per unit
  3. Increase turnover

Secret #1: Reducing Overhead Costs

Overhead costs include land and labor costs. Land and labor are broad categories. Land includes rent and the cost of maintaining fences, pipelines, building and anything else attached to the land. Labor costs include salaries & benefits, vehicles, equipment, horses, dogs and anything else that does work.

 

Overhead costs tend not to change much as the units of production (e.g. cows, steers, ewes) change.  Think about increasing a cow herd from 400 to 500 cows. That’s an increase of 25%. Would the interest, insurance or depreciation on our pickup increase by 25%? Of course not. As much as our hired hand might want a 25% raise, raising 500 cows is not 25% more work than raising 400 cows. Sorry Charlie, no raise.

Of course, anyone with a BLM or Forest Service grazing permit pays for land on a per-head basis. It doesn’t matter. While it may not behave like other overheads, rent is always an overhead.  The video at the end of this article explains why.

Reducing depreciation on our truck, or refinancing it to pay less interest will not impact the number of cows we run, the productivity of those cows or the price I get for my calves. But it will increase our profit. That’s why reducing overheads is the first secret.

Secret #2: Improving Gross Margin per Unit

Gross margin per unit measures the economic efficiency of cows, steers, sheep or whatever our units are. The higher the gross margin, the greater the efficiency. When gross margin per unit increases it means that each animal makes a bigger contribution to covering our overheads and making a profit.

To calculate gross margin we have to know two things; gross product and direct costs. Gross product is the value an enterprise produces. It’s simple to calculate:

Gross Product = (Closing Inventory Value + Sales) – (Opening Inventory Value + Purchases)

Direct costs are costs that go up and down as the number of animals in the herd goes up and down. Direct costs include supplement and substitute feed, health and breeding related costs, trucking, marketing commissions and interest on the livestock note.

To calculate gross margin just subtract direct costs from gross product. Then we divide by the number of units in the enterprise to figure gross margin per unit.

We can use different units. In livestock enterprises we usually start by calculating gross margin per animal unit.  Gross margin per animal unit is an effective way to compare the efficiency of a stocker enterprise to a cow-calf enterprise, or any other livestock enterprise. Gross margin per acre is a useful tool for comparing the efficiency of grazing enterprises to farming operations.

The ranch with the highest production per unit rarely has the best gross margin/unit. Smaller cows weaning lighter calves, but requiring fewer inputs, generally have a much higher gross margin per unit than larger cows.  Whatever the enterprise, improving gross margin per unit is the second secret to increasing profit.

Secret # 3: Increasing Turnover

We may have a productive cow with a great gross margin, but one cow won’t be enough to cover our overheads. We need more cows … at least we need more something!

Turnover refers to the number of units in an enterprise (e.g. the number of cows or steers that we have). A business can increase turnover by increasing the scale of an enterprise or by adding enterprises. Increasing turnover, provided that the gross margin per unit is healthy, is the third secret for increasing profit.

There are three, and only three ways to increase profit in your business. All three are in play in your business all the time, but only one of them is the most important right now. Do you know which of the three secrets is your biggest problem and which offers you the greatest opportunity? If you are ranching for profit you’d better find out!

Finding Your Deadwood will show you how to tell which of the three secrets you should focus on now. To hear how one RFP graduate applied the three secrets to increase profit watch John’s Story.