Where are Your Costs?
Here is a PDF of the
Where are you at.
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.
Livestock handling is all about animal behavior, according to Ed Fryer, who has managed Castle Mountain Ranch near White Sulpher Springs, Mont., since 1998 with his wife, Bev.
Ed and Bev are now mostly retired, and their eldest son, David, now manages the ranch.
Through the years, Ed and David became well known and well respected for low-stress livestock handling techniques.
In fact, for several years, they volunteered to demonstrate their techniques as part of the Beef Quality Assurance (BQA) program in Montana.
“The goal was to demonstrate simple low-stress solutions to common livestock handling tasks,” Ed Fryer said.
That portion of the program always received undivided attention and was well received by those in attendance.
“Humans, horses, cattle – it’s all animal behavior – and we’re no different than they are,” he said.
The basis of all animal training is reward training.
“It is about incentivizing a positive response somehow. It’s as simple as giving your dog a treat for doing the right thing,” he said. “With training horses, it is a system of pressure and release. You apply subtle pressure to get a response, followed by prompt release of pressure when you get even the slightest response in the desired direction. And it’s the same with cattle.”
Part of low-stress cattle handling is having a calm approach, letting the cow do the work, and setting up situations where both the handler and the cow have a high probability of succeeding.
One important concept that Fryer always brought up when they were conducting their BQA training was that there is a cumulative effect.
“If we do a poor job of handling a particular cow, the cow is going to remember what she got away with the first time,” he said.
When ranchers handle cattle consistently, cows begin to accumulate a body of learned behavior in either a positive or negative direction.
“It is up to us to set that direction in our favor. Everybody wins by doing it right,” he said.
There are certain situations that are difficult for cattle, and ranchers can take the time to evaluate the situation and make facility or other modifications to reduce difficult challenges. In these cases, it is okay to move the target.
“All we’re trying to promote (to livestock handlers) is to use our heads, realizing sometimes slowing down one facet can speed up the whole project, and to learn to set up situations where we have a very high probability of succeeding,” he said. “We have to make sure we’re in the right spot and are able to adjust our position quickly enough.”
One example Fryer gives shows the difficulty of moving heifers into a calving shed if the heifers perceive a scary situation with the layout.
“The layout was such that we had to put all the cattle through a back door with a shadowy dark spot that they really didn’t like to go into,” he said.
The crew built a simple lane on the opposite end of the shed to eliminate the need to go through that shadow.
“All we did was switch up the approach to the shed with some very simple construction,” he said. “It didn’t take us but two afternoons and a little bit of materials to switch it 180 degrees, and now one person can quite easily get a cow into the shed with almost zero stress.”
Fryer learned a lot about cattle handling as a crew member on a remote cattle ranch.
“The most proficient crew members became mentors to the younger crew members, with coaching often very blunt and direct,” he said.
That coaching, along with exposure to more modern horsemanship methods that were becoming popular in the ’70s, helped Fryer develop many skills that proved useful to him in years to come – and not only with livestock.
Fryer gives two examples of his mentors’ “blunt direction” that helped set the course for future professional development.
The first occurred while Fryer was a teen-ager on a summer branding crew for a “tough” cowboy outfit.
Yearlings were “mixed up” in the pasture, so the cowboys held the cattle up in a corner so the boss could sort them into their respective groups.
“I was assigned as a herd holder to assist in keeping the cattle together. My horse was barely trained, just like everybody else’s horse. I got bucked off a couple of times and I started complaining to the boss about the horse,” he said. “The boss finally told me to ‘shut up and make sure I was doing my job to the best of my ability, and the horse part would take care of itself.’ It worked, and I never forgot about it.”
Another example occurred while Fryer was in his early 20s.
Fryer and another young cowboy named George were sent out from a cow camp to search for calves, along with Sam, an older cowboy approaching 60-years-old.
It was winter, bitter cold, with a foot of snow on the ground.
“We had to ride several miles into rough country and look for some calves, weaned calves that a hunter had reported seeing,” he recalled.
The cowboys found the calves and started back to camp.
“We came to this little creek about 18 inches wide, two feet deep, drifted over with snow, and the calves didn’t want to cross it,” he said.
While the creek was invisible to the eye, both the calves and the horses knew it was there.
“You can hear the water gurgling down there and it was one of those oxbow-type creeks, so we had them trapped in one of the oxbows. These calves would not cross,” he said.
Fryer and George decided they needed to make a track for the calves to follow.
“We rode our horses back and forth across (the creek) two or three times, while Sam guarded the narrow entrance and watched,” he said. “The calves were not trying to get away, so we younger fellows were thinking that we had better just rope them and drag them across. But there were too many calves and we knew we couldn’t rope them all.”
Meanwhile, Sam said to the young cowboys, “You want to smoke?”
Since we had spent some years on the same crew, he knew we didn’t smoke.
“Sam looked at us in a direct and unmistakable way and said, ‘You guys would be a hell of a lot better hands if you at least had to stop and smoke once in a while,’” he said.
Meanwhile, the sun was sinking, and Fryer and George were getting nervous.
“George and I were tightening our cinches getting ready to rope, and while all this is going on, the calves are standing there watching us.” he said. “We had no choice but to sit on our horses and talk while Sam was smoking. Finally, those calves must have decided they were going to have to go somewhere, because all of a sudden, they just turned around and hopped across the creek and headed out towards where we wanted them to go all along.”
That taught Fryer a lot about low-stress cattle handling.
“We did not need to rope and drag them across. We just presented the option in a different way to get them to do what we wanted them to do,” he said. “Eventually, those calves decided, all on their own, that our horse tracks didn’t look so bad. They just followed our horses’ tracks, hopped across the little creek and away they went.”
That stuck in Fryer’s mind and he began to build on his cowboy skills.
Fryer has spent a lifetime on ranches in Montana and Wyoming, and he believes low-stress cattle handling is a way of handling cattle that leads to success for both cattle and hands.
Here are the keys to producing quality (high gross margin) cattle, or any species of livestock for that matter:
- 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.
- 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.
- 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.
- 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.
- 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.
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.
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
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
Principles of Professional Ranch Caretakers
Lease us your ranch – We will take care of it.
Financially, Economically, Physically, and Emotionally.
We will keep the grass growing and the water flowing.
We will keep the fences tight and the improvements in great condition.
Where do you see your ranching enterprise in 1 year, 5 years, 10 years 100 years. The actions you take today will basically – dictate to what your ranch will be in the future.
- More Brains put together to find more Ideas to create more Solutions.
By Utilizing the cumulative Brains around you – You will have the resources to create a reality of where your operations is at and where you would like it to be.
Working hand in hand with our resources – we will create a vision and work to fulfill it through a focused effort. Your land will become a healthy vibrant ecosystem capable of sustaining wildlife and livestock beyond expectations.
You are an Investor – The land that you own will appreciate as it is – 1% to 3% per year. There will be sum bumps along the way, but your investment will continue to grow Even if you do absolutely Nothing with it.
- What if you make a commitment to make it better – Increase the grasses and the waters. What if your Land can be developed to KEEP more of the moisture in it and have less run off.
Partnerships – We offer to run your ranch land in this manor. Through Planned Timed Management Grazing and strategic placement of Water and Fences – Your Investment will have the opportunity to grow beyond your expectations.
Long Term Focused Commitment – is the Key to your operation being successful. We will enter into an agreement to LEASE your ranch and run it as if it were our own – To Grow and develop it to achieve optimal production by utilizing the Sunlight and Water along with professional stockmanship. This will develop more Grass which results in more Water staying on the place resulting in healthier soils and productive plants.
A Board of the best and brightest will be asked to make recommendations and be a part of developing the overall plan for the Land. Grass specialists and Master Stockmen will have a say as to how to operate the enterprise.
You have done a great job of getting your operation to this point in time. This will not be forgotten. Change happens and we understand. We will work together to develop a plan that will take your operation to the next stage.
Give us a call – 307.331.0357
It would be an honor to meet you and sit down to discuss what we together can do for your ranching operation.
Kit West – CEO Western Livestock & Grass
Check the Video – In less then 10 inches per year of annual precipitation – they have built an oasis of profit and sustainability for ranching.
We do not have to reinvent the wheel – It has been done already. We just need to take the leap and change our paradigms.
Use our livestock the REPAIR our land and increase Carbon Capture.