Costs of Production
There has been much hand wringing among ranchers about the sharp drop in calf prices. Accompanying comments about prices, I have also seen or heard quite a few comments on costs of production increasing significantly. If the cost of production includes health insurance, I might agree.
Let’s examine cost of production against the drop in calf prices. First, I submit there is no “one size fits all” when it comes to ranch costs and returns. So, I recognize any general discussion about ranch costs and returns is just that—general observation. My analysis of cow-calf returns might or might not reflect an analysis of any specific ranch in the U.S., but I believe it provides a benchmark of general trends. Over the years, I have databased many actual ranch budget data that I use as guides.
With that in mind, let’s shift the focus from prices and revenue to the primary costs of production in running cows— fuel, feed and labor—and compare the cost of the three over the period from 2013 to 2017. Cattle prices started to strengthen in 2013 and reached record levels in 2014 and 2015, then fell sharply in 2016. However, those major costs fell over the entire period from 2013 to 2017.
In 2013, diesel fuel (highway) averaged $3.92 per gallon, then fell from 2014 to 2016 averaging $2.31 per gallon for 2016. Hay prices averaged $191 per ton in 2013 and then fell from 2014 to 2016, averaging $145 per ton in 2015/16 and $132 per ton this year. Corn averaged $6.89 per bushel in 2013. It fell further during 2014, 2015 and 2016 to reach an average of $3.61 per bushel in 2015/16.
There is opportunity—though cattle prices have fallen significantly from the peak, so have the major inputs to cowcalf production. While I understand and appreciate the impact of death loss in this year’s calf crop, I think many producers are in the position to take advantage of lower feed costs to concentrate on selling more pounds of beef with a lower cost.
Editor's Note: This article originally appeared in the April 2017 issue of Drovers.
