Derrell Peel: Take Stock And Look Forward

Feed costs are the majority of ranch variable costs.
Feed costs are the majority of ranch variable costs.
(FJ)

This final newsletter for 2019 is a good time to encourage cattle producers to reflect on the past year as you think ahead to the coming year.  No matter how you judge the past year – good, just okay or disappointing – there is value in taking some time to analyze the reasons for the outcome. 

What factors contributed to profitability or to the lack of profitability?  Inevitably weather and markets have a big impact on the returns to cattle production. Producers do not control either of them and both were important factors in 2019 as they are most years in one way or another.  However, you do control how you were prepared for those impacts, how you anticipated those conditions and how you reacted as situations unfolded.  What went right and what could have been handled differently?

Let’s focus on cow-calf operations and consider a few of the questions in three broad categories: production; inputs; and marketing.  Each of these deserves separate consideration while recognizing that they are ultimately interrelated.

How many calves were weaned relative to the number of cows and heifers exposed to bulls last year?  How does that weaning percentage break down between pregnancy percentage, calving percentage and calf mortality?  Are there reproductive problems that suggest changes in herd health management or nutrition?  Does calf morbidity and mortality imply that calf health management should be reevaluated?  Were weaning weights as expected and if not, why not? 

It is important to determine appropriate benchmarks to evaluate all aspects of the business.  For example, a 100% weaning rate is probably not achievable and certainly would not be economical, but what is the economically optimal level?  Is the goal to maximize weaning weights or optimize them by balancing the value of extra pounds against the cost of producing those pounds and what is that optimal level? 

Input management is mostly cost management.  What is the annual cost per cow?  A Kansas State University publication shows that annual cow costs vary by $260 from high profit to low profit operations.  Across individual operations, cow costs likely vary by $300-$400 per head or more.  Feed and pasture costs typically account for 65% to 70% of total variable costs. 

(Related: Differences Between High-, Medium-, and Low-Profit Cow-Calf Producers 2014-2018)

Grazed forage is a far cheaper source of nutrition for cows compared to harvested forage and purchased supplemental feed.  Are there ways to improve grazing management to reduce the need for expensive hay and supplement?  It starts with pasture management to improve the quantity and quality of grazeable forage followed by grazing management to best utilize it.  Is it possible to reduce cow cost by $25, $50 or $100 per cow per year without impacting production? 

Marketing is capturing the revenue offered by the market.  There may be more strategic, long-term marketing questions: Are you producing the type of cattle demanded by the market and are you marketing them to their highest value? Are you leaving money on the table by not adding value, such as preconditioning, and marketing calves to capture that value?  Is there a need for a more proactive marketing program to manage risk and better capture market value?

Management is an active process to control and direct resource use; to produce a valuable product; and capture the market value of that production.  Decisions should be based on a purposeful objective and not habit or tradition.  Answers to the questions above and many others depend on having information and that means keeping records and using those records to drive decisions. 

A football analogy may be appropriate given that it is college bowl season.  Success in the cattle business is a matter of being on offense as much as possible.  Weather and markets may force you into defense at times, but management can minimize the amount time you spend on defense and help you get back on offense quickly and effectively.  I wish everyone in the cattle business a Happy New Year and a prosperous and successful 2020.

Related stories:

Derrell Peel: Strong Finish For 2019 Beef Production

 

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