Key Performance Indicators can Lead to Cattle Profits
Key performance indicators have been used in business applications for many years, but not so much in cattle operations.
Stan Bevers, Texas A&M AgriLife Extension Service economist in Vernon, discussed 13 key performance indicators, also known as KPIs, at the Texas A&M Beef Cattle Short Course in College Station recently.
“Key performance indicators are measurements to evaluate factors that are crucial to the success of an operation,” Bevers said. “They provide a rancher with an analysis of the operation and detail whether the operation is fulfilling the goals of ownership.”
Bevers said KPIs can become a report card for a cattle operation and provide “targets” that can be met to maintain profits. KPIs include the following:
- Pounds weaned per exposed female.
- Revenue per breeding female.
- Nutrition base expense as a percent of total expenses.
- Labor and management expense as a percent of total revenue.
- Operating expense as a percentage of total revenue.
- Net income ratio.
- Cost per hundredweight of weaned calf.
- Current ratio.
- Total investment per breeding female.
- Debt per breeding female.
- Equity-to- asset ratio or market basis.
- Asset turnover ratio on cost basis.
- Rate of return on assets on market basis.
“KPIs identify activities that are incredibly important to the success of an operation,” Bevers said.
The KPIs are developed from standardized performance analysis of actual ranch data, he said.
During his beef cattle short course presentation, Bevers emphasized the most expensive operational costs for a ranch are depreciation, labor and feed.
“They tend to move around a bit,” Bevers said. “We hear all the time feed is the most expensive cost. But that’s not necessarily true. It’s labor and depreciation. A lot of times we don’t even count or factor in our labor. Now, we are paying twice as much as what we used to for bulls. Depreciation has really jumped up in terms of costs.”
Bevers said 2017 is the target year to be watching for cattle prices to come down.
“We’ve had this record run up in calf prices,” Bevers said. “From an economic standpoint, we know that expenses follow commodity prices. Now that calf prices have kind of been going sideways, we know that in 2016 they could be lower and in 2017 could be lower still. That’s the market side of it, but when we look at the financial side of it, expenses always followcommodity prices and they always lag.
“The point is expenses won’t come down as fast as commodity prices. Cow-calf expenses won’t come down as fast as cow-calf prices. 2016 will have lower calf prices but not to the extent it will affect these higher expenses. During 2017, expenses still will not be coming down, where calf prices will be in their second year of decline. That’s what concerns me.”
Bevers said if ranchers still need things done in an operation, such as putting in new corrals, new fences, paying down debt or buying a new vehicle, now might be the best time.
“If there is something in the form of a capital asset, get it done in the next 18 months,” Bevers said. “Going into 2017, cash flow could be an issue as calf prices are anticipated to continue to come down.”
Source: Texas A&M AgriLife Extension Service
