Nalivka: Combine Your 'Best' Cost - 'Best' Revenue
Profitability has to be the primary goal in business. Generating a profit entails combining both “best” revenue with “best” costs. Again – revenue AND cost.
Much has been written about costs of production for cow-calf operations. Addressing what it costs to run a cow for a year is an important question. Businesses react to profit or lack of it and make decisions accordingly. Simply put, making or losing money drives production and marketing decisions. Analyzing profit and loss relationships across the production end of both the beef and pork supply chains is key to decisions regardless of where you sit in that supply chain. I publish the Sterling Profit Tracker every week for that reason – to provide a picture of profit/loss information to industry participants.
I recently pulled out my Master’s thesis (I actually had to look for it) from nearly 40 years ago and looked at cost data that I collected from Nevada ranches. For the ranches with spring and summer grazing, the average herd size was 797 cows producing an average of 493 lbs. of beef in calf sales per cow. Looking at the cost data to run those for cows for one year showed labor, supplemental feed, fuel, and supplies together represented 59% of the total cost while labor alone accounted for 23%. These figures are likely close to many ranches today.
I am always hesitant to reference average costs because there are no average ranches – circumstances between ranches vary. So, rather than discuss the “average” cost to run a cow whose calf will or should produce revenue, I think it is important to instead make a few key points regarding cost analysis. Starting with what I consider to be a key premise for success, that the cows must fit the ranch, you consider the costs of production associated with running your cows on your ranch.
You must understand your “best” costs for your ranch, your cows, and how you have chosen to market your cattle to generate the “best” revenue relative to your particular circumstances (branded programs?). Understand and manage toward your best cost to generate your best revenue opportunity. The two go hand-in-hand with production efficiency. The management focus has to be on areas that impact your ranch and your beef production business positively. Only you can make that decision.
The goal is profit management on your ranch. We discuss the financial well-being of the industry, but that depends upon the long-term financial well-being of individual cattle operations, feedlots, and packers. Furthermore, while the cows have to fit the ranch, those same cows have to fit the market and visa versa.