Cow-calf economics and a peek behind the averages

It is a good time to be thinking about the costs and returns of your cow-calf business. Look for ways to better maximize your resources and to minimize the losses that keep your payday check lower.

Fall calf sales are coming up and visions of plump checks may be dancing in the heads of some cow-calf producers. Whether feeder calf sales are coming closer or just another week of sending calves to the auction barn, these days are paydays. That is why it is a good time to be thinking about the costs and returns of your cow-calf business.

Michigan State University Extension Beef Team worked with cow-calf producers around the state in 2013 to better understand the costs and returns these producers experienced. Data from 13 herds from the Lower to the Upper Peninsula were obtained, and round bales were weighed to track feed amounts and costs.

The herds in the study sold a total of 667 steer calves at an average price of $1.65 per pound in 2013. They sold 513 heifer calves at $1.54 per pound. Although nothing like the “once in a lifetime” prices of 2014, these were good prices.

It is not all about price, however. On average, the Cash Cost breakeven price was $1.74, an amount higher than the average sale price for the calves. So, on the average, these farms lost money in 2013. But who is average? And do averages really tell us an accurate story? Averages hide the range. They really need to be unpacked to see what is behind them.

When we start looking at the farms, we can detect many differences. One of the first that I see is the percentage of calves (steers and heifers) sold that were born. It is useful to separate the 13 farms into four quartiles and to look at the average percentage of calves sold per quartile.

First Quartile (3 farms):       66%

Second Quartile (3 farms):  76%

Third Quartile (4 farms):      81%

Fourth Quartile (3 farms):    92%

Some of the heifers were likely kept for replacements. Maybe some farms lost calves to sickness and death. Maybe some calves just weren’t ready to sell, but this is a business about producing calves to sell, so it seems that the farms in the Third and Fourth Quartiles did that better than the other farms. For a herd of 50 cows that all calved, the difference between the Third Quartile and the First Quartile is seven calves. If we assume a 600 pound sale weight at $1.65 per pound, the difference is more than $6,930.

Another glaring difference between these herds is that of the steer sale weight. The average was 621 pounds, but the range between the averages for farms was 545 to 715 pounds. That is a difference of 170 pounds! Yes, it is likely there was a difference in calving dates, but I believe the greater difference is in average daily gain, and that is a function of management and genetics.

When those steers went to sale, there were differences there as well. If we group the farms by the average steer sale weight, we see the typical price variation per lb. But look inside the sale price data at the range even within similar sale weights.

            545–600 lbs.             Average price $1.67              Range: $1.50 – $1.85

            601–650 lbs.              Average price $1.65              Range: $1.40 – $1.85

            651–715 lbs.              Average price $1.60              Range: $1.60 – $1.60

There is a variation of $0.45 per pound within the calves that sold at 601-650 pounds. If a producer gained just $0.20 per pound for 50 calves sold, they would net $6,250 more at the sale.

But did the heavier calves cost more to raise? That question is a key one to answer because sometimes we spend money that does not make more money for the producer. What about here? When we group farms by their average steer weight and look at the cash cost of production and the cash cost breakeven price, it tells a powerful story.

                                                        Average                      Total                     Cash cost

                                                     steer weight           Cash cost/cow         breakeven price

         First quartile (3 farms)               557                        $1,119                       $2.07

         Second Quartile (4 farms)         593                        $1,084                       $1.98

         Third Quartile (3 farms)             627                        $1,013                       $1.61

         Fourth Quartile (3 farms)           692                          $993                        $1.50

The cost of production and the cash cost breakeven price needed for calves decreased as steer weight increased. The data from these farms show that there is greater profitability in producing and selling heavier calves.

Where do you stand? Comparing to others can help us realize the differences between herds and where you may have strengths or weaknesses. As you send calves to sale this fall, do some analysis of how your calves compare. How do your weights compare to others, and what do they do to raise heavier calves? How do your prices compare to others with similar weights, and why do buyers like their calves better?

We would also encourage you to calculate the percentage of calves born live that make it to sale. Calculate your costs of production. Look for ways to better maximize your resources and to minimize the losses that keep your payday check lower. If you are interested in analyzing your annual cost of production, contact your local MSU Extension beef educator.

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