Profit Analysis

Lower Profit Cow-Calf Operations Have Some Things in Common

Victoria G Myers
By  Victoria G. Myers , Progressive Farmer Senior Editor
A recent analysis shows some costs at cow/calf operations are pulling down any potential profits. (DTN/Progressive Farmer photo by Becky Mills)

Markets are impossible to control, but cost management is the difference between profit and loss for many cattle operations.

A study out of Kansas State University sifted through reams of data and found that when comparing 61 different cow/calf operations over a 5—year period, there were some commonalities among those businesses that made money, and didn't, regardless of the revenue side of the equation.

Dustin Pendell and Kevin Herbel, both with KSU's department of agricultural economics at the time of the study, used cow/calf enterprises enrolled in the Kansas Farm Management Association to pull data from. This program has 42 years of data, on an average number of 137 producers each year who participate in the enterprise analysis. Pendell and Herbel looked at 2012 through 2016 data for 61 beef cow/calf operations, and they found parallels between those farms that showed a net return and those that didn't.

"One of the things that stood out for us was how little the revenue side really impacted profitability," said Pendell. "Profits are largely driven by the cost side, which is important to note."

One of the biggest drivers, with a -27% difference between the top third of the operations analyzed, and the bottom third, was feed costs. Pendell noted it's a "huge driver of variable costs."

The report broke profit categories into the high-third, the mid-third and the low-third across those 61 farms. The top-third sold more calves at 203, compared to 95 for the low-third. Weights for the 203 calves averaged 652 pounds, and sales prices averaged $171.25/cwt. Weights for the 95 calves averaged 590 pounds, and sales prices $178.30/ctw. Gross income per cow reported for the top-third averaged $1,059.17; for the low-third $923.14*. The higher profit operations generated about 15% more per cow.

The stark differences between operations are clearest when considering. In the top-third group total cost per cow totaled $1,023.95. In the low-third group it came in at $1,222.05. Costs included feed, pasture, interest, veterinary services/medications, marketing/breeding, depreciation, machinery, labor and other.

Of the costs considered, the advantages the high-profit operations gained were clearest in three areas: feed costs, labor and depreciation.

The high profit operations spent on average $309.11 to feed and $185.84 to pasture a cow; the low-profit operations averaged $424.72 to feed, and $171.66 to pasture a cow. That is a $115.61 difference for feed. The low-profit operations spent less to pasture a cow.

On labor, high-profit operations averaged 19% less than the low-profit operations, at $155.31 compared to $191.21. On depreciation, the high-profit operations averaged $48.40; the low-profit operations $66.35.

How does all of this total out over the 5-years? Pendell says total cost for the high-profit operations averaged $1,023.95 per cow; for the low-profit operations $1,222.05. Net return to management, factoring in the gross income, was significant. The high-profit businesses netted an average of $35.22 per cow, not a huge amount admittedly. However, compared to the low-profit operations, which showed a net loss of -$298.91 per cow, the difference was an eye-opening $334.13.

Pendell says their analysis will continue, with plans to release updated data in the future.

*Pendell notes gross incomes reported may have also included, in some cases, income from the sale of cull cows/bulls from the operations.

(AG/ SK)

Victoria Myers