Reasons for differences in
high-, low-profit beef ops
We recently reviewed the analysis of 367 beef enterprises enrolled in the North Dakota Farm Business Management Education program to identify factors affecting herd profitability for beef cows. The differences between the 40% most profitable and 40% least profitable groups are interesting.
Over the past three years, the gross margin or income generated per cow varied from $601 for the high-profit group to $503 for the low-profit group.
• Analysis of beef herd economics reveals key differences.
• High profit operations received higher prices for calves.
• Lower winter feeding costs attributed to feeding cost differences.
The value per calf raised to its weaning weight was $98 higher for the high-profit group. Most of this can be attributed to a $17-per-cwt. difference in sale price. Quality calves bring a premium in the market, and a well-planned marketing strategy makes a difference also.
The difference in weaning weights was only 10 pounds, and the high-profit group weaned 3% more calves.
Also affecting the gross margin was the cost of maintaining the breeding herd. We’ll call it breeding-herd depreciation expense. Basically, it is the difference between a young bred cow and an older cull cow, divided by the number of calves the cow produces. In these reports it is calculated by adding cull sales values minus the cost of replacements purchased or transferred into the herd. The beginning value of the herd sires and their cull values is also part of the equation.
The cost of production varied greatly. The high-profit group produced a hundredweight of calf for $81, while the low profit producers spent $103 per cwt. for direct and overhead expenses. This includes all costs per cow except the depreciation in the breeding herd, which in this data reduces gross income per cow as discussed above.
We see a $44 difference in feed expense per cow between the high- and low-profit groups. Winter feeding costs accounted for that difference. Included in the feed cost per cow was the pasture or range expense, which was identical between the groups. Other direct costs per cow varied only $7 between the two groups.
There was a $37-per-cow difference in overhead expenses between the two groups. Overhead expenses include such things as fuel, repairs, interest, labor, insurance and depreciation, and other fixed expenses.
A good benchmark for overhead costs would be to keep them below 30% of gross income. The low-profit group spent 38%, while the high-profit group spent only 22% of gross income on overhead expenses.
Are overhead costs per cow a function of the number of cows in the herd, or inefficiencies in monitoring costs? The low- profit group had a herd size of 132 cows, while the high-profit group averaged 168 cows per herd.
Even more extremes in net income per cow are found when we sort the herds using the 20% highest net incomes compared to the 20% lowest net incomes. Over a 10-year period, the high-profit group averaged $240 profit per cow, while the low profits had a negative $70 per cow, for an average difference of $310 net income per cow.
To view the data, go to www.ndfarmmanagement.com, click on the resources link, and then click on the link to run FINBIN reports on the cow-calf data. There is a tutorial you can view before going to the FINBIN site. FINBIN has whole-farm, crop and livestock data for 1993-2010 from eight states.
Tuhy, Dickinson, and Holkup, Bismarck, are North Dakota Farm Management instructors at Bismarck State College. Contact Tuhy at 701-483-2348 or [email protected], and Mark Holkup at 701-224-5417 or [email protected]
This article published in the March, 2012 edition of DAKOTA FARMER.