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Left Handed Logic – Figuring per Calf Costs

By   /  July 27, 2015  /  4 Comments

In this excerpt from his book “Time to Change” Colorado Rancher Chip Hines shows how shifting per cow costs to your saleable animals gives you a whole new look at how to cover costs and make profits.

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When figuring year-end expenses it is normal to put them on a per cow basis.  This is fine, but now, it is time to figure these costs against the number of animals sold.  The ones actually paying the bill.  This can bring out surprising results as it puts expense recovery into a proper context.

This exercise is based on a cow calf operation.  For simplicity I will remove cull cow income.  This is done to concentrate on the primary income generators of the operation.  Calves.  More specifically, how many calves will be paying the entire cowherd cost?

To begin this example I will pull some figures out of the rafters (like some auctioneers) to build a base to figure from.  We will use a 100 cow herd for ease of math.  During preg checking it is found there are four open.  The next spring five calves are lost in calving.  One calf dies at weaning.  Fifteen heifers are retained for replacements.  This leaves 75 calves to sell.

These 75 calves must pay the cost of 100 cows for the year!  Think about this?  Instead of a per cow cost, all expenses need to be charged to the saleable animals.  Looks a lot different, don’t it?

Let’s take this a step farther.  If the rancher decides to try raising weaning weights by calving earlier, and feeding more hay, he might figure an increased cost of $50 per cow.  Again, is this right?  No.  He just added another $66.66 (50 times 100 divided by 75) for each calf to recover before getting back to the original starting point.

How much can your calves carry?

How much can your calves carry?

Remember, every extra dollar of increased investment has to be recaptured before an additional gain can be counted.  Now there is also something else to think about.  The heavier calf from earlier calving is going down in price per pound, as it gets heavier.  Makes it hard for this limited number of calves to generate a profit doesn’t it.  We just keep loading more on their backs!  Doesn’t make much sense when you are losing on both ends.

At this point we need to take a look at another possibility.  Lets assume the rancher had a $50 hay cost per cow before the increase in the above example.  He decided to revert to his granddad’s system and calve later to eliminate all hay feeding.  This is a savings lf $50 per cow, even if the cow is OPEN or has a DEAD calf!  This si the left-handed logic of the title.  I know this looks a little strange, but this is what happens when we CUT costs.

This is $66.66 less that the 75 calves will have to generate for a break even, plus because of the lighter weight, they are gaining in price per pound! This is winning on both ends.

The above illustrations will also work for operations holding calves over to yearlings or onto the feedlot since the offspring of any age, must support the mother.  This also definitely shows the importance of getting more live calves on the ground through lighter birth weights and later calving.  This will ensure spreading costs over more saleable animals, which is the ultimate goal.

The purpose of this piece is to not only explain an accurate method producers can use in evaluating management programs, but also to get he brain to thinking in a different direction.  It is still okay to track cow costs per head, but to understand how they are truly affecting your operation these costs must be charged to the primary saleable animals, the ones actually carrying the load.

Every cattleman needs to be vigilant about letting small costs creep in while concentrating on the biggest.  When several of these are added up, they can amount to a substantial sum.  Even little costs put more burden on the calf.  These costs tend to be like paperwork lying on the desk that breed overnight.  It is a never-ending battle.

Use this method anytime you are considering a management change that will incur an additional expense.  This can be used to focus on problem areas, but when it is time to set benchmarks to evaluate where you are and where you want to go, another system needs to be put in place.

Just as on a grain farm production, expenses and income should be on a per acre basis.  The land base is where it all begins, so it should be the focal point of tracking progress.  This will show where your management is headed.  By setting benchmarks here it will help integrate cattle production with grass production.  This can include only a few items or as many as you want to track.

Here are some examples.  If your grazing  management is improving pounds of forage production on the land, acres required to run a cow year around will be going down (you will be adding more cows) while total pounds of calf production per acre should be up (more cales total on same land base).  At the same time fixed costs per cow, per acre should be going down.

Both gross income and net income per acre should be rising, but net income should be going up at a faster rate.  This would show the increasing efficiency of your operation.

Sit down and use your imagination to make up a list, and then decide which will best mirror your goals an d style of operation  This would also be a good time to set some goals to meet in production or cost cutting.  Always keep your focus on the long term.

Ian Mitchell-Innes of South Africa related that a fiend who has a Masters Degree in Marketing says a 1% savings in expense is equal to a 10% increase in sales.  Do you need any more convincing?  Think long and hard on this.

You can read more about Chip and his books here.

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About the author

Chip Hines was born and raised on a farm and ranch southwest of Burlington, Colorado. After moving to the Kit Carson, Colorado area and working on several large ranches Chip and his wife Judy began leasing land and buying cows in 1968. Unbeknownst to them this was the run-up to the big cattle break in 1974. Their first cattle cycle lesson. Chip has not forgotten! In 1989 he began planned grazing and concentrated even more on his low input philosophy. The years of learning have been published in three books on ranch management, available on his website, http://chiphines.com. Chip now lives in Yuma, Colorado and is still involved in supporting the cattle industry.

4 Comments

  1. Ron says:

    We need to be really, really careful when it looks like we are promoting lighter calves (Chip:”…losing on both ends”). Heavier calves may bring a lower unit price but still bring more dollars, which means bigger checks, which means higher gross margin. It’s fun to brag about how high our calves sold (we all top the market, right?), but I’ll take that lower unit price and the bigger check that goes along with it.

    • Kathy Voth says:

      Chip wanted to share this comment. (This is a great discussion and one we’d like to continue in future articles at On Pasture.)

      Ron, it is pounds per acre and profit per acre not per animal. What I and many others are professing is gathering momentum across the country. This is reality. Pounds and profit per acre is gaining acceptance as it is proved time and again.
      Chip

  2. Clive Drew says:

    I agree that cost/cow is not an accurate indicator of profitability.
    Cost/calf marketed (excluding cull cow/bull revenues for simplicity) is also a misleading indicator.
    Cost can also be assessed, not only cost/calf (as proposed) but cost/lb of total animals sold (that can also include the salvage value of culls).
    But, like crops, it is a more efficient indicator to look at Gross Margin/acre from the beef enterprise where both revenues and variable costs are taken into account. In this scenario the hypothetical optimal solution maybe 125 cows + early calving and supplemental feeding! Cost alone will not result in an optimal solution.

  3. Gene Schriefer says:

    We appear to be in the second year of cattle expansion. Bred cows in spring might be worth $2500-3000/head locally.

    I’m considering selling cows over 7 years of age to capture their inflated net worth before the bred cow market corrects and they lose value.

    I don’t think the profit in the remaining calves from middle to older cows will capture the decline in cow value.

    By retaining more heifers, within two years should be back to original cow herd size.

    Sounds like you’ve been through this rodeo before, what do you think of this strategy?

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