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Profit Before Production

I will begin this article with a saying an old rancher shared with me. YOU NEVER GO BROKE MAKING A PROFIT.

I think there is some wisdom here. Times are difficult. We need to focus on profit. If your operation is profitable I congratulate you. I encourage you to continue what you are doing and look for ways to fine tune your operation. If your operation is not profitable I encourage you to consider making some positive changes. Hopefully the following will give you some things to consider. Remember if you always do what you’ve always done you’ll always get what you always got.

I suggest that profit is much more important than production. Why is it that our beef industry seems to be largely driven by production? We have gone through the last 50 or 60 years with a production paradigm. This has been supported and encouraged by universities, agricultural colleges, government extension and agribusiness. The production paradigm says have a high level of production and hope that you are profitable. The profit paradigm asks at what level of production is your individual operation most likely to be profitable. Figure it out and produce at that level.

The production paradigm may have benefited the consumer (the percentage of consumer dollars spent on food continues to decline) and it may have benefited agribusiness. The production paradigm has done nothing for the primary producer. This is witnessed by the facts that we have an old and aging workforce in agriculture and, in constant dollars, the cow owner is experiencing the lowest prices in the last 60 years.

Things have not worked that well. Change is needed.

The cow owner is the basis of the cattle industry. You likely noticed I didn’t say cow-calf owner. The reason for this is pretty simple, if there were no cows there would be no industry. All other segments of the industry depend entirely on the cow owner. The other segments provide important services but they all depend on a healthy cow herd. Since this is a fact, you would think cow owners should be the most powerful segment of the industry. Unfortunately, we all know this isn’t the case.

What follows are some suggestions for having a profitable cow herd. I am not trying to tell anyone what they should do. What I am attempting to do is challenge you to see if you have a production paradigm, or a profit paradigm.

1. Cow size. Average cow size has increased greatly over the past 50 years. Has this made us more or less profitable? How big does a cow have to be to produce a 1,200-or 1,300-pound market animal? Remember, we have the option of feeding long yearlings. There are some interesting numbers on this topic on page 54 of the November issue of CATTLEMEN. The conclusion is that a moderate-size cow will produce a higher percentage of her body weight at weaning.

2. Time of calving. The nutritional requirements of a cow are highest from calving to rebreeding. If you choose to calve in tune with nature (when the wildlife normally calve) you will be linking the highest nutritional requirements with the best quality, largest quantity and cheapest feed you can produce. Is this likely to increase profit?

3. Fertility. A cow that calves and rebreeds every year is likely to be the most profitable. Do you cull all cows that don’t produce a live calf each year? Does your bull supplier do the same?

4. Milking ability. The higher the milking level the higher the feed costs. Is it possible that our cows are too productive, thereby becoming too costly to be profitable?

5. Investment per cow. This includes land, buildings and equipment. The lower the investment per cow the more likely we will be profitable. What is your investment per cow? Could you lower it?

6. Calves versus yearlings. When we chose to sell weaned calves we created the backgrounding industry. Over time that segment has to be profitable or it won’t exist. Is it possible your business might be more profitable as a cow-long yearling operation as opposed to a cow-calf one? Anyone who has a cow-calf operation can easily move to a cow-yearling operation by reducing their cow numbers 20 to 30 per cent. This will give you enough grass to run your yearlings.

7. The weaned calf is the most expensive animal to produce. This is because we must maintain our cows for a full year, absorbing the breeding expenses, depreciation on the cow, weaning per cent etc. Once the calf is weaned it becomes cheaper to put on pounds. Is it possible that the ideal might be to have as few cows as possible, raise your calves as cheap as possible and then retain ownership until the long yearling stage to maximize profit? Let me give you an example using steer prices from the

Nov. 20 CanFax report: 450 lb. @ $1.1742 = $528; 550 lb. @ $1.0627 = $584; 650 lb. @ $.9977 = $648

Using these numbers we can see that as we raise our weaning weight 100 pounds from 450 to 550 we realize an extra $56 ($584 –$528). This works out to $.56 per pound for our extra gain ($56 / 100 lb.). The extra 100 pounds is worth 48 per cent of the original price ($.56 / $1.1742).

As we raise the weaning weight 200 pounds from 450 to 650 we realize an extra $120 ($648 –$528). This works out to $.60 per pound for our extra gain ($120 / 200 lb.). The extra gain is worth 51 per cent of the original price ($.60 / $1.1742).

I think everyone who owns a beef cow would agree it is difficult to be profitable when 450-pound steer calves are priced at $1.1742.

How could increasing the weaning weight be profitable when the extra weight is only worth 48 to 51 per cent of the base price?

There are three phases to raising long yearlings: cow-calf, backgrounding, grassing. The cow-calf phase is the most expensive way to produce pounds of beef. The backgrounding phase is the second most expensive. The grass phase is the cheapest.

A common rate for custom grazing cows is a $1 per head per day. Using a cow-calf combined weight of 1,700 pounds and a daily consumption of three per cent of body weight the pair consumes about 51 pounds of forage per day (1,700 x 3%). This means the forage is worth $. 0196 per pound ($1/51).

Yearlings are commonly custom grazed at $.45 per pound of gain. A gain of two pounds per day costs $.90 per head per day. If the average weight of the yearling is 850 pounds (750 in, 950 out) the daily feed consumption would be 25.5 pounds (850 x 3%). This means the forage is worth $.0352 per pound ($.90/25.5#).

In the above example cow grass is worth $.0196 per pound. Yearling grass is worth $.0352. Grass sold to yearlings is worth 1.795 times as much as grass sold to cows ($.0352/$.0196). Would it be beneficial to sell some of your grass to your yearlings rather than all of it to your cows?

When attempting to build a profitable cow herd do we need to retain the profits from the backgrounding and grassing phases rather than pass them on to someone else? Remember that every time an animal changes hands there are expenses that would not be incurred if the animal stayed where it was born. These expenses plus a profit for the new owner come directly off the price you receive.

If we decide to become a cow-long yearling operation what might our operation look like? A long yearling weighing 950 pounds might be a good target. The summer gain would likely be about 200 pounds. This means our spring or yearling weight would be about 750. A backgrounding gain of 300 pounds (200 days x 1.5 lb./day) means our weaning weight would be 450. A birth weight of 90 pounds leaves us 360 pounds of gain on our calf. If this is done over 160 days our gain per day becomes 2.25 pounds.

I realize this may not look like a very productive cow to many of you. Who cares how productive she is? The question is: is she profitable? Use your own numbers to arrive at your own answer. I think you may be surprised.

My personal opinion is that the highest likelihood of being profitable is to have a moderate-size cow (1,100 to 1,300 lb.) that produces enough milk to raise a calf gaining two to 2.5 pounds per day. Calve in sync with nature. Background your own calves as cheaply as possible. Grass your own yearlings with as high a gain as possible.

That’s my formula. What’s your formula? Can you back it up with numbers? Are you profitable? I wish you good luck in your quest for profit.

Happy Trails.

Don Campbell Ranches With His Family At Meadow Lake, Sask. He Can Be Reached At 306-236-6088.

About the author

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Don Campbell

Don Campbell ranches with his family at Meadow Lake, Sask., 
and teaches Holistic Management courses.

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