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Profit versus production in the cattle business: Part 3

This time I would like to look at a cow-calf operation versus a cow-yearling or a cow-long-yearling operation. Which one of these three options would be the most profitable in your unique situation? How long has it been since you compared the three options using your numbers to see if what you are currently doing is most likely to be profitable in your current situation? Times change; it is important to review our businesses and adapt to changing times if we want to remain profitable.

I think that the highest cost of producing a pound of beef is at the cow-calf level. This cost can be reduced by our management decisions, but it will always be the highest cost segment. Despite this, the cow-calf producer is essential to the industry. If there are no cows, there is no industry. The choices that are left to us as primary producers are when and how do we market our product to make our businesses profitable?

The second-highest cost of producing a pound of beef is in the backgrounding stage. This will vary each year largely depending on feed costs. The lowest cost of producing a pound of beef is at the long-yearling stage. This is not a new idea. If you look at market prices, light cattle have brought more per pound than heavier cattle for the last 50 or 60 years. This basically confirms the above statements.

My question is: “If you want to be profitable should some of your resources be utilized in the lower-cost segments of the industry?

My observation is that the cow-calf segment is also the least businesslike segment of the industry. Many producers don’t know their costs. There are a variety of reasons for keeping cows. Profit is not always one of them. There is nothing wrong with this but “if you want to be profitable would it not be wise to compete in the more businesslike segments of the industry? Once a calf is weaned the industry becomes much more businesslike. Backgrounders and those who run long yearlings know their costs down to the penny. Did you ever ask yourself why the large players in the cattle business tend to be involved after the cow segment? They are in the industry to make money. There is nothing wrong with this. Would it make sense for you to be involved in this same segment?

The cattle market functions so that the cow-calf producer is basically a price taker. When you sell your calf and there is no profit you can’t adjust the price of your calf. You may go home and try to address your cost of production but there is nothing you can do on the price side. Once the calf is weaned and sold the market changes. Now all costs are added in plus a profit. This is how the price of next year’s calves is determined. If the calf was bought at a low price and the profit was high the price of next year’s calf will increase. If the calf was bought at a high price and the profit was low the price of next year’s calf will decrease. By being in the yearling business you benefit from this changing price structure.

Trading cattle has a large cost associated with it. I won’t put dollar numbers on this, but will list some of the costs for your consideration. Every time cattle are traded some or all of the following costs are incurred: trucking, marketing, buying commission, shrink, death loss, sickness, chronic sickness, vaccination, antibiotics. It isn’t hard to have these mount to $100 per head, money deducted directly from the price of the calf. When you keep your calves the money stays with you.

cattle profit table 1

Table 1 shows some average prices over the last few years from Canfax. The calf price is the average for 450-lb. steers in Alberta in Oct. from 2007 to 2011. The yearling price is the average price for 650-lb. steers in Alberta in April from 2008 to 2012. The long-yearling price is the average price for 850-lb. steers in Alberta in September from 2008 to 2012. This allows us to compare a calf sold in Oct. or backgrounded and sold in Apr. the following year or run as a long yearling and sold in Sept. of the same year.

cattle profit table 2

Table 2 shows calves marketed in 2013 and 2014.

Most of the people who own cows sell calves. I realize that is not likely to change in the near future. When I sit back and look at the cattle business it is easy for me to see that the cow-calf producer would be more profitable if every calf remained where it was born until it weighed 800 or 900 lbs. We would also have a more efficient industry under this scenario. The industry is not going to change. However, individual producers can change and become more profitable. What are your thoughts? I wish you success at building a profitable business.

Happy trails.

Don Campbell ranches with his family at Meadow Lake, Sask., and teaches Holistic Management courses. He can be reached at 306-236-6088 or [email protected].

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

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