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Sell The Factory Or Feed Through Drought?

Jul 15, 2016
By Heather Gessner
SDSU Extension Livestock Business Management Field Specialist
 
Weather conditions have turned dry across South Dakota, leaving many producers wondering if they have enough feed available to maintain the size of their cowherd.
 
 
Culling vs. Feeding Through Drought
 
Many times instinct says that a reduction in the number of animals being fed will allow the owner to maintain the condition of the remaining cows and that purchasing replacements at a later date will return the herd size back to pre-drought levels. This action may be needed for some producers, but there may be a better option given the current prices for feedstuffs.
 
Culling has its place, and there are legitimate reasons why some animals are every year (See the culling article and the iGrow Beef Best Management Practices for Cow-Calf Production book). However, the fixed costs related to the cowherd, as well as the expense of purchasing bred replacements may indicate that maintaining herd size and providing supplemental feed a is better financial option for some operations.
 
Comparing Options
 
This article evaluates two options through an example baseline herd consisting of 200 cows; production costs of $600 per head (determine cow costs by utilizing the budget calculator), 1300-pound cows, 85 percent weaning rate, and 500-pound calves selling for $140/hundredweight.
 
  • Baseline: Maintain 200 Head

Baseline option maintains the existing herd size, allows the operation to keep a closed herd, reducing the introduction of new pathogens, and maintains the genetic base the owner has established. Total costs for the cow enterprise are $120,000 with $119,000 of income from 170 calves sold. This results in a $1,000 loss for the cow enterprise.        

  • Option A: Sell 35 in Nov. 2016. Buy replacements Nov. 2017

Option A reduces the herd by 17.5 percent for a full year. This reduces the variable costs for the operation, reducing total costs to $112,125. However, the reduced number of calves available for sale in 2017 provides only $98,000 in income. Sale of the cull cows added $38,675 of income, for a total of $136,675. However, to return the herd to 200 head, 35 bred replacements are purchased the following November, at a projected cost of $52,000. This option results in a net loss of $27,950 due the smaller number of calves for sale and the expense of replacing the culled animals.

  • Option B: Sell 35 in Aug. Buy replacements Jan. 2017

Option B avoids the issue of a reduced number of calves for sale in 2017, as the purchase of bred replacements in January of 2016 instead of November 2017. As the majority of variable expenses are winter feed costs, the total costs to the herd is again $120,000. Cull cow income is constant with Option A and the calf income returns to baseline levels, for a total of $157,675. Replacement costs remain at $52,500. Net income in this option is still negative due to the need to purchase replacements at a price higher than received for the culls.

 
Table 1. Management option comparisons.
 
 
 BaselineOption AOption B
 Maintain 200 Head.Sell 35 in Nov. 2016. Buy replacements Nov. 2017.Sell 35 in Aug. 2016. Buy replacements Jan. 2017.
COSTS   
Variable Costs$45,000$37,125$45,000
Fixed Costs$75,000$75,000$75,000
Total Costs$120,000$112,125$120,000
 
INCOME   
Cull Cows -

$38,675

$38,675
  1,300 lbs. at $85/cwt1,300 lbs. at $85/cwt

Calves

$119,000

$98,000

$119,000

 170 calves140 calves170 calves
 

500 lbs. at

$140/cwt

500 lbs. at

$140/cwt

500 lbs. at

$140/cwt

Total Income$119,000$136,675$157,675
 
REPLACEMENT EXPENSE -

$52,500

$52,000

  

35 head at $1,500

each

35 head at $1,500

each

 
NET INCOME$1,000$27,950$14,825
 
PER CULL COW COST-$770$395
 
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