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What Influences Profit for the Beef Cattle Enterprise?

What Influences Profit for the Beef Cattle Enterprise?
By Matt Hersom
 
As cattle ranchers look for ways to create profitability in stagnant or down markets, operational expense and profit centers need to be examined. Many factors contribute to the overall profitability of the beef cattle operation on an annual basis. However, there are four points that consistently influence the profit potential. All four are well within the control or direct influence of a rancher. These four areas are found across all herd sizes and locations, so they are worthy of discussion.
 
1. Annual Cost of Maintaining the Cow – The annual operating expense of the cow, the base production unit, is one of the largest expenses for the beef operation. USDA-ERS data for 2008 to 2017 estimates that the average annual operating cost of a cow in the US in 2018 was $562, with a total cost of $1,374 when all overhead is included. Certainly, this annual cow operating, and total cost varies by region and the input costs associated with feed, pasture, veterinary, marketing, interest, labor, equipment, and other small cost areas. Each of the cost areas should be scrutinized as they contribute differently to the operating and overall costs; for instance, feed costs account for 68% of operating costs, but just 28% of the total costs, whereas labor costs contribute 35% of total costs associated with a beef cattle operation.
 
2. Percent of Cows Weaning a Calf – In a cow-calf operation there are two main sources of revenue, weaned calves that are sold and cull animals – other sources of revenue are minor. For a cow to bring revenue to the beef cattle operation she must produce a live calf that can be sold, or she is sold herself. The total operating costs of a beef cattle operation is spread across all the cows that reside in the herd. The annual cow operating costs apply to all cows equally, therefore as many cows as possible need to contribute to the revenue pool as possible by weaning a calf. More calves spread the fixed and variable costs over more animals, and equates to more opportunities to generate revenue. Ultimately the costs are nearly the same to maintain a cow that weans a calf or not, but a cow that weans a calf can generate more revenue.
 
3. Weaning Weight of Calves – Weaned calves are the main source of revenue for the beef operation, as such the more pounds available to sell, the more potential revenue is generated. The weaning weight of the calf is influenced by several factors that include sire/dam genetics, cow milk production potential, dam/calf health, pasture conditions, creep feeding, calf implant status, age at weaning, and several others. Much of what drives calf weaning weights are decisions and management aspects that are under the control of the rancher.
 
4. Price Received for Weaned Calves – The price received for the calves at the time of marketing is influenced by several factors controlled by the rancher, and many are are not. A calf that meets the demands of the market can maximize the price received, calves that do no meet the expectations of the buyer are often discounted. The price received at marketing for weaned calves is affected by calf management, i.e. is the calf castrated, hair coat condition and color, breed type, weight, and number of similar calves in the sale lot. Selecting marketing options that encourage the opportunity to maximize sale price by attracting multiple purchasers, and marketing calves in larger groups of like animals increases the price received for each calf.
 
The first three items are all controlled by cow-calf nutrition and cow reproduction. Without attention to the overall cow nutritional program, and the subsequent reproductive performance, generating a profit in a beef cattle enterprise is difficult. Optimizing the economic opportunities in a beef cattle operation are imperative for long-term success. Understanding where the cost centers are in a cow herd and working to minimize those expenses is important. Addressing fixed and variable annual costs of managing a cow involves data collection, adequate records, and keen decision making. Likewise, cow and calf performance and the subsequent revenue is ultimately reflective of the management of the cow herd and the level of management applied to the calf.