The Halfway Point: Time to Review Goals

By LORIE WOODWARD CANTU

Editor's Note: This is the sixth installment in a 12-part series on cow-calf Standardized Production Analysis (SPA) that was developed by the IRM Committee of the National Cattlemen's Beef Association. This series has been created in partnership with Dr. Damona Doye, Regents Professor and Extension Economist at Oklahoma State University/Oklahoma Cooperative Extension Service, and Stan Bevers, Professor and Extension Economist at Texas AgriLife Extension Service/Texas A&M University.

It's June, the halfway point in the year and the halfway point in this series. This month is a perfect time to take a breather and consider what SPA has taught other ranchers who have completed the program.

"Successful cow-calf operations are low-cost producers," Stan Bevers, professor and Extension economist with the Texas AgriLife Extension Service, says. "You hear this a lot, but what it really means is that the cow-calf operation must be a low cost per hundredweight producer. This low 'breakeven' price incorporates both the total dollars it takes to run a breeding female and the productivity level of the female."

The first step in maintaining low production costs is identifying what the five major costs for the ranch are annually and determining whether the costs are "normal" or an "anomaly," he says.

For instance, high feed costs due to a drought are an anomaly because the costs will change when the weather does. On the other hand, if your feed costs are high each year, then that area should be examined and corrected by reducing the amount of feed, finding cheaper feed sources or any other means.

The second step in maintaining low production costs is achieving and sustaining high productivity, Bevers says.

"If you're not producing calves, then why are you in the cow-calf business?" Bevers asks. "People often ask me whether or not they should keep open cows. I tell them to consider this: If you are running a spring calving cow herd and you don't pregnancy check until fall, that female has already cost you approximately $500 to carry her through the year. There is no guarantee that she'll breed the next season. You could have sold that cow and bought a replacement for $500 to $800. When you consider the numbers, it's just a business decision."

Making decisions based on the numbers is the purpose of SPA, Bevers says. Through the years, the numbers have illuminated successful strategies of "cow-calf survivors."

They are:

a. "I just like cows."  This response indicates that making a profit is not necessarily the objective, but enjoyment or perhaps, maintaining an agricultural valuation on the land is.

b. "I need to break-even." This response indicates that although profitability is not the primary objective, the person cannot afford to allow the operation to become a 'money pit.'

c. "I have to make a profit." This response is the most common for SPA participants because their cow-calf operation is their livelihood and, if it not profitable, they must find another career.

d. "I am interested in genetic progression." This response means that the operator is interested in having the most productive herd of cattle possible either commercially or in the seedstock business.

2. Determine annually the break-even price for a pound of weaned calf. Producers have to know what it takes to break-even each year and if those costs are high, the producers have to ask why, Bevers says. Relatively high costs per cow can be acceptable if these costs are resulting in higher than average production levels. 

1. Maintain below average cow costs. "Producers have to know what their total cow costs are including the producers' labor and depreciation," Bevers says. "It's important for people not to lie to themselves about what it takes to stay in business." Identify the five largest costs for the female, determine whether it is an anomaly or not, identify whether it can be managed in the short term (within one year) or the long term, then manage it.

4. Achieve high productivity levels measured by pounds weaned per breeding female.

Pounds weaned per breeding female is directly tied to an operation's bottom line and it is the most telling production statistic because it indicates the amount of product a rancher has to sell annually, Bevers says. It takes into account both the weaning percentage and the weaning weights. On average, each female should be producing 460 pounds.

1. Follow a proactive herd health program. "Vet costs average $26.46 per cow in the Texas Rolling Plains SPA database, or 5 percent of the total maintenance costs, which is far less than the value of a lost calf, a female that doesn't get bred, or a bull that is unable to breed," Bevers says.
2. Use bulls with strong genetic traits. Choose bulls that possess the genetic traits that allow the producers to achieve the long-term goal they have set for their ranches (see item number 1), Bevers says. No one outside of the operation can define the appropriate genetics for a ranch unless they know what the ranch is trying to accomplish by owning the cows, he says.

7. Seek marketing alternatives for calves and seek means to manage price risks.

"This past year provides a perfect example of the benefits of aggressive marketing," Bevers says. "Producers who pursued any sort of forward contracting prior to the financial meltdown that occurred in September were dollars ahead of those who took their chances at the auction markets after that time."

1. Allow the herd to efficiently harvest the standing forage crop. Research has shown that cattle harvest grass much efficiently than humans do, Bevers said. What does it cost to produce, harvest, and store a hay crop?
2. Look at culled breeding stock as an additional source of income, not just as a hassle to sell.

"The more ranchers receive for their culled stock, the lower their break-even cost is for their calf-crop," Bevers says. "Historically, the market for culls is strongest in March and April and weakest in October and November, so even the timing of the sell-off can make a significant difference."

1. Limit your investment on depreciable assets, such as equipment. "Depreciation is a significant cost that people tend to overlook," Bevers said. "At some point, equipment has to be replaced and that generally comes at a high cost. It makes sense to minimize the amount of equipment that has to be maintained, repaired and replaced."

"SPA 6: The Halfway Point: Reviewing Goals" is from the June 2009 issue of The Cattleman magazine.

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