Cattle profits: measuring and managing costs

Sep 2, 2011

Since cattle prices are at historical highs, most people logically assume that producers are making money, lots of money. However, that is not necessarily the case. Profitability and, ultimately, survivability in the cattle business is often related more to managing the cost of production.

Costs of gain in feedlots are now at record or near record highs. Using current cash prices for feedstuffs, it is not unlikely for feed costs per pound of gain to exceed $1 per pound. Locking in a profit today with current cattle and feed costs is unlikely unless your costs are below average.

On the cow side, producers are just turning the corner and showing profitability, on average. Kansas State University recently published results of an analysis of high and low profit producers who were part of the enterprise record system of the Kansas Farm Management Association. The average cost per cow for the period 2006-2010 from these records was $759. However, the low profit onethird of the ranches had a total cow cost of $886. This would be unprofitable in most years, regardless of the market price. The high profit one-third had an annual cow cost of $636. These producers are the ones who will eke out a profit in those years when the industry is considered unprofitable.

Thanks to grant funding from the North Central Risk Management Education Center, we are kicking off a new project using Quick- Books as a tool for beef enterprise analysis. A pilot group will be initiated this fall in eastern Iowa with additional groups starting for the 2012 calendar year. A template will be compiled for producers to use to track all farm expenses, with a few additional spreadsheets to track feed fed. Participants will then work with their Iowa State University (ISU) Extension beef program specialist to compile and analyze the data at the end of the year.

Our goal is to create a template that will allow the typical Iowa cattle producers to track their profits by enterprise, so we are trying to set it up to analyze the cow herd first but also to provide the growth opportunities to analyze their cropping enterprise, feedlot enterprise, or any other enterprise in their farm business. We hope this has long-term application across the entire Iowa farm operation.

For cattle feeders, many excellent systems exist to help producers track costs. The ISU Feedlot Cost and Performance Monitoring Program is one of them. Cattle feeders in general have become quite proficient in the development of closeouts, itemized costs for custom feeding invoices, and performance tracking of pens. With today’s high-priced input costs, especially feed, feeders are encouraged to review their systems for accounting for feed inventories.

Careful monitoring of feeds that go in and out of inventories allows the feeder to monitor shrink and storage losses and manage them. With today’s feed costs, a 1,000-head feedlot will feed nearly $1 million worth of feed in a year. Saving just 5 percent of that feed is worth more than $50,000 annually. For more information on the ISU Feedlot Monitoring Program visit software.html.

In times of historically high costs, it is the producers who manage those costs that are successful. The first step in managing those costs is to accurately and consistently measure them. — Iowa Beef Center