How do you think about profit in your cattle operation?

I’m sure my cow/calf followers have already seen the cost of keeping a cow higher in 2022. If not, you can read it here. Now many of you don’t need an article to tell you that your expenses are increasing. What I thought was really great about the article was the link to the one-page budget.

From my experience teaching marketing schools, some people are shocked by the high monthly costs of running a cow in my samples. Some were shocked when they went home and actually examined their numbers, including opportunity costs.

Here are those high costs. If we look at the sales results of the top auction barns in Nebraska and look at what 5-weight calves are selling for and the average price of steers and heifers (half of our calf crop will be of both sexes) we can see that these calves are worth what it costs us just to keep the factory around.

As you read through the one-page budget, one line appears missing, profit. With sell/buy marketing, we include profit as an expense, this way we are sure to capture the full value of our inputs as well as life-sustaining profits.

I’ve written here before that our costs are like a fulcrum on a lever. If we can lower these costs, we can get more leverage and buy better food. I’ll show you what it looks like

Investigation of the number of some cattle

I looked at a female sale in Missouri this week. The cheapest producer in the area near the auction told me he could feed a cow there for $65 a month and still pay himself a little.

In this sale, we could sell 4-6 year old breeding cows that had a base intrinsic value (IV value to us) of $1,119 and an actual value (AV) of $1,400. the first of the year. We could replace these cows with other 4-6 year old cows due to calves IV $827 and AV $1075 in April/May.

Why I like this trade. We sold the cow that gave us more value and bought a cow that was worth less and sold it to the market for $292, but we got $325 for that value. We were paid more than we were worth. We still have cows of the same age, type and condition bred, only a new cow will calve when the days are long and the weather is hot.

It was difficult to make a profit of $300 selling only calves. There are cow trades that can do better and there are those that can do worse. The thing is, if there are better margins and more turnover marketing on the breeding stock, it seems to me that’s where the cow/calf producer will make most of their money.

I calculated the cost of keeping and breeding a heifer using the least-cost production model. That day the market fully paid for us to have him if he calved after the first of the year

Here is another example. We are selling a 6 year old cow/calf pair with an IV of $1320 and an AV of $1800. We have done a good job of managing our grass and not running the farm at full capacity. It’s getting dry now and we realize we need to stretch our feed budget (available grass). We decided to buy a lean 5-year-old cow due to calve in April. We have time to graze some meat on them. These lean cows sell at a discount and we all know that fat cows sell better, so we have a real opportunity to capture the value of the grass we have. These lean cows have an IV of $775 and an AV of $1,000. We sold to market at $545 and paid $800 for it.

Now let’s change the monthly cost to maintain and increase it by $20 per month to $85. The first trade is over, it no longer works for us. We have more work to do in developing and breeding a heifer than she is worth, and the latter trade hardly works for us.

Cattle background scenario

Let’s do one more example with a background scenario. We sold the 885 pound steering wheels and replaced them with 665 pound steering wheels. This exchange has a Return on Earnings (ROG) of 99 cents. Let’s say we value corn at the cost it costs us to raise it, giving it a Cost of Acquisition (COG) of 98 cents. As long as the ROG is higher than the COG, we’re on to a good thing.

But we could sell that corn for more than it cost us to grow it. If we take the market value for this corn, the COG is $1.32, which is much higher than the ROG of 99 cents. We lost $75 on this trade. It’s an old worn-out joke: “the cattle did well, I just didn’t do well selling the corn.”

Here’s a look at what’s possible by managing your costs and keeping them down. I understand that we cannot make a profit for a business. I have no problem spending money if we get back the value of what is spent and some later. The point is that managing costs and keeping them low can open up opportunities for success.

Some people out there are trying to spin the idea of ​​a huge wave of prosperity coming to the cattle industry because of the need to rebuild the nation’s herd. Guys, the good times are here. They have been here and will continue, but only if you know how to manage inventory, sell livestock and control costs. A very wealthy mentor of mine told me that one of the keys to making a high income is to create your own economy. If you go about it the right way, these markets will help you do just that.

A quick look at the cattle market

Feeder markets have been a bit shaky this week, with Value of Earnings (VOG) bouncing from one weighting to another. The harvest is over and the farmers are now getting some domestic work and this is having a big impact. Flyweight cattle have the highest VOG because they are too risky for farmers.

Weanling calves were up to 10 behind this week, mostly bigger bowlers. Feed bulls were back up to 40.

The views of Doug Ferguson are not necessarily those of or Farm Progress.

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