These are good times in the cattle business with record high prices for calves and feed prices that have moderated following the severe drought in the Corn Belt in 2012. Beef cattle are the leading agricultural product in most Virginia Counties west of the Blue Ridge in terms of land use and gross receipts, thus the favorable cattle market is good news. The three to five year outlook for the cow/calf sector (the predominant type of beef production in Virginia) is very strong. This has many cattlemen contemplating how they might retain their own heifer calves or acquire additional cows to capitalize on this profitable environment.
Rather than exploring how to expand their herd, cattlemen should be asking; “How do I improve my long-run profitability?” The answer may not lie in herd expansion. The availability and accessibility of land will be critical factors for an expansion to be profitable. In some cases, the additional land available does not have water for cattle or lacks necessary infrastructure such as fencing, so the cattleman relies on producing hay at the new site in order to add cows to an existing herd. Here is where the cattle producer needs to carefully examine cost of production and labor efficiency before expanding a cow herd.
In a budget analysis of a 100-cow herd under typical Virginia production conditions and current market prices (100 Cow Calf 100 cows 120 days of hay feeding), estimated annual net income was $39,034 – well above a 10-year average of around $22,000. In this scenario, the cattleman was relying on hay as the primary feed source from mid-December to mid-April. When this budget analysis is re-run with the production from 90 cows (90 Cow Calf 90 cows 90 days of hay feeding) and the number of days feeding hay reduced by 30 (all other factors held the same as the 100 cow herd and the same total acres) the projected net income was $41,008. This represents an increase of $1,974 with 10 fewer cows. As an additional note, this increase in net income is not related to the sale of the 10 cows. That income is the sale of a capital asset and is not included in this budget comparison. The income comes from cost savings.
Every farm situation is different and has its own unique cost structure. The point is that making and feeding hay is very expensive and some Virginia cattlemen may be better off utilizing current profits to improve infrastructure (water and fencing improvements) that allows them to stockpile and manage fall and winter grazing and reduce the number of days they feed hay. A further incentive is that the cost of water and fence improvements can be partially covered by public funds when the cattle producer implements approved soil and water conservation practices with the help of the local Soil and Water Conservation District.
If you would like to explore a beef cattle budget analysis customized to your herd, contact an Extension Agent for Farm Business Management through your local Extension Office.