When costs rise and income declines, it’s only logical a good business manager will look for expenses to cut. But be careful where you trim, especially when it comes to the health of the calves you plan to sell this fall.
Cow-calf production costs have been driven significantly higher the past two years by rising feed and fuel costs. But the steady escalation in cow costs has been occurring over the past five years. For instance, data compiled by the North Dakota Farm Business Management program shows a steady increase in both feed costs and total costs for cow herds. From 2003 to 2008, feed cost per cow increased from $234 to $288 while total costs increased from $361 to $454 per cow.
“These trends in increased total costs have been with us for some time and are certainly not all related to increases in the cost of feed,” says North Dakota State University beef cattle specialist Greg Lardy. “Other costs such as labor, fuel and miscellaneous inputs have also increased over this time period.”
Lardy and other ranch business analysts stress that the key to managing through these cost increases is the ability to measure your cost of production.
“There is no way to know which costs to cut if you aren’t measuring all of the cost categories for your ranch,” Lardy says.
Becoming a low-cost producer, however, doesn’t mean you should indiscriminately cut expenses. One area to maintain adequate spending, experts agree, is your animal health program.
“As profit margins narrow, avoid the temptation to cut back on animal health and preconditioning programs,” says University of Arkansas animal science professor and veterinarian Jeremy Powell. “Cutting back on your animal health program leaves you wide open for disease risk, and sick cattle don’t perform. It’s always cheaper to prevent disease from occurring than to deal with a disease outbreak.”
Additionally, Powell notes that preconditioning programs offer producers an opportunity to capture potential premiums for their calves, allowing them to maximize profits in an already tight market. Data from one University of Arkansas study, for instance, determined that net profit earned from following a preconditioning program was $21 per head, and many other sources suggest preconditioning returns are much greater.
In the back of your mind you know Powell’s advice is sound. Still, in a year when calf prices are likely lower than the previous year, you might have doubts that the cost of preconditioning still makes your sale receipts greater. But Powell believes buyers will still pay more for those preconditioned calves this year.
“A recent Oklahoma State University study surveyed feedlot managers on their perceptions of preconditioned calves versus non-preconditioned calves. Feedlot managers indicated a perceived performance difference that favored preconditioned calves. They expected fewer sick cattle, less death loss, improved average daily gains, better feed efficiency and superior carcass traits from preconditioned calves. Their increased perceived value of preconditioned calves was $5.35 per hundredweight.”
Real-world experience, however, suggests to one industry veteran that feedyards are eager to pay even more for preconditioned calves.
“Producers routinely receive an average of $40 net profit per head from feedyards for preconditioned calves,” says Van Ricketts, DVM, director of corporate accounts for Merial. Daily communication and interaction with large cattle-feeding operations has convinced Ricketts that “it is very difficult to satisfy the demand for preconditioned calves.”
Cattle feeders know the benefits they are buying when they bid on preconditioned calves, Ricketts says. But documentation of preconditioning procedures is important to buyers. “Calves preconditioned through a program with third-party documentation have more value,” he says.
In addition to health benefits and price premiums, Ricketts says preconditioning programs also offer significant marketing advantages for calf producers. “Calves in preconditioning programs offer a greater window of opportunity for marketing those calves.”
Calves marketed straight off the cow present the greatest market risk. Producers know they must ship those calves to market quickly, or deal with the stress and sickness that usually follow. And once those calves are separated from the cow and headed to market producers are resigned to accept what the market offers that day — good or bad.
“A preconditioning program that includes weaning of the calves provides better options for marketing. It pushes the sale date back to November, December or January, typically a time when the market is stronger because there aren’t as many calves being sold. And the calves will weigh more so producers are selling heavy calves or short yearlings,” Ricketts says.
So, an extra $40 net profit per calf is worth the cost of a preconditioning program. But you’re still looking for a logical place to cut expenses. Look at feed costs, experts agree. But don’t skimp on nutrition.
“Producers should focus on optimizing production,” Powell says. “Producers may be able to cut some expenses for next winter’s feed requirements by determining the nutritional quality of their hay this summer.”
According to a University of Arkansas Extension Service publication, analyzing hay quality allows you to compare between hay nutrients in the bale and the nutrient requirement of cattle being fed. If hay quality is inadequate and a producer must provide a winter feed supplement, the information from the hay analysis allows the producer to develop a least-cost feed supplement plan. The cost of forage testing ranges between $15 to $30, and data from herds in the Arkansas Beef Improvement Program determined that conducting a hay analysis helped reduce supplemental feed cost by $12 per animal unit.
Powell also encourages producers to consider stockpiling forage for winter grazing versus getting a last cutting of hay off a pasture. Cows are more efficient at harvesting forage compared to cutting, raking, baling, storing and feeding hay cut from the same pasture. A University of Arkansas study demonstrated that stockpiling forage saved an average of $18 per head compared to the cost of hay production. Stockpiled pastures were fertilized with 50 pounds per acre of nitrogen during late summer.