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Economic Analysis of Beef Operations: Factors Affecting Profitability Stan Bevers, AFM Professor & Extension Economist Vernon, Texas s-bevers@tamu.edu http://agrisk.tamu.edu

The Cow-calf Industry as a Business The Cow-calf Industry is an Asset Management business that must focus on the next seven years. It is not a margin business Buy and sell margins Our Primary Assets are continually eroding Our Breeding Herd Average Replacement Rate is 16% Machinery and Equipment Fencing and Improvements Approximately 45-50% of our total costs are Fixed Costs, not variable. In order to be sustainable, we must focus on net worth and not cash flow

Benchmarking Your Analysis Be careful; you need to be 100% sure that what you are comparing to is calculated exactly as you calculate it Weaning percentage Total cost to run a breeding female annually Where to find the database to compare to?

Southwest Beef Cow-calf SPA A few points of where you might want to be as a cow-calf operation Thrivers Survivors Nose-divers Recognizing: What you control In the short run In the long run What you don t control

Southwest SPA Results 2007 to 2012 60 herds 47 to 2,972 plus 25,324 females Average=422

Net Income per Female by Size 500 400 300 200 100 0 (100) (200) (300) (400) 0 200 400 600 800 1,000 1,200-50.31 Size of Herd Expenses Include Depreciation and Owner Labor Expense

Dollars per Female 200 150 100 50 0-50 -100-150 -200-250 Financial Net Income Per Female Database Average = -$50.31-300 Thrivers Survivors Nose-Divers Average

Land Resources: Acres per Female Average = 22.5 acres/female 25 23 Dollars per Female 21 19 17 15 Thrivers Survivors Nose-Divers Average

Land Resources: Percent Land Owned Average = 56.2 percent 75 65 Dollars per Female 55 45 35 25 Thrivers Survivors Nose-Divers Average

120 Fiscal Year Rainfall Received Average = 88.1 percent of normal 100 Dollars per Female 80 60 40 20 0 Thrivers Survivors Nose-Divers Average

Production Performances Database Average = 82.0% 95.0 90.0 Percentage 85.0 80.0 75.0 Thrivers Survivors Nose-divers Average Pregnancy Calving Weaning

Weaning Weights Database Average = 517.9 lbs. 600 550 Pounds 500 450 400 350 Thrivers Survivors Nose-divers Average Steers Heifers Average

Impact of Percent Normal Rainfall Received 900 800 y = 292.6 + 4.0675x -0.0156x 2 R² = 0.2279 700 Average Weaning Weights 600 500 400 300 200 100 0 0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0 180.0 200.0 Percent of Normal Rainfall

500 Pounds Weaned per Exposed Female Database Average = 441.9 lbs. 459 450 Pounds per Female 400 350 418 403 427 300 Thrivers Survivors Nose-divers Average

Impact of Percent Normal Rainfall Received 700 600 y = 227.14 + 3.6763x - 0.0145x 2 R² = 0.1625 Pounds Weaned per Exposed Female 500 400 300 200 100 0 0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0 180.0 200.0 Percent of Normal Rainfall

Total Cost per Female Database Average = $588.97 750 700 707 Dollars per Breeding Female 650 600 550 500 450 400 350 481 579 589 300 250 Thrivers Survivors Nose-divers Average

Total Cost of Production & Net Income 500.00 400.00 300.00 y = 353.23 0.7308x + 7E-05x 2 R² = 0.327 200.00 Net Income per Female 100.00 0.00 0.00 200.00 400.00 600.00 800.00 1000.00 1200.00 (100.00) (200.00) (300.00) (400.00) (500.00) (600.00) Total Cost per Female

Texas SPA Expense Breakdown per Female Average Total Cost per Female = $588.97 Interest, 33, 5.6% Fert, 37, 6.4% Rents, 32, 5.5% Fuel, 30, 5.0% Vet, 20, 3.4% Custom, 19, 3.2% Insur., 17, 2.8% Utilities, 16, 2.8% Rep/Maint, 43, 7.3% Prop. Tax, 12, 2.1% Feed Purchased, 91, 15.5% Other, 74.93, 12.7% Supplies, 12, 2.0% Misc, 12, 2.0% Depreciation, 95, 16.1% Labor/Man, 98, 16.6% Chemicals, 8, 1.3% Fees, 7, 1.2% Freight, 4, 0.7% Seed, 3, 0.5% Average of 60 herds, 2007-2011

Top 5 Expenses Thrivers Survivors Nose Divers Average Feed Purchased $83.96 Labor/Management $80.88 Depreciation $62.06 Rents $41.64 Repairs/Maint $39.70 Depreciation $103.40 Labor/Management $98.14 Feed Purchased $87.08 Interest $40.45 Fertilizer $39.85 Depreciation $119.08 Labor/Management $113.66 Feed Purchased $102.39 Repairs/Maint $52.78 Fertilizer $49.69 Labor/Management $97.55 Depreciation $94.85 Feed Purchased $91.14 Repairs/Maint $43.24 Fertilizer $37.43

Cost of Production Database Average = $130.61 200 175 168 Dollars per Cwt. of Weaned Calf 150 125 100 75 50 25 93 130 131 0 Thrivers Survivors Nose-divers Average

Price Rec d versus Breakeven Rec'd Breakeven 180 160 140 120 100 80 60 40 20 0 Thrivers Survivors Nose-divers Mean Rec'd 124.28 116.09 107.39 115.92 Breakeven 92.86 130.49 168.49 130.61

Price Rec d versus Average Weaning Weight $250.00 $230.00 $210.00 $190.00 $170.00 y = 144.08-0.0544x R² = 0.0369 $150.00 $130.00 $116.00 $110.00 $90.00 $70.00 $50.00 200 300 400 500 517 600 700 800 900

Total Investment at Cost and Market Database Average = $3,190 & $7,687 9000 8000 8689 8165 7687 Dollars per Cwt. of Weaned Calf 7000 6000 5000 4000 3000 2000 1000 2651 4895 3973 2946 3190 0 Thrivers Survivors Nose-divers Average

10.00% Rate of Return on Assets Database Average = 0.43% & 0.83% 5.00% Percent 0.00% -5.00% -10.00% Thrivers Survivors Nose-divers Average

Reproduction/Production Goals Pregnancy Rate: Greater than 90.0% This includes all females Including 1 st calf heifers 2 nd calf heifers Calving Rate: Greater than 85.0% Weaning Percentage: Greater than 82.0% Your management determines these. Any less than these, you need to figure out why. Where is the loss occurring? Any more than these may cost too much.

Reproduction/Production Goals Average Weaning Weights of all calves: 520 pounds. While your management determines this to a degree (ie. Genetics, etc.), mother nature can always trump you (ie. Rainfall after calving). Combine this with an 82% weaning percentage, then pounds per female will be 426 pounds.

Production Efficiencies Are you stocked right for you land resources? Affects reproduction, weaning weights, feed costs, etc. Remember, if she doesn t get bred, everything else that follows is an expense with no income to offset it. Are my females sized right? Are your females weaning an appropriate weighted calf annually for your resources?

Financial Goals Total Costs should be below $600. Top three expenses (Depreciation, Labor & Management, and Feed Purchased) should account for at least 45% of your total expense ($270 per female). That gives you $$330 for everything else. Ask yourself: Is this that I am considering purchasing going to improve my reproduction and/or production efficiency? Feed Labor (save one more calf) New pickup

Southwest SPA Results 2007-2011 Average Gross Revenue = $538.65 Average Total Costs = $588.97 Average Net Income = -$50.31 Rate of Returns on Assets Cost Basis = 0.43% Market Basis = 0.83% $718.34 per weaned calf

Questions/Comments Stan Bevers Texas A&M AgriLife Extension Service 940 552-9941 ext. 231 s-bevers@tamu.edu http://agrisk.tamu.edu