PLAN AHEAD TO REDUCE PRODUCTION COSTS

by: Stephen B. Blezinger
Ph.D., PAS


Survival in the cattle industry is on based on a list of factors. Low cost producers (in all segments of the production chain) will survive in this system of competitive markets. Others (high-cost producers) will eventually be unable to compete and will exit the business. This is a basic truth in our industry today. While many producers may believe that they are at their lowest possible cost of production, given their particular situation, upon examination this may or may not be true. The following will discuss some ideas that can be implemented to help reduce production costs even further.

The Profitability Formula

In order to understand where you are in the market it is very important to understand what your breakeven price is. This simply defines what your production costs are per unit of marketable animal weight (pound, lb; hundredweight, cwt; etc.). The following formula can be used

Breakeven Price =  (annual cow costs - value of cull cows/bulls sold)
                                              average weaning weight x % calf crop

    Management decisions should focus on decreasing costs while optimizing percent calf crop, weaning weight and market price. The most profitable combination of production and costs will vary from ranch to ranch and is largely dependent upon the unique set of resources each operation has. Table 1 illustrates the effects of varying the annual cow costs and or the weaning percentage on the unit cost of production in a herd with an average annual weaning weight of 550 pounds.

Goals for Long- Term Profitability

Following are proposed industry goals for factors in the profitability formula which have been proven to be attainable by many progressive cattle producers. These are critical factors for the success of any cattle operation. If you fall out of these ranges it is important to take a closer look and identify problems within each component of the formula. Hopefully this discussion will give some ideas on how to manage production costs without compromising reproduction or growth.

Cost of production keeping breakeven prices of calves near $.60/lb or lower.

Reproduction optimum levels of % calf crop in the mid 80's to low 90 percent range - based on calves weaned per 100 cows exposed.

Growth assume moderate average weaning weights in the 475-550 pound range for seven month old calves. The question then becomes: How much can I afford to pay for increased production and/ or reproduction?

For example, you determine your operation has annual cow costs of $275, a 70 percent calf crop and 550 pound weaning weight, based on goals for profitability you determine your percent calf crop is low, the question is: How much can you afford to pay in increased cow costs to raise % calf crop 15 percent?

With these numbers you could afford to increase cow costs $58.93 and maintain the same break even of $.71, anything less than this and you would lower your breakeven, the same scenario can be made for increasing weaning weight. The important consideration here is to make management decisions based on all factors affecting profitability. It is difficult to increase weaning weight or % calf crop without affecting cow costs and decreasing cow costs often times adversely affects weaning weight and % calf crop. The intent of this paper is to give some management considerations that will decrease cow costs without adversely affecting production characteristics.

Cost of Production (Cow costs)

A recent IRM analysis indicated a 275 percent variation in cost of production between high and low cost producers which indicates opportunity for increasing profitability exists on most operations in the US. It has been estimated that less than 10 percent of today's beef producers know their cost of production, without knowing cost of production it is difficult to reduce costs because we don't know where to begin to reduce costs.

Feed costs represent the single largest cost item for most cow/calf producers in all areas of the country. Between 40-70 percent of the total production costs come directly from feed and supplement costs. Other operating costs such as labor, interest, vet supplies, freight, fuel and repairs also have a major impact but not to as great a degree as feed and supplement.

The competitiveness of the beef industry and particularly the cow/calf producer lies with the ability of cattle to convert forage into a product the consumer demands. Livestock management plans should be made to maximize forage utilization.

Minimize the use of Harvested Forages

1) Match the cow production cycle to the grazing season. Ideally the spring calving cow should graze green forage for about three weeks prior to the start of the breeding season. This coordinates the breeding season with peak forage production and best matches the time of highest requirements with the best grazing.

2) Use cool season forages to hasten and extend the grazing season. Cool season grasses have the potential to provide green forage up to 3 weeks earlier in the spring than native range. Higher quality fall forage can also be provided with cool season grasses.

3) Maximize the use of crop residues. Most areas of the US have some form of crop residue which is typically the cheapest grazed forage available for use by beef cows.

4) Stockpiled forages managed for use during the fall and winter grazing will help reduce the amount of harvested forage required.

5) Early weaning will allow cows to increase body condition prior to the winter months and may allow a longer winter grazing period with reduced supplemental feed.

6) Proper range management can increase both carrying capacity and individual animal performance. Since forage is the base for any successful beef cattle operation it is of vital importance to insure that this resource is sustainable and highly productive. Range management practices will vary depending on area and public land use. Some considerations include: rotational grazing, noxious weed control, water development, riparian area management, improved pastures and sagebrush control.

Supplementation

An extended grazing season will likely involve grazing of poor quality mature forages which will be deficient in nutrients that will have to be supplemented if cow performance is to be maintained.

Protein vs Energy

This is really a misnomer, because high quality protein supplements contain similar energy as cereal grains. Soybean meal and corn have similar energy levels but will have different effects on digestibility and intake of poor quality forage. In general, protein is the first limiting nutrient in poor quality forage, supplementation with an all natural protein supplement has been shown to increase digestibility and intake of poor quality forage and prevent loss of body condition during the winter grazing period. Supplementation to supply about 1/2 a pound of supplemented protein per head per day has been shown to be effective provided adequate forage is available for grazing. All natural protein supplementation has also been shown to be effective when fed on alternating or even every four days provided animals receive an equivalent of 1/2 a pound of supplemental crude protein daily. All feedstuffs contain protein but all feedstuffs do not have the same effect on supplementing poor quality forage. Some examples of supplements which have a positive effect on digestibility and intake of poor quality forages include: alfalfa hay, high protein meals, high (20+ percent) protein cubes, high protein liquid feeds, wheat middlings, and corn gluten meal.

Mineral Supplementation

In general, when forages are deficient in protein, phosphorus is also deficient. Rations should be balanced for the macro and micro minerals. Minerals of primary concern include: calcium, phosphorus, magnesium, copper, zinc and selenium although all the minerals are important, especially if one or more are in short supply or are out of balance. There is extreme variation in micro mineral content of forages based on region. Phosphorus is generally the most expensive of the macro minerals to supplement. A well balanced, free-choice mineral supplement should be kept out at all times.

Cost

Price supplements on a cost per pound of nutrient basis. If protein is determined to be the first limiting nutrient, value supplements based on a cost per pound of crude protein basis. For example, alfalfa hay valued at $150.00/ton with an 18 percent crude protein content would cost $.42/lb. of crude protein. ($150.00/2000 lbs = $.075; $.075/.18 = $.42/# CP). A 20 percent all natural range cube valued at $240/ton would cost $.60/lb CP. ($240.00/2000 = $.12; $.12/.20 = $.60).

Conclusions

The biggest factor in reducing production costs is planning and taking the time to calculate critical numbers such as breakeven costs, calving percentages and accurately tracking your costs of productions.

Dr. Steve Blezinger is a nutritional and management consultant with an office in Sulphur Springs, TX. He can be reached by phone at (903) 352-3475 or by e-mail at sblez@verizon.net.







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