KNOW PRODUCTION COSTS TO STAY AHEAD IN THE GAME

by: Clifford Mitchell

Marketing programs have evolved from a date on a calendar to sophisticated programs that could involve video or internet sales, while some producers capture the value of their genetics through country sales because of a proven track record. Fact is most cattlemen have become more knowledgeable in the marketing process trying to gather as many dollars for their calf crop as possible. Recent record prices may make some ranchers think times could not get any better than this.

Unfortunately, record prices do not mean record profits in today's environment of high production costs. Marketing is still a priority for most ranchers; however, some are not equipped with the right information to make this a successful venture. Producers who know production costs will always be one step ahead in the marketing game.

“Producers should create a budget so they have an idea where they are going to be at the end of the production cycle,” says Job Springer, Consultant, The Samuel Roberts Noble Foundation.

“You have to know what it costs to raise that calf. Some people feel like this is too much of a gray area, but it's not,” says. Dr. Chris Farley, TCU Ranch Management.

Many management decisions revolve around the marketing program. Without knowing costs, it's sometimes hard to make difficult management decisions that could add to the bottom line.

“Know the value of your resources. Stocking rates are lower on a lot of ranches right now and that raises overhead,” Farley says. “Calf prices are high, but that sometimes isn't enough to offset increased overhead. You have to take advantage of every marketing opportunity and knowing cost allows you to do that.”

“If you have a game plan and know your costs, then it's easier to know when it's a good time to sell,” Springer says. “At weaning, is it time to capitalize or do we need to delay marketing. If costs are written down, will things like pre-conditioning return more in the end? Knowing costs is such a big factor, especially, if it's costing money to get premiums.”

Calving season is often highly debated in the different regions of the country. The marketing program will somewhat dictate calving season. Fine-tuning the system could help producers garner more profits.

“Cattlemen have to work through these decisions on paper to see if it will pay to move calving season closer to green grass. It sounds good in theory, because of lower feed costs, but there may be fewer total pounds of weaned calf so revenue may be lower,” Springer says. “At the same time, creating a tighter calving season and a more uniform group of older calves could pay dividends. You have to know those trade-offs when you make management decisions.”

“Calving season needs to be lined up with the forage curve. If that gets too “out of whack” then high feed costs will eat you up,” Farley says. “It doesn't really matter if you calve in the spring or fall, as long as you are utilizing your forage in the most economical way.”

Cull cows and how to handle those open replacement heifers are often a thorn in most producers' side. Those who know actual production costs understand the importance of eliminating open cows. New technology has made this an easier task to handle.

“Timed breeding and a blood pregnancy test opens up the window to make those heifers still fit the marketing systems. If they don't breed with that 28-day blood test you're marketing a May-June feeder rather than a September, October or November open heifer. It's all about finding those heifers early and getting them shipped,” Farley says. “I am a believer in a good tight calving season, but if you have the resources, leave that bull out there a little longer and sell a bred cow in this market. You're adding a lot of value to her just by making sure she's bred in the current market that reflects low cow numbers. She still doesn't fit your system, but she's worth more.”

“We have to identify open cows as soon as possible. The quickest way to do that is with the blood test for pregnancy, which can be done 28 days after you pull the bulls. It identifies pregnant cows and is extremely accurate,” Springer says. “This helps keep costs down and not waste resources. This also allows you to market her ahead of the run on cull cows and she should be in better condition because of cheap feed, grass.”

The marketing plan will also provide insight to genetics. Deciding what the marketing goal is will help determine which bulls to buy. Knowing production costs gives cattlemen a good idea of what they can afford to spend on bull power.

“Know where you're sourcing your genetics and if you can purchase what you need at a reasonable price. Whether you are buying bulls or replacement females, you have to know the cost of those genetics,” Springer says. “There's a fine line between being cost effective and cheap. Always know the benefit to the program for every dollar you spend. Don't waste money.”

“If your goal at the end of the day is selling as many pounds as you can, then you need to have that marketing goal in mind when you purchase bulls or make genetic selections. If you know how you're going to market and your costs, then you can figure out if you're going to get paid for those genetics,” Farley says. “We know a lot more about genetics and what they'll do today than we ever have before. Certain genetic pieces fit based on the marketing goal, buy bulls that match.”

Budgets and costs are going to be specific for each ranch. Some advanced ranch management tools will work for some and not for others. For certain outfits, logistics may play a role in marketing decisions, but knowing costs will still play a role when producers are making those tough calls.

“Some operations don't see the benefits of extra management. There are a variety of reasons, like lack of space to wean them or little knowledge of weaning calves that make pre-conditioning a tough sell. It works better for those outfits to sort early in the morning get them on a truck and down the road because they know their costs and what it would cost to add management,” Farley says. “Some outfits are so spread out they can't get calves weaned and shipped in a day, because the shrink would kill them. Logistics makes pre-conditioning an ideal option based on what they're making up in shrink.”

“I think sometimes we paint with too broad of a brush. Every marketing effort is crucial from a cost standpoint. You have commissions, trucking and shrink,” Springer says. “Understanding costs and break points will allow producers to explore different marketing avenues.”

Pre-planning could be the key to following these road maps and how to deal with changes or adapt management to keep costs in check. Cattlemen may become more adept at using the new age “tools of the trade” like forward contracting or taking advantage of marketing on the video with a later delivery date vs. the more traditional rope, saddle and spurs.

“Producers always have to be looking at other alternatives as to how they can follow that road map,” Springer says. “Different years set up differently and each producer scenario differs. A few dollars here and there adds up pretty quick.”

“We should know in April or May if we're going to pre-condition calves or not. If you plan to market those calves early, you can take some of the volatility out of the market,” Farley says. “There are often too many opportunities to take advantage of. Cattlemen can make early market decisions because they know their breakevens.”

Change is often a word that should be swallowed with some Pepto or Alka-Selzer for most cattlemen, but some think it's here to stay. High costs, record market prices and Mother Nature, who's really fickle or going through a mid-life crisis, have changed the rules to beef production. These rules are no longer straight forward textbook like maneuvers, but almost “battlefield strategic” when it comes to positioning the herd for profit. Adapting to these new rules will be much like breaking the young colt, whoever can tame the whirlwind and build a solid future will have the advantage.

“The rules have changed. Most folks have to pay attention to the weather and when their grass is growing. A lot of ranches are producing good cool season grass, but not getting the rain for warm season. Some areas don't have cold winter weather. Science is a lot better at predicting moisture. Sell calves before bad weather and start paying more attention to your resources where you can adapt,” Farley says. “Get in the market early. Most who feel comfortable getting in that market early and locking in their profits, know their costs. Producers not comfortable getting in that market early, trying to hit a home run every year, often don't know their costs.”

“The last six years have definitely taught us a lot about our rules of thumb that our parents and grandparents didn't have to deal with. Costs have doubled so we don't have the same rules,” Springer says. “The early adapters will be the ones who are successful in the coming years. Those who are slow to adapt could face hard times. If you know your costs and breakevens, you can take advantage of a lot of opportunity.”







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