by: Wes Ishmael
“Our greatest risk is doing nothing,” explained Robert Fraley, Executive Vice President and Chief Technology Officer of Monsanto at the recent annual Cattlemen's College sponsored by Zoetis.
Fraley was talking about the challenge to global agriculture to double food production by 2050 as the global population grows from about 7.3 billion today to an estimated 10.0 billion by 2050.
“We will have to produce more and waste less,” Fraley said. “We'll have to produce food with less water, tighter regulations and continually changing weather patterns.”
Never minding the growing global appetite for beef, Fraley's thoughts regarding increased production and reduced waste seem to be wise advice for cattle producers in general.
Chatting with various agriculture lenders recently, asking what general advice they offer clients about risk management, a common answer ran something like this: “Focus on being as competitive as possible, which means lowering and managing costs, then you have the chance to profit no matter where the market is at any point in time.”
The low cost refrain can sound like a broken record, but time and again, it emerges as the key to economic survival in a commodity business and being able to windrow profit in the good times.
“Almost three-fourths (72.4 percent) of the average difference in net return to management between high and low-profit farms is due to cost differences,” explained Kevin Dhuyvetter in the summer of 2011 when he was an agricultural economist at Kansas State University. “The other 27.6 percent is due to differences in gross income per cow, part of which is a higher price but also high-profit farms had heavier calves.”
Dhuyvetter was referring to an analysis he conducted—Differences Between High, Medium and Low Profit Producers, an Analysis of 2006-2010 Kansas Farm Management Association (KFMA) Cow-calf Enterprise.
Cow-calf enterprise costs and returns from the KFMA Enterprise Analysis for individual producers were divided into three profitability groups, high, middle, and low, based on the per cow return to management. Net Return to Management is gross income less total costs, which includes unpaid labor, depreciation, and a charge for owned land. Multi-year averages were calculated for all variables (e.g., returns, herd size, costs) for each of the operations with a minimum of three years of data.
At the time, returns over total costs for the top third of operations in profitability was a negative $74.99 per cow. Returns were a negative $229.97 for the middle third and negative $419.89 for the lowest third of operations.
Higher-profit operations sold calves at slightly heavier weights and at slightly higher prices than those in the other profit categories, along with some other advantages such as the amount of labor devoted to the cow-calf enterprise.
But, Dhuyvetter emphasized, “Differences in costs between operations were much larger than the revenue differences. High-profit operations had about a $250 per cow advantage over low-profit farms (-28 percent) and a $119 advantage over the mid-profit farms. High-profit operations had a cost advantage in every cost category compared to the low-profit operations.”
Again, this was several years back before the massive, historic run-up in cattle prices.
Similar studies conducted by various organizations over time come to the same general conclusion—costs rather than revenue are the key to cow-calf profit.
Keep in mind, depending on the study, producers with the lowest total cost aren't necessarily the lowest-cost in every category. For instance, one study sticks out in my memory where the most profitable producers spent more on genetics and animal health.
“While numerous factors beyond the producer's control impact the absolute level of profitability, producers' management abilities impact their relative profitability,” Dhuyvetter explained. “In a competitive industry that is consolidating, such as production agriculture, relative profitability will dictate which producers will remain in business in the long run. Thus, it is important to recognize which characteristics determine relative farm profitability between producers.”
No one wants to knowingly squander hard-earned resources. After all, entire studies have been devoted to topics as seemingly mundane as whether one type of bale ring or another offers more cost efficiency (the differences are enormous). Other research and subsequent adoption validates and quantifies the economic advantage of cows bred in the first 21 days of the breeding season. These days, folks are identifying opportunity and disadvantage at the molecular level through genomics.
But how often are opportunities wasted, opportunities just as hard to earn?
Maybe they are opportunities ignored for good reason because they don't fit current resources and goals. Sometimes, though, maybe it's an opportunity dismissed out of hand because it's something too different than anything imagined as being part of the operation, or the breeding scheme or nutritional plan.
For that matter, there's plenty of old, proven, effective technology that's often under-utilized in the cow-calf business, everything from artificial insemination, to ionophores to implants.
Then, there's all of the new stuff. As an example, recent research from Oregon State University suggests significant gains in weaning weight, hot carcass weight and reduced BRD incidence can be had in calves simply by supplementing cows with trace minerals during the last trimester. None of the cows in the study were mineral-deficient, but calves from those supplemented with organic minerals in the last trimester performed significantly better.
Yes, it's a single study in need of replication. Given the low cost and risk, though…
None of this suggests forgetting common sense, taking on added risk willy nilly or taking a flyer on something unproven when the risk is too great. It serves as a reminder, though, especially given the long generational interval of a cow, that opportunities to change management, let alone the complexion of the herd, are sparse over the course of a producer's lifetime. Such infrequent opportunity places a premium on having as much assurance of success as possible. It also magnifies the cost of leaving such opportunity to gather dust.
Fraley was named a World Food Prize Laureate in 2013 for his contribution to founding, developing and applying modern agriculture biotechnology to helping agricultural producers feed the world. He is confident that agriculturists will meet and exceed the daunting increased needs for global agricultural production.
“I absolutely believe we have the tools to address it,” Fraley, says. “We have not only the tools to meet the challenge of achieving food security, but we can to the extent that we'll also be able to take some marginal lands out of production.”
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