Management Considerations for Your Cows During These Tight Economic Times Dr. Curt Lacy Extension Economist-Livestock UGA-Tifton.

Management Considerations for Your Cows During These Tight Economic Times

Dr. Curt LacyExtension Economist-LivestockUGA-Tifton

Cost of Production 2002-2008

What Does it Cost to Keep a Cow?Costs per Female

Summary of Southwest SPA Database1991 to 2007

$250.00

$300.00

$350.00

$400.00

$450.00

$500.00

$550.00

$600.00

$650.00

19911992

19931994

19951996

19971998

19992000

20012002

20032004

20052006

2007

Source: Stan Bevers, TAMU

COW-CALF RETURNS AND CATTLE INVENTORY

U.S., Annual

-100

-50

0

50

100

150

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

$ Per Cow

90

95

100

105

110

115

Mil. Head

Cow-CalfReturns

CattleInventoryJan 1

C-P-6704/27/09

A Statement of the Obvious

Things are not going well for us in the beef industry.Government’s imposition of ethanol mandates will continue to keep feed and fertilizer prices at current or higher levels.Even though supplies are tight, a tenuous economic situation is going to make it very difficult to increase beef/feeder demand.Serious cattlemen are going to need to keep their chin-strap buckled for the foreseeable future.

Overview for This Morning

Some economic concepts and practices for all times.More specific suggestions and scenarios.Conclusions and Questions.

Some Economic Truths

Competitive markets are just that.– Don’t owe you a thing.– Consumer based function to pay a price that just

keeps the producer from doing something else.– Long-term the price of a good approaches the

average cost of production.– Cruelly efficient at weeding out high-cost producers.

Financial BMPs - a.k.a. Things you should always do, but especially now.

1. Coordinate revenue and cost management.2. Develop contingency plans and conduct what-if

scenarios for the entire operation not just the cattle enterprise.

1. Debt2. Disability3. Divorce4. Departure

3. Regularly monitor budgeted vs. actual performance.4. Prioritize and do 1st things first.

Adapted from: Dr. Danny Klinefelter, TAM Agri-Life Extension

Financial BMPs

5. Conduct autopsies on the results of key decisions.6. Recognize the 5% rule.7. Spend as much time analyzing what to STOP doing as you do

analyzing new opportunities.8. Benchmark your performance against the Top 25%

1. Lenders2. Cattle-fax3. IRM-SPA4. Labor5. Machinery & Equipment6. Interest Cost

Adapted from: Dr. Danny Klinefelter, TAM Agri-Life Extension

Warning Signs

Accounts payable increasing.Working capital decreasing.Record-keeping practices decline.Don’t disclose the total business to the lender.Diverts proceeds.Living expenses increase rapidly and expenditures for capital assets increase.Works less and plays harder.Domestic situation changes.

Risk Management Considerations

1. Uncertainty is not risk2. Three Rules of Successful

Poker Players1. Always know the odds

identify your largest and smallest sources of risk.

2. Never risk more than you can afford to lose what happens if this doesn’t work?

3. Never risk a lot to gain a little Don’t cut corners on the things that matter!

What Really Matters??

Delivering as many live animals to market at as low a cost as possible.

Retaining as much equity as possible.

So How Do We Prioritize our Spending?

1. Determine the amount you have to work with.1. Cash2. Liquid assets3. Non-liquid assets4. Loans

2. Identify your costs.3. Rank them in order.4. Focus on the larger number.5. Understand the difference in cutting costs and cutting

corners.

Genetics

Health

Nutrition

The Fallacy of Cow Cost

Most requested number from cattlemen and agents.Doesn’t account for:– Calf weight– Calf crop percentage

Different Types of Cost

1. $/Cwt. Produced

2. $/Calf Marketed

3. $/Cow

Production Total

Costs Total Costs Variable $/Cwt.

WeanedCalves Total

Costs Total Costs Variable $/Calf

Exposed Females

Costs Total Costs Variable $/Cow

Example Budget for Central Florida

250 cows2.0 acres of bahia pasture per cow500 total acres– 300 owned– 200 rented @ $20/acre

1 paid laborerMix of new and used equipment Baler paymentFamily living expenses of $30,000 per year

Total Costs of Cow-Calf Production

$-

$100

$200

$300

$400

$500

$600

$700

$800

Fixed Costs

Mktng

Interest

Rent

Labor

Fencing

Vet & Med

Past., Hay & Feed

TC

$210.57/Cwt.

FC

$98.56/Cwt.

VC

$112.01/Cwt.

Practical Ways to Lower Variable Costs

1. Cull open or unproductive cows2. Retain as much value as you can from your cull

breeding stock.3. Determine those variable expenses that have the

biggest impact on costs.

Cull Unproductive Cows

Yeah Buts:– Must be able to match cows and calves– Based on average cow cost– Borderline young cows may get a pass

Cost Cow Total - Price) Calf Weight x (Calf Profit Cow Annual

Cost Cow Total - Value Calf Profit Cow Annual

Effects of Cow Age on Productivity

Age Adjustment

2 +60

3 +40

4 +20

5-10 0

11+ +20

BIF Adjustment Factors for Weaning Weights (Steers)

What Determines Cow Value?

1. Percent Lean Meat Yield

2. Live weight

Marketing Classifications of Cull Cows

Classification Lean Percentage of

Trimmings

Body Condition Score

Premium (Discount)2002-2006

Cutter/Canner 85%+ 1-3 ($3.50/Cwt.)

Boning Utility 80-85% 4-6 Base

Breaking Utility Less than 80% 7+ ($2.00/Cwt.)

Cull Cow Economics

1,100 pound cow BCS 5 worth $55.00/Cwt. = $605

800 pound cow BCS 3.5 worth $51.50/Cwt. = $412

Difference =$188 + plus cost of feed

Cull Cow Marketing

When– Before October 1

What– Cows in good flesh (BCS 4+)– Cows without obvious defects

How– Local market– Direct????

• Live weight• Carcass basis

SEASONAL PRICE INDEX -- UTILITY COWSSouthern Plains, 1997-2006

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1.15

Jan Mar May Jul Sep Nov

Index

Avg. Index

Breakdown of Variable Costs

$257

$39

$66

$-

$50

$100

$150

$200

$250

$300

$350

$400

$450

Mktng

Interest

Rent

Labor

Fencing

Vet & Med

Past., Hay & Feed

Ways to Lower Variable Costs

Feeding/forages– Forage test hay/silage or

baleage by cutting– Segregate cows and

heifers– Reduce bale losses

Moisture distribution of twine wrapped alfalfa/grass round bales stored on the ground or pallets

Shinners, U of Wisconsin

Soil Contact Pallet

Source: Dr. Lawton Stewart, UGA

Round Bale DM LossRound Bale DM LossStorage Method Up to 9 Months 12-18 Months

--------------------Dry Matter Loss (%) --------------------

Exposed

Ground 5-20 15-50

Elevated 3-15 12-35

Covered

Ground 5-10 10-15

Elevated 2-4 5-10

Under Roof 2-5 3-10

Enclosed Barn <2 2-5

Hunke, OK StateSource: Dr. Lawton Stewart, UGA

Storage LossesStorage LossesStorage LossesStorage Losses

Source: Forage Crop Pocket Guide

Source: Dr. Lawton Stewart, UGA

Cost of DM LossCost of DM LossStorage Method

Up to 9 Months 12-18 Months

DM Loss (%)Cost of usable

Hay ($) DM Loss (%)Cost of usable

Hay ($)

Exposed

Ground 5-20 105-125 15-50 118-200

Elevated 3-15 103-118 12-35 113-154

Covered

Ground 5-10 105-111 10-15 111-118

Elevated 2-5 102-105 5-10 105-111

Under Roof 2-5 102-105 3-10 103-111

Enclosed Barn <2 100-102 2-5 102-105

Hunke, OK State•Assuming $100/ton

Source: Dr. Lawton Stewart, UGA

Method of Feeding HayMethod of Feeding Hay

Unrolling

Feeding Bale – up to 50% loss

Ring – 6% loss

Wagon – 11% loss

$150/ton actual cost

Source: Dr. Lawton Stewart, UGA

Ways to Lower Variable Costs

Cull open or unproductive cowsFeeding/forages– Forage test hay/silage or baleage by cutting– Segregate cows and heifers– Reduce bale losses– Compare costs of supplements based on what the

animal needs

Comparison of Alternative FeedsIngredient $/ton %DM $/Ton Dry % CP %TDN $/ Lb. CP $/Lb.TDN

Good Quality Alf-Grass 128.00$ 85% 150.59$ 19% 55% 0.40$ 0.14$ Prem. Quality Grass Hay 141.25$ 85% 166.18$ 13% 53% 0.64$ 0.16$ Corn Gluten 110.00$ 90% 122.22$ 21% 80% 0.29$ 0.08$ Soy Hull Pellets 120.00$ 91% 131.87$ 12% 80% 0.55$ 0.08$ Citrus Pulp Pellets 176.00$ 91% 193.41$ 6% 82% 1.61$ 0.12$ Cottonseed 165.00$ 93% 177.42$ 23% 92% 0.39$ 0.10$ Corn 150.00$ 85% 176.47$ 9% 88% 0.98$ 0.10$ Brewers Grain 19.00$ 24% 79.17$ 26% 70% 0.15$ 0.06$ Dry Distillers Grain 140.00$ 92% 152.17$ 28% 88% 0.27$ 0.09$ Winter Rye 8.57$ 20% 42.86$ 20% 75% 0.11$ 0.03$ Ryegrass 6.00$ 20% 30.00$ 20% 75% 0.08$ 0.02$

Ways to Lower Variable Costs

Cull open or unproductive cowsFeeding/forages

– Forage test hay/silage or baleage by cutting– Segregate cows and heifers– Reduce hay losses– Storage/feeding methods– Compare costs of supplements based on what the animal needs

Pasture/hay fertilization– Soil test– Lime– Split Nitrogen and Potash Applications– Utilize legumes if possible– Reevaluate rotational grazing

DO NOT cut back on lime!

Get your priorities right!

1. Lime is still job #1.

Sources: Dr. Joe Vendramini, UF and Dr. Dennis Hancock, UGA

How Soil pH Affects Availability of Plant Nutrients

The Difference of a soil pH of 5.8 vs. 6.2

NutrientAmt. Used Annually

Unit Price

Dec. in Efficiency

Value of Decrease

(Lbs/acre) ($/lb) ($/acre)

N 200 $0.40 20% -$16P2O5 50 $0.40 25% -$5K2O 150 $0.60 10% -$ 9

Total -$30

Source: Dr. Dennis Hancock, UGA

Fertilization Strategies

Hayfield 2 & 3pH = 5.5P = 15K = 90OM = 1.5%

Hayfield 2 & 3pH = 5.5P = 15K = 90OM = 1.5%

Hayfield 1pH = 6.0P = 25K = 120OM = 2.5%

Hayfield 1pH = 6.0P = 25K = 120OM = 2.5%

Pasture ApH = 6.2P = 35K = 180OM = 3%

Pasture ApH = 6.2P = 35K = 180OM = 3%

Source: Dr. Dennis Hancock, UGA

Reducing Fertilizer CostsReducing Fertilizer Costs

• Long-term, this can increase yields by 5-10% and increase NUE by 25-30% Especially important under extremes

Leaching Volatilization (in the case of urea-based

products) Late freeze Drought

• Helps to prevent NITRATE TOXICITY!

2. Split Nitrogen and Potash Applications

2. Split Nitrogen and Potash Applications

Adapted from: Dr. Dennis Hancock, UGA

Use Legumes as Much as Possible

Source: J. Vendramini, 2009 UF BCSC

Economics of Replacing 100 Acres of Commercial N with Clover

Current Situation• 120# N/acre• N cost $0.35/lbs.• 2 acres/cow• 90% calf crop with

500# calf @$100/Cwt.

Clover• 3#/acre of Durana @

$5.25/# - good for 3 years• Additional 10# P/acre

required @ $0.40/#• Additional 10# K/acre

required @ $0.60/#• 2.13 acres per cow• Weaning weights increased

20#

Additional Costs

Reduced Revenue

Additional Revenue

Reduced Costs

Total additional costs +reduced revenue =$4,675

Total additional revenue +reduced costs = $7,774

Total Profit = $3,099

Additional 20 pounds on calves from 43 cows @ 90% calf crop sold for $100/cwt. = $774

Savings on 2 applications of 60#/acre of commercial nitrogen @ $0.35/pound = $4,200

7 fewer cows @ $400/cow = $2,800

3#/acre of Durana or Patriot @$5.25/pound good for 3 years = $525/year

Additional 10# phosphorous/acre per year @$0.40/# = $400

Additional 10# potash/acre per year @$0.60/# = $600

Total additional costs = $1,525

100 Acres in Clover

Stocking rate reduced by 15% 7 cows@ 90% calf crop, 500 pound calf @ $100/Cwt. = $3,150

Impacts of Fertilizer Cost & Usage on Profitability

Lbs. of N/acre 0.35$ 0.50$ 0.75$ 1.00$ 80 799.00$ 1,999.00$ 3,999.00$ 5,999.00$

100 1,499.00$ 2,999.00$ 5,499.00$ 7,999.00$ 120 2,199.00$ 3,999.00$ 6,999.00$ 9,999.00$ 150 3,249.00$ 5,499.00$ 9,249.00$ 12,999.00$

Price per Pound for Nitrogen

What if Pounds Weaned do Not Increase?

Lbs. of N/acre 0.35$ 0.50$ 0.75$ 1.00$ 80 -$ 1,200.00$ 3,200.00$ 5,200.00$

100 700.00$ 2,200.00$ 4,700.00$ 7,200.00$ 120 1,400.00$ 3,200.00$ 6,200.00$ 9,200.00$ 150 2,450.00$ 4,700.00$ 8,450.00$ 12,200.00$

Price per Pound for Nitrogen

Forage Utilization with Various Forage Utilization with Various Harvest MethodsHarvest Methods

0102030405060708090

100

Hay Continuous 3-7 day rot 2 day rot 1 day rot

Harvest System

% U

tili

zati

on

Rotational Grazing. UK ID-143

Source: Dr. John Andrae, Clemson University

Effect of grazing system on animal Effect of grazing system on animal performanceperformance

Item Continuous Rotational Difference*

Cow weight at calving, lbs 1037 1017 NS

Cow weight at weaning, lbs 1090 1071 NS

Stocking rate cows/acre 0.50 0.69 +38%

Pregnancy rate, % 93 95 NS

Weaning weight, lb 490 486 NS

Calf production lb/ac 243 334 +37%

*NS = nonsignificant. Cattle grazed common bermudagrass and EF tall fescue near Eatonton, GA. (Hoveland, McCann and Hill, 1997).

Source: Dr. John Andrae, Clemson University

Effect of grazing system on hay needsEffect of grazing system on hay needs

0

500

1000

1500

2000

2500

3000

3500

4000

88-89 89-90 90-91 3 yr avg

ContinuousRotational

lbs hayfed/cow

-25%-22%

-39%

-31%

$37.54/cow savingsusing $100/ton hay Source: Dr. John Andrae, Clemson University

Use grazing management to maximize Use grazing management to maximize utilization AND flexibilityutilization AND flexibility

Many people think of the increased utilization Many people think of the increased utilization from rotational stocking as a way to increase from rotational stocking as a way to increase stocking density- it also can allow stockpiling or stocking density- it also can allow stockpiling or improve utilization of grasses in late summer, improve utilization of grasses in late summer, early fall months early fall months Flexibility in management is rotational grazing’s Flexibility in management is rotational grazing’s biggest attributebiggest attribute

Source: Dr. John Andrae, Clemson University

Summary on Reducing Variable Costs

Cull open/unproductive cowsSoil testApply limeSplit fertilizer applicationsSave more hayReexamine legumes and rotational grazing

Reducing Fixed Costs

Reducing Fixed Costs

Fixed Costs for 250 Cow Operation, FL 2009

$53$20

$97

$45

$120

$10

0%

20%

40%

60%

80%

100%

Family Living

Insurance

Land Costs

Equip. D&I

Build & Facil. D&I

Lvstk. Dep& Int.

Family Living Expense is a lot like pouring concrete.

1. Very difficult to estimate the actual amount without previous records closely figure the amount needed then double it!!

2. After sand and gravel are mixed together they are difficult to separate It is difficult to separate FL and Business expenses when they are co-mingled.

3. Finishing concrete is hard work So is estimating and managing family living expenses.

4. Concrete sets up so does FLE.

Source: Dr. Clark Garland, Univ. of Tennessee

Reducing Family Living Expenses1. Determine how much they actually are.2. Establish separate family and business checking accounts.3. Determine how much you actually have to work with make consistent

periodic withdrawals. 4. Develop a budget for the family.5. Eliminate any large unnecessary purchases vehicles, boats, ATVs, etc.6. Look for “hidden” expenses

1. Eating out2. Private schools3. Traveling sports teams

7. Evaluate refinancing home if applicable.8. Try to have fun playing the “Money Game!”

Reducing Fixed Expenses

Lowering Equipment Costs– Examine the economics of hay production.– Is no-till or reduced tillage an option?– Look at lease vs. purchase– Can you rent?

How many cows do I need to justify hay production?

35.00 50.00 100.00 200.00 300.00 500.00Tons/cow 2.00 2.00 2.00 2.00 2.00 2.00Acres required 11.67 16.67 33.33 66.67 100.00 166.67TVC $469.78 $469.78 $469.78 $469.78 $469.78 $469.78VC/Ton $78.30 $78.30 $78.30 $78.30 $78.30 $78.30FC $8,687.96 $8,687.96 $8,687.96 $8,687.96 $8,687.96 $8,687.96FC/ton $124.11 $86.88 $43.44 $21.72 $14.48 $8.69TC $14,168.73 $16,517.63 $24,347.29 $40,006.63 $55,665.96 $86,984.63TC/ton $202.41 $165.18 $121.74 $100.02 $92.78 $86.98TC/1,000# roll $101.21 $82.59 $60.87 $50.01 $46.39 $43.49TC/Cow $404.82 $330.35 $243.47 $200.03 $185.55 $173.97

Number of Cows

As long as you can buy it for this price or less, you are better off buying hay.

Reducing Fixed Expenses

Lowering Equipment Costs– Examine the economics of hay production.– Is no-till or reduced tillage an option?– Look at lease vs. purchase– Can you rent?

Lowering Breeding Stock Costs– Calculate the economics of raising and purchasing replacement females.– Second calf heifers

• Wean early• Do what it takes nutritionally to get bred back

– Do your cows match the environment?– Match your bulls to YOUR market (calf, feeder or slaughter).

Other Thoughts

Examine forward pricing alternatives– Sales

• Cash sales• Futures

– InputsConsider some form of retained ownershipTry to add value to your calves by selling in truck-load lots.Consider the economics of other attributes such as pre-conditioned, PVP, etc.

Two Alternatives

1. Reduced stocking rate and lower inputs– No fertilizer on pasture– Reduce stocking rate from 2.0 acres per cow to 2.5

acres per cow

2. Additional cows on leased land– Add 100 cows– Rent additional acres for $20 per acre

Analysis of AlternativesItem Base Reduced

Stocking RateAdditional Cows

Number of Cows 250 200 350

Acres Owned 300 300 300

Acres Leased 200 200 400

Total Acres 500 500 700

NVC ($/Cwt.) $108.01 $72.62 $109.80

FC ($/Cwt.) $98.56 $123.20 $79.43

TC ($/Cwt.) $203.05 $191.41 $187.06

TC ($/Cow) $737.84 $695.35 $679.68

Key Observations

Reduced stocking rates may work well if overhead is low.If overhead is high, expanding production may work better.

So What Do I Do This Year?

1. Cull open and unproductive cows.2. Provide adequate nutrition and management for cows and heifers.

1. Wean heifers early2. Do what it takes to get them bred back

3. Soil test4. Fertility

1. Hay and Pastures – Lime2. Pastures – Nitrogen split applications3. Hay – Potash split applications

5. Health and Nutrition1. Don’t skimp on health or mineral programs2. Store hay under a tarp or some type of covering.

6. Management1. Begin keeping better records

1. Financial2. Production

2. Examine Family Living and other Fixed Expenses

ABSOLUTELY DO

So What Do I Do This Year?

1. Going without fertilizer.2. Putting up a lot of hay.3. Spending excessively on “superior genetics.”4. Trying to get “one more year” out of a cow or

bull.5. Buying new equipment (this means

ESPECIALLY 4-wheelers and trucks).

THINK BEFORE DOING

So What Do I Do This Year?

1. Skimp on potash or lime.2. Starve the profit out of your cows.3. Do make any major decisions without pushing

a pencil.

DON’T

Sources and References for This Presentation

Dr. Matt Hersom, UF Animal SciencesDr. Joe Vendramini, UF Forage Specialist Dr. Dennis Hancock, UGA Forage SpecialistDr. Lawton Stewart, UGA Beef SpecialistDr. John Andrae, Clemson University Forage Specialist

Additional Information/Presentations

http://www.animal.ifas.ufl.edu/extension/beef/short.shtmlwww.georgiaforages.com look for the “Cutting Costs Not Corners,” series soon to come.

Conclusions

Things will be tough for the foreseeable future in the cattle business.Eventually prices will approach the cost of production.There will have to be someone to produce the beef when prices improve.The producers that are there then are the ones that find ways to reduce expenses without unduly harming production.

There’s a better way to do it. Find it.

Thomas Edison

Dr. Curt Lacy

[email protected]

229-386-3512