How Much Money Is Made Off of Beef Each Year
Author(due south): Greg Halich, Kenny Burdine, and Jonathan Shepherd
Published: February 25th, 2021
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The purpose of this article is to examine cow-calf profitability for a spring calving herd that sold weaned calves in the autumn of 2020 and provide an judge of profitability for the upcoming year. Tabular array 1 summarizes estimated costs for a well-managed bound-calving cowherd for 2020. Every operation is different, so producers should evaluate and alter these estimates to fit their situation. Notation that in this table we are non including depreciation or involvement on equipment/fencing/facilities, as well as labor and land costs.
Calves are assumed to be weaned and sold at an average weight of 550 lbs. In the 4th quarter of 2020, steers in this weight range were selling for prices in the upper $130's and heifers in the low $120's, on a land average ground. Therefore, a steer / heifer average toll of $1.30 per lb is used for the analysis, which is actually the same price that was used last yr. Weaning rate was estimated at 85%, significant that it is expected that a calf will exist weaned and sold from 85% of the cows that were exposed to the bull. Based on these assumptions and adapted for the weaning rate, average calf acquirement is $608 per cow.
Pasture maintenance costs are assumed to be relatively depression at $twenty per acre, and would include merely bones greenbacks costs of pasture clipping (fuel, maintenance, repairs), and a express amount of reseeding, fertilizer, and fencing repairs. Producers who consistently utilize larger amounts of fertilizer to pasture ground would see much higher pasture maintenance costs. The pasture stocking rate is assumed to exist two.0 acres per cow, but producers should carefully consider the stocking rate for their operation as this volition vary greatly. Stocking rate impacts the number of grazing days and wintertime feeding days for the functioning (i.e. loftier stocking rates will hateful more hay feeding days), which has big implications for costs on a per cow basis.
These spring calving cows will utilise 2.5 tons of hay per cow, and the estimated greenbacks cost of making this hay (fuel, maintenance, repairs, supplies, fertilizer, etc.) is $35 per ton. Mineral cost is $35 per cow, veterinarian / medicine costs $25, trucking costs $15, machinery cash costs for winter feeding and other miscellaneous jobs is $15, and other costs (insurance, property taxes, h2o, etc.) are $40. Breeding costs are $40 per moo-cow and should include annual depreciation of the bull and bull maintenance costs, spread beyond the number of cows he services. Marketing costs are currently around $25 per moo-cow, but larger operations may market cattle in larger groups and pay lower commission rates.
Breeding stock depreciation and interest are major costs that are often overlooked. They are generally not cash costs that need to be paid on a yearly basis, unless you accept a loan on them, but they are existent costs that need to be paid at some indicate. As an example, presume a bred heifer is valued at $1300, has viii productive years, and has a cull cow value of $600. The boilerplate yearly depreciation is calculated as follows:
$1300 bred heifer value
–$600 cull-moo-cow value
$700 full depreciation
$700 depreciation / viii productive years = $88 cow depreciation per year. The bodily depreciation volition vary beyond farms. When buying bred replacement heifers, the initial heifer value is clear. With subcontract-raised replacements, this cost should exist the revenue foregone had the heifer been sold with the other calves, plus all expenses incurred (feed, convenance, pasture rent, etc.) to accomplish the same reproductive phase every bit a purchased bred heifer. At an average value of $950 (halfway between bred heifer and choose value) over her lifespan on your subcontract, and assuming a 3% involvement rate results in a $29/cow/twelvemonth interest cost, or a full of $117/moo-cow/yr in combined depreciation and interest.
Notation that based on the assumptions in our example, total specified expenses per moo-cow are $440 and revenues per cow are $608. Thus, the estimated gross return is $168 per cow. At starting time glance, this positive render looks impressive, merely is also misleading. A number of costs were intentionally excluded because they vary greatly across operations. Notice that no depreciation or interest on equipment/fencing/facilities was included. Notice also that labor and land costs were too not included. Thus, the gross return needs to be adjusted past these costs to come with a true return to the farm.
Since these costs vary so much from one functioning to the adjacent, it may be helpful to selection a specific sized farm and provide estimates for these costs: a 40-moo-cow operation that is producing its own hay and has all farming operations on its own land (80 acres of pasture and 30 acres of hay).
Presume this farm has on average $50K in equipment which depreciates roughly $one thousand every year, or $25/moo-cow/year in depreciation. At 4% interest, an additional toll of $2000 in interest per twelvemonth, or $50/cow/year, would be realized. Assume as well this subcontract has fencing, barns, working facilities, etc., with an initial value of $50K and a lifespan of 25 years. That would amount to $l/cow/twelvemonth in depreciation and $25/cow/twelvemonth in interest.
If nosotros have 2.0 acres of pasture and .75 acres of hayground per cow, and value that at a land rent of $36/acre, that would exist $100/moo-cow/year in land hire. Assume also that we take determined nosotros have $100/cow/year in labor, which would amount to $4000 full per year for the entire herd.
These non-cash costs add upwards to $350/cow/year on our instance farm: $150 per cow in depreciation/involvement on equipment/fencing/facilities and $200 per cow in land hire and labor. Nosotros encourage you to estimate these for your own performance, only the unfortunate reality is that they quickly add up on most farms. The $168/cow/year gross return over cash costs and moo-cow depreciation does not look quite as practiced now. After adjusting for these other costs, the cyberspace return (all costs included) is –$182 per cow per twelvemonth, or –$7280 for the 40-cow farm.
Another way to look at this is to just include the depreciation and interest for equipment/fencing/facilities ($150/cow/yr), and not include land and labor ($200/cow/year). In this case, the return would increase to $18/moo-cow/twelvemonth, and would represent the farms return to country and labor. Did this farm actually lose money on a cash basis? No, not if they are using their own labor and their land is paid for. Merely the subcontract as well did not make a real profit. This subcontract essentially paid the equipment/fencing/facilities depreciation and interest in full, but the cattle farmer and land effectively worked for complimentary.
These numbers volition vary across operations, merely estimating your own cost construction is extremely important. Our guess is that compared to our example farm, in that location are far more cow-calf operations of similar size with a college price construction than at that place are operations with a lower cost structure in Kentucky. Put simply, well-managed jump calving herds were probable covering all cash costs, convenance stock depreciation/interest, and depreciation and interest on equipment/fencing/facilities, merely were not generating a return on their labor or country this final year.
Readers tin use Tabular array 2 to modify the analysis based on their cost structure and expected calf prices, for 2020 and future years. Information technology uses all costs except for land and labor, then the table shows a return to land and labor.
Equally an example, nosotros used $one.30/lb in our base scenario equally the expected steer/heifer toll for 2020. Given the price structure, we used ($0 modify on the left-manus side of the tabular array), the expected return to land and labor is $18/cow/year, just every bit was previously described. If a cattle farmer sold their calves for an average toll of $one.35/lb, and had a $l/cow/twelvemonth cheaper toll structure (-$fifty alter on the left-hand side of the tabular array), their expected return to country and management would be $92/cow/year. If another cattle farmer thought the $one.30/lb dogie cost was accurate, only had $50/cow/twelvemonth more expensive cost structure (+$50 on the left-hand side), their expected return to land and management would be -$32/cow/year. In this final example, they had no render to their land and labor and were $32/cow/year short in covering all their depreciation and interest expenses.
Predicting cattle prices is about impossible given the numerous factors that touch on the market place. While the touch of higher feed prices on feeder cattle and calf values is crusade for business concern, several other factors paint a more optimistic picture for the current yr. The size of the US cowherd continues to shrink, which means the 2021 calf crop will be smaller. Domestic demand is probable to improve throughout the year as eatery business concern picks up. Finally, beef exports showed a lot of comeback in the fourth quarter of 2020, and this trend is likely to go along into 2021.
Given that, our all-time guess for fall 2020 prices for that same 550 lb steer/heifer are in the $1.35-i.45/lb range. At a $i.40/lb price, and using the same toll construction, the return to land and labor would now be estimated at $65/cow/twelvemonth. This would still not fully compensate a cow-dogie operator for the value of their labor, and would non provide any return to land, but it would be an improvement from 2020. Put simply, profit continues to exist a challenge for moo-cow-calf operations which means that efficiency and cost command will be of keen importance one time again.
Reducing and managing costs was one of the principal focuses of the Cow-Dogie Profitability Conferences that were held during the winter of 2019-2020. Unfortunately, COVID-nineteen forced the states to abolish over half of the conferences we planned to deliver last yr. The good news is that we will exist offering these in a virtual format this winter on the evenings of March 23-25. Registration, agendas, and other information can be found at the Virtual Moo-cow-calf Profitability Conference webpage. We hope that yous will join us on those evenings as we think every cow-calf operator in Kentucky can do good from the fabric being covered.
Greg Halich is an Associate Extension Professor in Farm Management Economics for both cattle and grain production and can be reached at Greg.Halich@uky.edu or 859-257-8841. Kenny Burdine is an Associate Extension Professor in Livestock Marketing and Direction and can be reached at kburdine@uky.edu or 859-257-7273. Jonathan Shepherd is an Extension Specialist in Subcontract Management and can be reached at jdshepherd@uky.edu or (859) 218-4395.
Writer(southward) Contact Information:
Greg Halich | Associate Extension Professor | greg.halich@uky.edu
Dr. Kenny Burdine | Associate Extension Professor | kburdine@uky.edu
Jonathan Shepherd | Extension Specialist | jdshepherd@uky.edu
Source: https://agecon.ca.uky.edu/cow-calf-profitability-estimates-2020-and-2021-spring-calving-herd
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