Dr. Derrell Peel, Oklahoma State University Extension Livestock Marketing Specialist, offers his economic analysis of the beef cattle industry as part of the weekly series known as the “Cow Calf Corner,” published electronically by Dr. Peel, Mark Johnson, and Paul Beck. Today, Dr. Peel analyzes the relationship between costs of production and profitability for various beef producers.
Cow-calf producers are enjoying record calf prices but maximizing profits still requires managing costs. In fact, one of the reasons given for the slow start to heifer retention is that high costs of production means that producer returns are not yet high enough to initiate herd rebuilding. While producers may not be able to influence the general input market conditions and prices, Figure 1 shows that the variable costs of production per cow vary tremendously across producers, with profitability differences largely due to cost management (KSU, 2021). Low profitability producers have a total variable cost of production 37.1 percent higher than the top third of profitability among producers. Total feed (pasture + non-pasture) costs ranged from 69.1 percent (top third of profitability) to 66.3 percent (bottom third of profitability) of total variable costs but total feed costs for low profitability producers were 31.6 percent higher. The top third of profitability included higher pasture costs but significantly lower non-pasture feed costs and, thus, lower total feed costs.
Non-pasture feed costs in Figure 1 include harvested forages (hay) and purchased supplement feed. Hay costs are frequently overlooked or undervalued, especially for producers who make their own hay. In Oklahoma, other (non-alfalfa) hay is primarily used for beef cattle production. Figure 2 provides a broad measure of hay use calculated as tons of other hay per beef cow per year. This quantity has increased from less than one ton of hay per cow prior to 1980 to an average of about 2.4 tons of hay per beef cow in the last decade.
The quantity of other hay per cow currently averages 4,800 lbs. per year, which implies roughly 160 days of hay feeding per cow at 30 lbs./cow/day if all the hay was fed. However, a significant quantity of hay is lost to storage and feeding wastage. Round bales are especially prone to storage and feeding losses of 20 to 40 percent or more if not managed carefully. Additionally, it is noted that average cow size has increased over time. Whether this is a good thing is a different question that should be addressed as a separate consideration. Nevertheless, in many cases, stocking rates have not been adjusted over time to reflect larger cows, leading to overstocked pastures and the need to feed more hay.
Economists often say there is no such thing as a free lunch. However, grazing and hay management provide considerable opportunity for cow-calf producers to manage and reduce cow-calf cost of production. Cows are the most efficient forage harvesting machine in cow-calf operations and provide an opportunity to reduce total feed costs by extending grazing time and reducing hay needs. Hay costs roughly twice as much as grazing per pound of forage consumed by cows. There is no free lunch for cows but having the cows do most of the work with grazing is as close as you can get. March is an excellent time to plan grazing for the coming growing season with an eye to reducing hay needs next fall and winter.
Reference: KSU, 2021
Differences Between High-, Medium-, and Low-Profit Cow-Calf Producers – 2016-2020 | AgManager.info
