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Lower-Profit Operations Have Some Things in Common | KRVN Radio

Lower-Profit Operations Have Some Things in Common

Lower-Profit Operations Have Some Things in Common
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Markets are impossible to control, but cost management is the difference between profit and loss for many cattle operations.

A recent study out of Kansas State University sifted through reams of data and found that when comparing 61 different commercial cow/calf operations over a five—year period, there were some commonalities among those businesses that made money, and didn’t, regardless of the revenue side of the equation.

Dustin Pendell and Kevin Herbel, both with KSU’s department of agricultural economics, used commercial cow/calf enterprises enrolled in the Kansas Farm Management Association to extract their data. This program has 42 years of data, on an average number of 137 producers each year who participate in the enterprise analysis. Pendell and Herbel looked at 2012-through-2016 data for 61 beef commercial cow/calf operations, and they found parallels between those farms that showed a net return and those that didn’t.

“One of the things that stood out for us was how little the revenue side really impacted profitability,” said Pendell. “Profits are largely driven by the cost side, which is important to note.”

One of the biggest drivers, with a minus 27% difference between the top third of the operations analyzed, and the bottom third, was feed costs. Pendell noted it’s a “huge driver of variable costs.”

The report broke profit categories into high-third, mid-third and low-third across those 61 farms. The top-third sold more calves at 203, compared to 95 for the low-third. Weights for the 203 calves averaged 652 pounds, and sales prices averaged $171.25/cwt. Weights for the 95 calves averaged 590 pounds, and sales prices $178.30/cwt. Gross income per cow reported for the top-third averaged $1,059.17; for the low-third $923.14*. The higher profit operations generated about 15% more per cow.

The stark differences between operations are clearest when considering. In the top-third group total cost per cow totaled $1,023.95. In the low-third group it came in at $1,222.05. Costs included feed, pasture, interest, veterinary services/medications, marketing/breeding, depreciation, machinery, labor and other.

Of the costs considered, the advantages the high-profit operations gained were clearest in three areas: feed costs, labor and depreciation.

The high profit operations spent on average $309.11 to feed and $185.84 to pasture a cow; the low-profit operations averaged $424.72 to feed, and $171.66 to pasture a cow. That is a $115.61 difference for feed. The low-profit operations spent less to pasture a cow.

On labor, high-profit operations averaged 19% less than the low-profit operations, at $155.31 compared to $191.21. On depreciation, the high-profit operations averaged $48.40; the low-profit operations $66.35.

How does all of this total out over the five years? Pendell said total cost for the high-profit operations averaged $1,023.95 per cow; for the low-profit operations $1,222.05. Net return to management, factoring in the gross income, was significant. The high-profit businesses netted an average of $35.22 per cow, not a huge amount admittedly. However, compared to the low-profit operations, which showed a net loss of -$298.91 per cow, the difference was an eye-opening $334.13.

Pendell said their analysis will continue, with plans to look at the 2017 data and release an updated study in about a month.

*Pendell noted gross incomes reported may have also included, in some cases, income from the sale of cull cows/bulls from the operations.

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