Beef Market Advisor

Tuesday, July 24, 2001

Cost Allocations For Demonstration Northern Plains Beef Cow Herd Used In September 2001 BEEF Market Advisor

Feed costs should be broken into summer grazing and winter stored feed. This demonstration herd had 153 day grazing season consuming 847 AUMs (animal unit months) of grass. Grass is priced into the cow herd at the going rental rate of $10 per acre. This figures out to $12.13 per AUM of grass consumed. Bring in mineral and salt costs and the total summer pasture cost was $67 per cow.

The 212 day stored feeding period has an average feed disappearance was 29 pounds of hay per cow per day (including wastage) for a total of 3.47 tons of hay disappearing per cow. The total winter feed cost, including salt and mineral, was $156 per cow. The total winter and summer feed cost was $222 per cow.

Vet and medicine totaled $21 per cow. It would have been better to break vet services out from medicine purchased but this was not possible with his records. Fuel costs were $7 per cow, utilities $4 per cow, supplies $3, marketing $8, and bull depreciation was $13 per cow for a total of $55 livestock costs.

Depreciation on the cows (8% annually after adjusting for cull value) and overhead costs such as insurance, repairs, and taxes on the breeding herd, facilities, and equipment used by the beef cows totaled $96 per cow giving a total economic cost of production of $373 per cow. The total economic cost was $373 per cow or $63 per hundredweight of calf produced.

Interest on investment is not yet included nor are charges for unpaid family and operator labor, management, and equity capital. These get added in under the full-cost calculations.

If the economic costs ($373/cow) are subtracted from the gross income ($588/cow) we get the earned net returns ($215/cow) from this beef cow herd. This $215 per cow is the value added from running these beef cows. This $215 is the earned net returns for the unpaid family and operator labor, management and equity capital utilized by the cow herd. Some how this $215 per cow is to be divided between the cow-owner and the working-rancher.

A key point that I think is often not recognized by people wanting to lease cows, is that the total earned net return from two parties leasing a beef cow can not exceed the net return earned by a single owner. In years when calf prices are high, the total pie can be large. In years when calf prices are low, the pie is low. You would be surprised at the law suits that spring up over beef cow leases during low priced times.

posted by Dr. Harlan Hughes 7:09 PM [edit]

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