Costs Of Producing A Hundredweight Of Calf Is Increasing
My Integrated Resource Management Databank clearly documents that when cattle prices trend
downward, ranchers cut production costs. While I can not document this, I suspect that when
prices go up, ranchers tend to increase their production costs. Certainly, higher prices tend to
stimulate added capital investments and expenditures delayed during the tough times. Ranchers
continue to remind me that their costs are also going up each and every year. The one cost that
certainly does go up every year is the cost of "iron" - meaning machinery.
I took a look at the University of Minnesota's Northern Plains large data set for 1996
through 2003, representing 3064 ranch years, to see what was happening to ranchers' costs.
This data indicates that costs per cow trended downward from 1997 through 2000. Since 2000,
costs per cow have been trending upward. My statistical analysis suggests that from 2000
through 2003, costs per cow have trended upward $12/cow per year.
This $12 increase in costs per cow probably is a conservative estimate - at least for the
Western half of the U.S. As ranchers progressed into the 1999-2004 droughts, many depopulated
their beef cow herds - some up to 40 percent. Depopulation clearly drives fixed costs per cow
upward for the remaining cows in the herd. Increase feed costs for the remaining herd drives up
operating costs. When fixed costs and operating costs are combined, drought send costs of
production dramatically upward. Combine this with the missed profit opportunity of having fewer
calves to sell now that prices are high, and the cost of the past drought will be huge. So huge, that some
ranchers will never recover. The economic impact of the 1999 - 2004 drought will impact ranchers for at least
a full decade.
My October BEEF Magazine Market Advisor, entitled "Zap Up Your Info System" suggested that now is
the time in the cattle cycle for ranchers to stockpile money. We have long talked about stockpiling
feed during the good years and now we need to talk about stockpiling money in the good years.
In that same October article, I suggested that in order to maximize the profits generated in these
good times, that a Third-Generation Management Information System (TG-MIS) should be
implemented. I went on the suggest that a TG-MIS system should consist of a herd performance
and economic/financial measures integrated into a single management information system that
sends one set of integrated management signals. This is best summarized in the title of my July
Market Advisor "The Money Is In The Details." This title supports my belief that increasing
management intensity increases beef cow profits.
posted by Dr. Harlan Hughes 9:56 AM