Three strategies to improve profitability for small cow-calf operations

Running a small cowcalf operation can be rewarding, but it is not without challenges. Larger farms spread their costs over more cows, making it harder for smaller herds to compete.

There also tend to be scale efficiencies related to labor, input purchases and other expenses that make larger operations more economically efficient. But smaller producers can be profitable, and this article focuses on three strategies small operations should consider to improve their profitability.

Keep overhead costs in check

Cow-calf operations are capital intensive by nature, so I chose to use the words “in check”, rather than something more specific. But the reality is that an operation running 30-40 cows can’t have the same overhead structure as one running several hundred. This sounds obvious but I often see new cow-calf operations that are badly overcapitalized from the start.

Smaller operations should focus on being lean with respect to equipment, facilities, and other fixed costs. In a lot of cases, this means limiting capital investment and ensuring that the scale of equipment is proportional to the scale of the operation. However, performing custom work with owned equipment is another way to spread that capital investment over more hours of use and add a second income stream.

Regardless of what approach is taken, small cow-calf operations must be aware that disproportionately large overhead cost structures can be a major drain on profitability.

Outsource strategically to save time and money

A small cow-calf operation does not have to do everything themselves and may be best served by outsourcing some farm operations. The first area that comes to mind is hay production.

It may be more economical for a small cow-calf operation to purchase hay, rather than own hay equipment and devote land and time resources to producing it themselves. In some areas, hay is not easy to source and may require significant effort. But by spending time developing relationships with hay producers and planning for winter feeding needs well in advance, the operation may be able to avoid significant hay production expenses.
Outsourcing other farm operations may also be worth consideration. For example, it may be easier to hire someone to transport cattle to market, rather than owning and maintaining hauling equipment that isn’t used very often. Heifer development is another area than can be a bit more challenging for small operations. It may make sense for a small operation to purchase a few bred heifers each year and focus on terminal production, rather than developing a small number of heifers on their own.

Outsourcing is typically justified on the basis of limiting investment (ie: avoiding over-capitalization) or limiting variable expenses. But it also frees up another very valuable resource – time. Most small cow-calf operators have off-farm employment or other significant off-farm commitments. By outsourcing some farm operations, additional time becomes available and can be devoted to the elements of the operation the farmer chooses to focus on.

Explore value-added marketing opportunities

While the first two considerations were largely focused on cost control, this one is focused on the revenue side of the profit equation.

Since production costs tend to be higher for smaller operations, it is even more imperative that they look for ways to add value to the cattle they sell. Since they are likely to sell cattle in smaller groups, they have an even greater incentive to consider co-mingled/value-added sales where they can potentially get price premiums associated with larger lot sizes and health programs.

They also have more incentive to consider direct-to-consumer markets such as freezer beef, farmers’ markets, etc. While everyone will be comfortable adding value in their own way, the point is that smaller operations need to focus on ways to increase profit per head, since they have a smaller number of head from which to profit.

Small cow-calf operations should recognize that they are unlikely to successfully compete with large operations on scale and cost efficiency. For that reason, they need to approach their operations differently and utilize the unique advantages that come with being lean and flexible.

By carefully managing their overhead cost structures and outsourcing operations that can be done more efficiently by other operations, they have the potential to see significant cost benefits. And by exploring value-added marketing opportunities, they may be able to capture revenue benefits as well.

Kenny Burdine is an Extension professor of livestock economics at the University of Kentucky. He is a regular contributor to Cattle Market Notes Weekly, a newsletter produced by Mississippi State University, University of Arkansas and University of Kentucky.