Increasing cow-calf profitability through management

When it comes to the cow-calf segment of the beef industry, there are a number of strategies producers can look at in order to be successful, especially since this segment is unique.

Tanner Aherin, with CattleFax, primarily focuses on research and analysis for all sectors of the cattle industry and the poultry markets, in addition to covering cow-calf and stocker members in the Southeast. He spoke during the Stockmanship and Stewardship Virtual event Nov. 11 and 12. The event was a two-day educational experience featuring low-stress cattle handling demonstrations, Beef Quality Assurance educational sessions and facility design sessions.

“You’re more of a fixed cost operator as opposed to being a margin operator like you would see at the feed yard level, even at the packing segment, or a stocker operator backgrounder or would be,” Aherin said.

Those segments are more market operators—as they can buy cheap inventory and sell higher or buy the next round cheaper.

“Whereas if you’re a cow calf operator, you pretty much every year have consistent fixed costs,” he said.

Considering some of the most successful cow-calf operators in terms of high return producers, Aherin said they concentrate on nutrition, genetics and the health of their herd. This focus affects their calf crop through fertility and reproductive efficiency and the amount of money they earn.

Once a producer has a solid set of calves, it comes down to risk management and marketing of that calf crop to get the highest return on investment or the most money for those calves.

There are several ways to manage risk from a price standpoint and fixed costs. On the marketing side of an operation, producers definitely need to know their customers. Know their goals and ask if they’re buying to feed out, sell on a grid or are they the type of customer who wants pounds. Or will a producer focus a little bit more on the clientele that wants high quality replacement females?

“If that’s the case then obviously your genetics, your herd should focus more on the maternal side,” he said. “And then obviously navigating the markets with seasonality and markets is critical.”

Aherin said, “all of that stuff is kind of irrelevant” if a producer doesn’t know what their break-even costs are or if they’re even profitable.

It’s absolutely critical to know costs and continue to measure them to be able to calculate what the breakeven looks like. Breakevens help with the profitability side of things, but it also helps to manage risk. If futures are going to be utilized, a producer needs to know where breakeven levels are to help decide whether or not to take a position with a futures contract.

“One reason why we’ve seen liquidation in the last couple years is because of poor margins for profitability, especially for your low return producer,” he said. “They’ve been losing money the last couple years or barely making any at all.”

Those high return producers

High return producers average cash cow cost is right around $550, while the average producer is $600 and the lower return ones can tack on a $100 per head.

Some high return producers reach upper 80 to low 90 percentile of calves weaned per cow exposed. Aherin believes this is due mostly to running proven or older cows instead of first or second calf heifers.

“You’ll notice the last few years, your high return producers have had about a 3 to 4% advantage over your low return producers,” he said. “If you had 100 cows, that’s an extra three to four calves each year. At the same time, not only would you have more calves to market in the fall, you’d also have fewer replacements that you would need to restock.”

If it all goes back to nutrition, genetics and health, keep those things in check and any producer can maximize value.

“The bottom line is just your high return producers find a way to be more efficient,” he said.

High return producers tend to calve during a tighter calving window. In their survey, almost half of them calved within 45 days. Eighty percent calve within 2 months.

Twenty percent of the lower return producers calved in two to three months, with almost another 10% taking more than 90 days. Aherin said those herds who calve quicker tend to have a more uniform calf crop with cows breeding back quicker, and thus having higher weaning weights. Their data suggests almost a 40-pound difference between 0 and 45 days calving versus 90 plus days.

“That can be anywhere from, $60 to $75 a head that you’re missing out on,” he said. “And at the same time you’re selling less weight and you’re also selling fewer calves, as well, so it can really impact your bottom line.”

Keep an eye on the parents

That calf crop wouldn’t exist for the cow-calf producer without females.

“Obviously they’re the heart of your herd,” he said. “They’re one of the most important pieces of their herd.”

Buying females down the road can be looked at in terms of how many 550-pound steer calves does it take to pay for a bred cow. In their survey, long term it was over one and a half steer calves. The last 4 or 5 years it has been anywhere from 1.65 to 1.75 calves per bred cow. So if calves got up to “two bucks a pound in 2024,” Aherin said, they could reach $1,100 a head. If that ratio continues for the long-term average, females might reach more than $1,000.

Pushing that range to the upper end, like what happened in 2017 and into 2018—1.75 calves per bred cow—prices exceeded $1,900 per female.

“So as you think about that, is your operation set up to be able to pay those prices for females on down the road, even if you’re not expanding, if you’re just buying the replacements?” Aherin said. “To keep your herd size steady, can you afford that on down the road, or are you setting yourself up?”

And don’t forget about the bulls. One thing Aherin has noticed during the last few years is as the bull prices have increased, so has the cash value. In 2019 producers paid anywhere form 2,500 to $5,000 per bull and their calf value averaged about $850 per head. There’s value in the genetics and it’s not a fluke when he runs the numbers.

“They keep that bull around for three years, he sires about 25 calves each year. That’s nearly $6,000 extra in your pocket,” he said. “Obviously it’s going to cost a little more to buy that bull so that’s not going to be straight profit. But, you know, that is something to consider. Don’t skip out on genetics there, there’s key variable when it comes to being the best cow-calf operations.”

Calves to market

Aherin said the final key to being a successful cow-calf operator is how the calves are marketed. Marketing options include taking them to the local auction barn, selling off the ranch, video auctions, forward contracting calves or retaining ownership. Based on their survey, 40 to 45% of producers still sell at the auction barn.

A lot of times when calves are sold at the sale barn, they’re done so in the fall.

Now the cow-calf producer’s main goal should be to do whatever they can to avoid selling and marketing in the fall without getting some source of price protection.

“Maybe you look at forward contracting during the summer months,” he said. “Maybe you use the futures for price protection if you are going to sell off.”

Aherin sees the need to find other options because of a pretty hefty discount in the fall compared to other marketing opportunities. As he thinks about retained ownership, there’s a lot of different avenues and ways to do so as a cow-calf producer.

“You can always dry lot them through the winter, put them on summer grass and eventually sell them and feed them as a fed animal the next winter or fall,” he said. “If you are going to decide to retain ownership you can’t just wake up one morning decide that you’re going to retain ownership and own your calves longer on most of the time.”

That doesn’t work—you need to have a plan, according to Aherin. He wants to remind producers that retained ownership isn’t managing their risk, it could potentially add to it the longer you own the calves. It’s not necessarily a guarantee, but it does give the potential for more opportunity down the road.

“So if you are going to retain ownership, you needed to be thinking about the segments on down the supply chain and what those markets look like,” Aherin said.

Kylene Scott can be reached at 620-227-1804 or [email protected].