A Statement of the Obvious Things are not going well for us in the beef industry. Governments imposition of ethanol mandates will continue to keep feed and fertilizer prices at current or higher levels. Even though supplies are tight, a tenuous economic situation is going to make it very difficult to increase beef/feeder demand. Serious cattlemen are going to need to keep their chin- strap buckled for the foreseeable future.
Overview for This Morning Some economic concepts and practices for all times. More specific suggestions and scenarios. Conclusions and Questions.
Some Economic Truths Competitive markets are just that. –Dont owe you a thing. –Consumer based function to pay a price that just keeps the producer from doing something else. –Long-term the price of a good approaches the average cost of production. –Cruelly efficient at weeding out high-cost producers.
Financial BMPs - a.k.a. Things you should always do, but especially now. 1.Coordinate revenue and cost management. 2.Develop contingency plans and conduct what-if scenarios for the entire operation not just the cattle enterprise. 1.Debt 2.Disability 3.Divorce 4.Departure 3.Regularly monitor budgeted vs. actual performance. 4.Prioritize and do 1 st things first. Adapted from: Dr. Danny Klinefelter, TAM Agri-Life Extension
Financial BMPs 5.Conduct autopsies on the results of key decisions. 6.Recognize the 5% rule. 7.Spend as much time analyzing what to STOP doing as you do analyzing new opportunities. 8.Benchmark your performance against the Top 25% 1.Lenders 2.Cattle-fax 3.IRM-SPA 4.Labor 5.Machinery & Equipment 6.Interest Cost Adapted from: Dr. Danny Klinefelter, TAM Agri-Life Extension
Warning Signs Accounts payable increasing. Working capital decreasing. Record-keeping practices decline. Dont disclose the total business to the lender. Diverts proceeds. Living expenses increase rapidly and expenditures for capital assets increase. Works less and plays harder. Domestic situation changes.
Risk Management Considerations 1.Uncertainty is not risk 2.Three Rules of Successful Poker Players 1.Always know the odds identify your largest and smallest sources of risk. 2.Never risk more than you can afford to lose what happens if this doesnt work? 3.Never risk a lot to gain a little Dont cut corners on the things that matter!
What Really Matters?? Delivering as many live animals to market at as low a cost as possible. Retaining as much equity as possible.
So How Do We Prioritize our Spending? 1.Determine the amount you have to work with. 1.Cash 2.Liquid assets 3.Non-liquid assets 4.Loans 2.Identify your costs. 3.Rank them in order. 4.Focus on the larger number. 5.Understand the difference in cutting costs and cutting corners. Genetics Health Nutrition
The Fallacy of Cow Cost Most requested number from cattlemen and agents. Doesnt account for: –Calf weight –Calf crop percentage
Different Types of Cost 1.$/Cwt. Produced 2.$/Calf Marketed 3.$/Cow
Example Budget for Central Florida 250 cows 2.0 acres of bahia pasture per cow 500 total acres –300 owned –200 rented @ $20/acre 1 paid laborer Mix of new and used equipment Baler payment Family living expenses of $30,000 per year
Total Costs of Cow-Calf Production TC $210.57/Cwt. FC $98.56/Cwt. VC $112.01/Cwt.
Practical Ways to Lower Variable Costs 1.Cull open or unproductive cows 2.Retain as much value as you can from your cull breeding stock. 3.Determine those variable expenses that have the biggest impact on costs.
Cull Unproductive Cows Yeah Buts: –Must be able to match cows and calves –Based on average cow cost –Borderline young cows may get a pass
Effects of Cow Age on Productivity AgeAdjustment 2+60 3+40 4+20 5-100 11++20 BIF Adjustment Factors for Weaning Weights (Steers)
Ways to Lower Variable Costs Feeding/forages –Forage test hay/silage or baleage by cutting –Segregate cows and heifers –Reduce bale losses
Moisture distribution of twine wrapped alfalfa/grass round bales stored on the ground or pallets Shinners, U of Wisconsin Soil ContactPallet Source: Dr. Lawton Stewart, UGA
Round Bale DM Loss Storage Method Up to 9 Months12-18 Months --------------------Dry Matter Loss (%) -------------------- Exposed Ground 5-2015-50 Elevated 3-1512-35 Covered Ground 5-1010-15 Elevated 2-45-10 Under Roof 2-53-10 Enclosed Barn <22-5 Hunke, OK State Source: Dr. Lawton Stewart, UGA
Storage Losses Source: Forage Crop Pocket Guide Source: Dr. Lawton Stewart, UGA
Cost of DM Loss Storage Method Up to 9 Months12-18 Months DM Loss (%) Cost of usable Hay ($)DM Loss (%) Cost of usable Hay ($) Exposed Ground 5-20105-12515-50118-200 Elevated 3-15103-11812-35113-154 Covered Ground 5-10105-11110-15111-118 Elevated 2-5102-1055-10105-111 Under Roof 2-5102-1053-10103-111 Enclosed Barn <2100-1022-5102-105 Hunke, OK State Assuming $100/ton Source: Dr. Lawton Stewart, UGA
Method of Feeding Hay Unrolling Feeding Bale – up to 50% loss Ring – 6% loss Wagon – 11% loss $150/ton actual cost Source: Dr. Lawton Stewart, UGA
Ways to Lower Variable Costs Cull open or unproductive cows Feeding/forages –Forage test hay/silage or baleage by cutting –Segregate cows and heifers –Reduce bale losses –Compare costs of supplements based on what the animal needs
Ways to Lower Variable Costs Cull open or unproductive cows Feeding/forages –Forage test hay/silage or baleage by cutting –Segregate cows and heifers –Reduce hay losses –Storage/feeding methods –Compare costs of supplements based on what the animal needs Pasture/hay fertilization –Soil test –Lime –Split Nitrogen and Potash Applications –Utilize legumes if possible –Reevaluate rotational grazing
DO NOT cut back on lime! Get your priorities right! 1.Lime is still job #1. Sources: Dr. Joe Vendramini, UF and Dr. Dennis Hancock, UGA
How Soil pH Affects Availability of Plant Nutrients The Difference of a soil pH of 5.8 vs. 6.2 Nutrient Amt. Used Annually Unit Price Dec. in Efficiency Value of Decrease (Lbs/acre)($/lb)($/acre) N200$0.4020% -$16 P2O5P2O5 50$0.4025% -$5 K2OK2O150$0.6010% -$ 9 Total -$30 Source: Dr. Dennis Hancock, UGA
Fertilization Strategies Hayfield 2 & 3 pH = 5.5 P = 15 K = 90 OM = 1.5% Hayfield 2 & 3 pH = 5.5 P = 15 K = 90 OM = 1.5% Hayfield 1 pH = 6.0 P = 25 K = 120 OM = 2.5% Hayfield 1 pH = 6.0 P = 25 K = 120 OM = 2.5% Pasture A pH = 6.2 P = 35 K = 180 OM = 3% Pasture A pH = 6.2 P = 35 K = 180 OM = 3% Source: Dr. Dennis Hancock, UGA
Reducing Fertilizer Costs Long-term, this can increase yields by 5-10% and increase NUE by 25-30% Especially important under extremes Leaching Volatilization (in the case of urea-based products) Late freeze Drought Helps to prevent NITRATE TOXICITY! 2. Split Nitrogen and Potash Applications Adapted from: Dr. Dennis Hancock, UGA
Use Legumes as Much as Possible Source: J. Vendramini, 2009 UF BCSC
Economics of Replacing 100 Acres of Commercial N with Clover Current Situation 120# N/acre N cost $0.35/lbs. 2 acres/cow 90% calf crop with 500# calf @$100/Cwt. Clover 3#/acre of Durana @ $5.25/# - good for 3 years Additional 10# P/acre required @ $0.40/# Additional 10# K/acre required @ $0.60/# 2.13 acres per cow Weaning weights increased 20#
Additional Costs Reduced Revenue Additional Revenue Reduced Costs Total additional costs +reduced revenue =$4,675 Total additional revenue +reduced costs = $7,774 Total Profit = $3,099 Additional 20 pounds on calves from 43 cows @ 90% calf crop sold for $100/cwt. = $774 Savings on 2 applications of 60#/acre of commercial nitrogen @ $0.35/pound = $4,200 7 fewer cows @ $400/cow = $2,800 3#/acre of Durana or Patriot @$5.25/pound good for 3 years = $525/year Additional 10# phosphorous/acre per year @$0.40/# = $400 Additional 10# potash/acre per year @$0.60/# = $600 Total additional costs = $1,525 100 Acres in Clover Stocking rate reduced by 15% 7 cows@ 90% calf crop, 500 pound calf @ $100/Cwt. = $3,150
Impacts of Fertilizer Cost & Usage on Profitability
Forage Utilization with Various Harvest Methods Rotational Grazing. UK ID-143 Source: Dr. John Andrae, Clemson University
Effect of grazing system on animal performance ItemContinuousRotationalDifference* Cow weight at calving, lbs10371017NS Cow weight at weaning, lbs10901071NS Stocking rate cows/acre0.500.69+38% Pregnancy rate, %9395NS Weaning weight, lb490486NS Calf production lb/ac243334+37% *NS = nonsignificant. Cattle grazed common bermudagrass and EF tall fescue near Eatonton, GA. (Hoveland, McCann and Hill, 1997). Source: Dr. John Andrae, Clemson University
Effect of grazing system on hay needs lbs hay fed/cow -25% -22% -39% -31% $37.54/cow savings using $100/ton hay Source: Dr. John Andrae, Clemson University
Use grazing management to maximize utilization AND flexibility Many people think of the increased utilization from rotational stocking as a way to increase stocking density- it also can allow stockpiling or improve utilization of grasses in late summer, early fall months Flexibility in management is rotational grazings biggest attribute Source: Dr. John Andrae, Clemson University
Summary on Reducing Variable Costs Cull open/unproductive cows Soil test Apply lime Split fertilizer applications Save more hay Reexamine legumes and rotational grazing
Family Living Expense is a lot like pouring concrete. 1.Very difficult to estimate the actual amount without previous records closely figure the amount needed then double it!! 2.After sand and gravel are mixed together they are difficult to separate It is difficult to separate FL and Business expenses when they are co-mingled. 3.Finishing concrete is hard work So is estimating and managing family living expenses. 4.Concrete sets up so does FLE. Source: Dr. Clark Garland, Univ. of Tennessee
Reducing Family Living Expenses 1.Determine how much they actually are. 2.Establish separate family and business checking accounts. 3.Determine how much you actually have to work with make consistent periodic withdrawals. 4.Develop a budget for the family. 5.Eliminate any large unnecessary purchases vehicles, boats, ATVs, etc. 6.Look for hidden expenses 1.Eating out 2.Private schools 3.Traveling sports teams 7.Evaluate refinancing home if applicable. 8.Try to have fun playing the Money Game!
Reducing Fixed Expenses Lowering Equipment Costs –Examine the economics of hay production. –Is no-till or reduced tillage an option? –Look at lease vs. purchase –Can you rent?
How many cows do I need to justify hay production? As long as you can buy it for this price or less, you are better off buying hay.
Reducing Fixed Expenses Lowering Equipment Costs –Examine the economics of hay production. –Is no-till or reduced tillage an option? –Look at lease vs. purchase –Can you rent? Lowering Breeding Stock Costs –Calculate the economics of raising and purchasing replacement females. –Second calf heifers Wean early Do what it takes nutritionally to get bred back –Do your cows match the environment? –Match your bulls to YOUR market (calf, feeder or slaughter).
Other Thoughts Examine forward pricing alternatives –Sales Cash sales Futures –Inputs Consider some form of retained ownership Try to add value to your calves by selling in truck-load lots. Consider the economics of other attributes such as pre- conditioned, PVP, etc.
Two Alternatives 1.Reduced stocking rate and lower inputs –No fertilizer on pasture –Reduce stocking rate from 2.0 acres per cow to 2.5 acres per cow 2.Additional cows on leased land –Add 100 cows –Rent additional acres for $20 per acre
Analysis of Alternatives ItemBaseReduced Stocking Rate Additional Cows Number of Cows250200350 Acres Owned300 Acres Leased200 400 Total Acres500 700 NVC ($/Cwt.)$108.01$72.62$109.80 FC ($/Cwt.)$98.56$123.20$79.43 TC ($/Cwt.)$203.05$191.41$187.06 TC ($/Cow)$737.84$695.35$679.68
Key Observations Reduced stocking rates may work well if overhead is low. If overhead is high, expanding production may work better.
So What Do I Do This Year? 1.Cull open and unproductive cows. 2.Provide adequate nutrition and management for cows and heifers. 1.Wean heifers early 2.Do what it takes to get them bred back 3.Soil test 4.Fertility 1.Hay and Pastures – Lime 2.Pastures – Nitrogen split applications 3.Hay – Potash split applications 5.Health and Nutrition 1.Dont skimp on health or mineral programs 2.Store hay under a tarp or some type of covering. 6.Management 1.Begin keeping better records 1.Financial 2.Production 2.Examine Family Living and other Fixed Expenses ABSOLUTELY DO
So What Do I Do This Year? 1.Going without fertilizer. 2.Putting up a lot of hay. 3.Spending excessively on superior genetics. 4.Trying to get one more year out of a cow or bull. 5.Buying new equipment (this means ESPECIALLY 4-wheelers and trucks). THINK BEFORE DOING
So What Do I Do This Year? 1.Skimp on potash or lime. 2.Starve the profit out of your cows. 3.Do make any major decisions without pushing a pencil. DONT
Sources and References for This Presentation Dr. Matt Hersom, UF Animal Sciences Dr. Joe Vendramini, UF Forage Specialist Dr. Dennis Hancock, UGA Forage Specialist Dr. Lawton Stewart, UGA Beef Specialist Dr. John Andrae, Clemson University Forage Specialist
Additional Information/Presentations http://www.animal.ifas.ufl.edu/extension/beef/short.shtml www.georgiaforages.comwww.georgiaforages.com look for the Cutting Costs Not Corners, series soon to come.
Conclusions Things will be tough for the foreseeable future in the cattle business. Eventually prices will approach the cost of production. There will have to be someone to produce the beef when prices improve. The producers that are there then are the ones that find ways to reduce expenses without unduly harming production.
Theres a better way to do it. Find it. Thomas Edison Dr. Curt Lacy firstname.lastname@example.org 229-386-3512