Risk Management and the Cost of Production University of Florida Beef Cattle Short Course May 2-4, 2007 Dr. Curt Lacy Extension Economist-Livestock University of Georgia

University of Florida Beef Cattle Short Course May 2-4, 2007 Overview Recent trends and projected profits for 2007 Recent trends and projected profits for 2007 Ways to manage risk in 2007 Ways to manage risk in 2007

University of Florida Beef Cattle Short Course May 2-4, 2007 Fertilizer Prices Nitrogen prices have increased 76% since 2002

University of Florida Beef Cattle Short Course May 2-4, 2007 Fuel Prices Diesel prices are up 145% since 2002

University of Florida Beef Cattle Short Course May 2-4, 2007 Impact of Fuel & Fertilizer Prices on Cost of Production

Projected Profits for 2007 Item Returns Over Variable Costs (ROVC) Returns Over Total Costs (ROVC) Expected Net Returns ($/cow) ($0.63)($90.94) Chance for Positive Returns 49%6% Returns to Land, Labor, Capital and Management ($/cow) $59.50$59.50 Cost/cow ($/Cow) $390.65$ Breakeven Price ($/cwt.) $97.61$ Assumes 500 cows, 85% calf crop, 523# calf marketed in Aug-Sep

University of Florida Beef Cattle Short Course May 2-4, 2007 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!

University of Florida Beef Cattle Short Course May 2-4, 2007 High Return Producers Dont Cheat On: 1. Animal health 2. Nutrition 3. Genetics Source: Cattle-Fax

University of Florida Beef Cattle Short Course May 2-4, 2007 Managing Risk in 2007 and the Future 1. Determine your cost 2. Increase Calf Value (Revenue) 1. Higher price 2. More production 3. Reduce Cow Cost 1. Cull open cows 2. Cull unproductive cows 3. Examine replacement heifer alternatives 4. Reduce the Cost of Production 1. Evaluate economics of hay production 2. Evaluate economics of annual forages 3. Consider alternative feeds

University of Florida Beef Cattle Short Course May 2-4, 2007 Know Your Cost 1. $/Cwt. Produced 2. $/Calf Marketed 3. $/Cow

University of Florida Beef Cattle Short Course May 2-4, 2007 Increase Revenue Calf Value Forward price part of your production Forward price part of your production Short-term backgrounding/creep feeding Short-term backgrounding/creep feeding Retained ownership Retained ownership Stockering Stockering Custom-finishing Custom-finishing

What You Can Sell for Today-Futures Based Price Projections Source: CME &

University of Florida Beef Cattle Short Course May 2-4, 2007 What You Can Sell for Today-Futures Based Price Projections

Creep-feeding or Short-term Backgrounding Sell 500# Calf in July vs. 650 or 750 August Weight Value ($/Head) Additional Weight Additional Value Breakeven COG 500$ $ $119.84$ $ $205.55$82.22

University of Florida Beef Cattle Short Course May 2-4, 2007 Reducing Cow Cost 1. Cull open cows 2. Cull unproductive cows 3. Evaluate replacement female economics

University of Florida Beef Cattle Short Course May 2-4, 2007 Cull Unproductive Cows Yeah Buts: Yeah Buts: Must be able to match cows and calves Must be able to match cows and calves Based on average cow cost Based on average cow cost Borderline young cows may get a pass Borderline young cows may get a pass

University of Florida Beef Cattle Short Course May 2-4, 2007 Replacement Female Economics Compare alternatives Compare alternatives Include the opportunity cost of heifers Include the opportunity cost of heifers Do whatever it takes to get second calf heifers bred Do whatever it takes to get second calf heifers bred

Replacement Female Economics – Value of Getting 2 nd Calf Heifers Bred % of 2 nd Calf Heifers Calving Current Economic Value Rate of Return Breakeven Purchase Price 100%($162)3.30%$919 85% (Base) ($222)1.96%$859 75%($262)1.06%$819 50%($362)-1.13%$718 $1,080 initial value, 7 years useful life, 7% interest

University of Florida Beef Cattle Short Course May 2-4, 2007 Reducing the Cost of Production Pasture and feed cost make up 63% of Variable Expenses

University of Florida Beef Cattle Short Course May 2-4, 2007 Reducing the Cost of Production 1. Reduce pasture cost 2. Hay production economics 3. Reduce feed costs

University of Florida Beef Cattle Short Course May 2-4, 2007 Reducing Pasture Costs 1. Reduce pasture cost 1. Soil test 2. Alternative fertilizers 3. Legumes? 4. Rotational grazing? 5. Economics of annuals

University of Florida Beef Cattle Short Course May 2-4, 2007 Forage Production Risk Average Yield

University of Florida Beef Cattle Short Course May 2-4, 2007 Annual Economics

University of Florida Beef Cattle Short Course May 2-4, 2007 Annual Economics

University of Florida Beef Cattle Short Course May 2-4, 2007 Reducing Pasture Costs 2. Hay production 1. What are your costs? 2. Buy hay/reduce stocking rate? 3. Corn silage? 4. Baleage? 5. Irrigation?

Costs of Producing Hay

Cost Comparison of Hay and Silage Item VC ($/ac.) AF/VC ($/ton) DM/VC ($/ton) AF/TC ($/ton) DM/TC ($/ton) Bermuda hay Dryland Bermuda hay Irrigated Corn silage Dryland Corn Silage Irrigated % DM Hay, 35% DM Silage

University of Florida Beef Cattle Short Course May 2-4, 2007 Reducing Feed Costs 3. Reduce feed costs 1. Forage test 2. Consider alternative feeds 1. Crop by-products 1. Cottonseed 2. Soy hulls 3. Molasses 4. DDG 2. Commodity feeds 1. Bakery products 2. Other manufactured products 3. CONFIRM INGREDIENTS OF BY-PRODUCTS

University of Florida Beef Cattle Short Course May 2-4, 2007 Alternative Feedstuffs Economics Calculator Excel spreadsheet Excel spreadsheet Users enter current or base feeding scenario and alternative feeding scenario Users enter current or base feeding scenario and alternative feeding scenario Users also enter cost info for additional facilities or equipment Users also enter cost info for additional facilities or equipment Net returns for the alternative feeding scenario are calculated on per herd and per cow basis Net returns for the alternative feeding scenario are calculated on per herd and per cow basis

University of Florida Beef Cattle Short Course May 2-4, 2007 Decision-aids Replacement Female Calculator Replacement Female Calculator Marketing Alternatives Calculator Marketing Alternatives Calculator Alternative Feedstuffs Calculator Alternative Feedstuffs Calculator

University of Florida Beef Cattle Short Course May 2-4, 2007 Summary 2007 and the next few years will be challenging for beef cattle producers and the next few years will be challenging for beef cattle producers. Dont cheat on the important things Dont cheat on the important things Health Health Nutrition Nutrition Genetics Genetics Marketing Marketing High feed prices create economic incentives for grass- weight on calves and feeders. High feed prices create economic incentives for grass- weight on calves and feeders. Retaining ownership MAY be an alternative Retaining ownership MAY be an alternative

University of Florida Beef Cattle Short Course May 2-4, 2007 Summary Cows Cows Cull open and unproductive cows. Cull open and unproductive cows. Compare replacement female alternatives. Compare replacement female alternatives. Production Costs Production Costs Examine your pasture costs. Examine your pasture costs. Revisit hay costs. Revisit hay costs. Consider other forage alternatives. Consider other forage alternatives. Look at alternative feedstuffs. Look at alternative feedstuffs.