Critical control points for profitability in the cow-calf enterprise

Professional Animal Scientist, Dec 2001 by Miller, A J, Faulkner, D B, Knipe, R K, Strohbehn, D R, Et al

Two analyses were conducted: one utilized financial cost of production data; the other utilized economic data. Financial costs were defined as cash-flow costs and included debt service and hired labor; economic costs reflected the opportunity cost of inputs and included a charge for invested capital (rather than principal and interest payments) and the value of family and operator labor (11).

To alleviate the influence of factors that are beyond a manager's control (e.g., cyclical differences in calf price and yearly variations in weather), arithmetic means were developed within each year. Each observation was analyzed as the difference from the mean for that given year.

Stepwise linear regression analyses were conducted according to the procedures of SPSS (15). Pearson correlation coefficients were calculated to determine linear associations between variables (15). Because of lack of significance (P>0.05), hired labor, family labor (economic analysis only), investment (both cost basis and market basis), cull weight, cull price, and calving distribution were excluded from the final stepwise regression models. All variables included in the financial and economic models were included at a significance level of P

The dependent variable in both the financial and economic models as an indicator of profit was return to unpaid labor and management per cow (RLM). Total annual cow cost was excluded from the analysis as an independent variable, as previous research (2) and preliminary analysis of this data set indicated that it would be the overriding factor influencing profit. To allow for a better understanding of how management factors may influence profit, total cost was broken down into the five factors: feed cost (total annual feed cost including pasture cost), operating cost, depreciation cost, capital charge, and hired labor. In the economic analysis, family labor (family and operator labor charge per cow) was included. Investment (total capital investment per cow) on a market value basis was used as an independent variable in the economic analysis; the financial analysis used investment on an actual cost basis. Production factors evaluated as independent variables in both models were calf BW (average BW of feeder calves sold), cull BW (BW of breeding stock sold per cow), weaning percentage, and calving distribution (percentage of calves born in the first 42 d of the calving season). Calf price (price per 45.4 kg feeder calves sold) and cull price (price per 45.4 kg breeding stock sold) were also evaluated. Herd size (number of cows in the herd based on January 1 inventory) was also analyzed as an independent variable. All variables were calculated according to SPA guidelines (16).

Results and Discussion

Means, SD, minimal values, and maximal values are presented in Table 1 for all variables. The average herd size was 97 cows. Herd size distribution is shown in Table 2. Most of these herds were part of a multi-- enterprise farming operation.

During the 4-yr period studied (1996-1999), the average cow-calf enterprise had a negative $19.91 financial RLM per cow. When economic costs were included, the RLM per cow decreased to a negative $80.69. The means by year indicate that 1996 was the lowest profitability year; then, profitability trended upward through 1999. Based on calf price data, the period of evaluation included the bottom of the most recent calf price cycle (3).