Critical control points for profitability in the cow-calf enterprise

Operating costs, depreciation costs, and capital charges were all negatively correlated (P

In the financial regression model (Table 5), depreciation cost was the second critical factor explaining almost 9% of the herd-to-herd variation in RLM followed by operating cost (5%). The unstandardized coefficients and their SE for depreciation and operating costs indicated that there was essentially a 1;1 reduction in RLM for each dollar spent. Therefore, these costs do not increase economic return by improving production. Lawrence and Strohbehn (11) showed that a $1.00 increase in operating cost resulted in a larger than $1.00 increase in total annual cost, suggesting a correlation between operating cost and other costs unaccounted for in their equation. Capital charge showed a $1.38 reduction in RLM for every dollar spent, indicating that it was correlated with other factors that increased expenses. Capital charge was correlated with feed cost, operating cost, and investment (P

Even though depreciation cost was calculated the same in the financial and economic analyses, as an independent variable, it had a greater impact on the economic regression model than on the financial regression model and had a larger slope. This was because of the correlation of depreciation cost to other factors unaccounted for in the models. Depreciation cost was responsible for 12% of the herd-to-herd variation in RLM in the economic model. Each $1.00 increase in depreciation cost in the economic equation resulted in a negative $1.19 RLM. Depreciation expense may be a function of investment in equipment and structures or breeding stock. If this expense was because of equipment, spreading this cost over more cows would be a logical management alternative. The correlation between depreciation cost and herd size (P

Herd Production and Marketing. The average price of feeder calves sold for the entire database was $77.22/ 45.4 kg (cwt), with a low of $62.58/ cwt in 1996 and a high of $86.43/cwt in 1999. Calf price data over these years were similar to those reported by Cattle-Fax (3) for 1996 to1999. Cattle-Fax data indicated a choice 205-kg steer (about 16 kg lighter than the average calf BW in this data set) was worth $64.10/cwt in 1996, $88.93/cwt in 1997, $87.50/cwt in 1998, and $92.22/cwt in 1999. These data indicated that the 4-yr study included the bottom of the most recent cattle cycle and occurred during the liquidation phase. The upward trend seen in calf prices agreed with the upward trend seen in RLM (Table 1), indicating that calf price as a function of the cattle cycle certainly impacted profitability. In this study, individual observations were calculated as a difference from the yearly mean, in an attempt to gauge differences in producer-controlled marketing factors.

Calf BW had a greater impact on RLM in both the financial and economic regression models than did calf price. Calf BW was the fourth indicator of RLM in the financial model (Table 5) and was similar in magnitude to operating cost, explaining about 5% of the herd-to-herd variation. Results of both the financial and economic equations indicated that each additional kg of calf BW would be expected to return about $1.18 ($0.54 per pound). This was intermediate to results reported by Hughes [$0.41; (6)] and Bruce et al. [$0.60; (2)]. The $0.54 was lower than the $0.77 average calf price reported for this data set for two main reasons. First, as calves get heavier, the sale price per kilogram decreases (6), which agreed with the negative correlation observed for calf BW and calf price. Second, based on an 83% average weaning percentage, 17% of the cows that had costs were not marketing calves. This was the same reason that an increase of $1.00/cwt in calf price only resulted in an increased return of $3.40 per cow in the financial regression equation, similar to the $3.68 reported by Bruce et al. (2).