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Beefs and Beliefs

Low-Cost Production More Profitable Than No-Cost Production

Smart money is that which you spend to get the biggest bang for your buck.

 

I  admit I harp about low-cost production and the fact it's one of the keys to profit.

I make no apologies for that.

We're in business to make a profit. Over the long haul, it is the most critical factor in true sustainability.

I've said before that profit is not a dirty word. I'm saying it again because it's too easy in our society to hear how evil profits are.

The other day I read in Dave Pratt's blog that many beef producers don't believe they can make a profit.

I had never thought of it from quite that angle.

I've long said that many beef producers are more interested in the traditions and ways of the past, more interested in horses and ropes, or tractors and balers, than they are in profits. We definitely have some problems with profits and the stumbling blocks before profits, but I never really imagined people believe they can't make a profit. On the other hand, the evidence before me says I have no reason to doubt Pratt's statement.

Maybe this problem is showing up in the Standardized Performance Analysis (SPA) data which Texas economist Stan Bevers keeps. He's now calculating last year's ranch numbers. He told me a couple weeks ago that it looks like 2013 could set new records for per-cow expenses. It reminds me how I've been telling people for several years now that it doesn't matter whether calves are posting record high sale prices if beef producers spend all their income keeping their cows.

Bevers' SPA data has shown unequivocally that the most profitable producers are always low-cost operators. That data also suggests they are likely not zero-input producers. That most profitable group posts weaning weights and calving percentages right up there in the range with others, many of which are less profitable.

The most profitable producers in the SPA data are also not always the largest operators.

They are really good at managing their resources. In fact they're pretty much good at everything, as Bevers has said many times. This is the same thing I've observed over the years.

I'm also learning that low-cost, even low-input, doesn't mean no input.

Smart producers figure the cost and return on all inputs and only keep the profitable ones. For example, there are times when a supplement can make you plenty of money. There are times when it won't. Our blogger Jim Elizondo has written often about this topic.

Oh, and supplements aren't the same as subsidies. Many folks feed hay as a subsidy. Charlie Griffith, the former Noble Foundation forage specialist told me 20 years ago you could divide the amount of hay you feed by the pounds consumed by a cow over the hay-feeding timeframe and that's how much you're overstocked. Cut the cows, cut the hay and add some grazing control and you're making more money. Griffith was right back then and he's even more correct with today's high input prices.

Just because you're getting bigger checks for your calves doesn't mean you should spend any more raising them. Pinch your pennies harder. Ask where you can cut back. When you spend money, do it in a way that gives you the biggest bang for your buck.

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