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Beefs and Beliefs

NCBA Cow-calf Producers Say They Plan Expansion

Informal poll of cow operations indicates optimism at NCBA convention.

An informal poll of an audience in a morning session at NCBA’s Cattlemen’s College said 73% have plans to expand in the next five years.

Another 16% of the audience said maybe.

Of course that’s not a scientific sampling of operations across the U.S. but it was a huge number in my mind.

I thought it further intriguing because the majority of NCBA attendees in the room had earlier identified themselves as cow-calf producers.

Considering the increase in costs that has accompanied the increase in cattle prices, I find that shocking.

For example, in a later session when some of the speakers were bragging on the miracle of high cattle prices a beef producer sitting behind me said he sold calves for $16 more this year than last and his costs were $15 more. That sounds about right to me.

I keep talking that point. Stan Bevers really hit it hard in our January edition. He said for the period 2006-2010, the average gross revenue per cow in the Southwest Standardized Performance Analysis database was $540. The average total cost was $588. But it gets worse. When you figure the overall herd costs including the cows which did not produce calves, each weaned calf cost $716 in expenses. That’s a pretty big loss.

Keep in mind that SPA requires inclusion of a reasonable return (wage) to management. Still, these are real numbers from real ranches.

Further, Bevers noted that the cow business is not really like any other part of the cattle business. It’s not really a margin business like stocker operations or feeding operations, he said. It’s really an asset-management business that needs return on investment and ties up huge amounts of capital for very slow payback rates. It also has high and real depreciation on primary assets.

So the decision to expand requires a lot of optimism on the part of cow-calf producers and a lot of optimism on the part of lenders to bankroll such an operation.

I also got confirmation at this meeting that it’s the smaller cow operations which have been exiting the business the last few years. That’s as I have suspected and it only makes sense, considering they have less ability to spread costs across multiple units of production.

Neville Speer, a farm management professor from Western Kentucky University, said cost was the biggest profitability issue separating the top-third profit group and bottom-third profit group of cow-calf operations in Kansas. That number comes the Kansas Farm Management Association, which recorded costs 51% higher for cow operations in the bottom third of their farm records group.

Incidentally, pounds weaned was only 5.8% higher and sale price was only 3.5% higher for the top-profit group.

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