Cutting Costs, Not Corners: Managing Cattle in Tough Times (B 1373) University of Georgia Extension Cutting costs allows producers to survive during trying times and also teaches valuable lessons that may actually increase profits in future years. Cutting corners, on the other hand, may save some money in the short-run but ultimately will have very detrimental effects. 2017-03-31 10:28:00.417 2010-10-06 16:03:06.0 Cutting Costs, Not Corners: Managing Cattle in Tough Times | Publications | UGA Extension Skip to content

Cutting Costs, Not Corners: Managing Cattle in Tough Times (B 1373)

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R. Lawton Stewart, Jr.1, Ronnie E. Silcox2,
R. Curt Lacy3, Dennis W. Hancock4,
Glen H. Harris5, Roger W. Ellis6

Introduction

The beef cattle industry is going through quite a dynamic time. Feed prices are volatile, and the economy has affected the demand for beef and the ability for many producers to borrow money to run their operations. Many producers have chosen to exit the business while others are struggling just to break even. The average production cost of a 500-pound steer in 2008 was $142/cwt – not a number that can sustain beef production.

While costs have recently abated some, the reality is that long-term prices are expected to increase rather than decrease. As a result, cattlemen need to evaluate their systems and determine where they can cut costs in order to become profitable. At times like these, the key is to evaluate the entire system and look for places to improve efficiency without sacrificing performance. Fundamentally, there is a difference between cutting costs and cutting corners.

Cutting costs allows producers to survive during trying times and also teaches valuable lessons that may actually increase profits in future years. Cutting corners, on the other hand, may save some money in the short-run but ultimately will have very detrimental effects. A recent survey (Figure 1) of more than 200 successful producers and production specialists indicated that management priorities focus around five major concepts: Nutrition, pasture management, financial management, health, and genetics.

Figure 1 Figure 1. Cow-calf management priorities.
(Source: T.F. Field, 2008).

The hardest part of evaluating a management system is knowing where to start. Before any of these areas can be addressed, there must be an avenue of tracking inputs (i.e., keeping records). Records must be kept in order to make progress in management because if something is not recorded, it cannot be changed. This publication addresses management priorities, including:

  1. Understanding and controlling basic input costs in the cow herd
  2. Evaluating your herd nutritional program
  3. Soil testing and fertilization
  4. Improving grazing management to increase forage use efficiency
  5. Maintaining a sound herd health program
  6. Moving genetics forward

Understanding and Controlling Basic Input Costs in the Cow Herd

When trying to determine which costs to reduce, producers can improve results when making difficult management choices by following these five steps:

  1. Determine the amount of money available to spend.
  2. Calculate total cow-calf costs.
  3. Divide cow costs into different categories such as pasture, feed, hay production, veterinary care and minerals, labor, etc.
  4. Rank these categories in order from highest to lowest.
  5. Begin by focusing on the larger numbers first.

Before allocating expenditures, cattlemen must first determine the amount of capital they have to spend. This money will come from one or more of four places; cash/savings, sales of current assets (market livestock, hay, grains, etc.), sales of capital assets (breeding stock, timber, equipment, land), and borrowed capital.

Ranking of annual cow-costs Figure 2. Ranking of annual cow-costs
Source: UGA Cow-calf budgets, various years.

The next two steps can be performed almost simultaneously. Determine the costs of cattle production by category and then sum these for a total cost of cattle production. Budgets for calculating these costs are available at www.secattleadvisor.com. Categories include pasture, pasture and facilities rent, purchased feed, hay (production, purchases or both), veterinary care and minerals, labor, repairs, operating interest, and fixed costs. Fixed costs will be comprised of annual payments, depreciation plus interest, or some combination of the two1, taxes, insurance, and any other associated costs that occur regardless of the level of production. Use the items listed in Figure 2 as a guide.

Once the costs are determined by category they should be ranked in order from largest to smallest. Managers should begin by looking at the larger numbers and focus on reducing these areas first, which will make a larger impact on their costs than by focusing on a few smaller or trivial costs. For instance, in Figure 1, pasture, hay, and feed costs account for almost 70% of total cow costs while vet and mineral costs account for about 8%. By reducing total feeding costs by 10%, cattlemen can save almost as many total dollars as they can by completely eliminating their vet and mineral program. Moreover, the production risks incurred by reducing feed costs by 10% are much lower than eliminating vet and mineral expenses.

Making Adjustments

The remainder of this publication addresses ways producers can reduce costs and still remain competitive. Two categories likely to emerge that should be addressed are pasture/feed costs and fixed payments. Pasture and feed costs are covered in the nutrition and forages sections. However, one item that can greatly reduce fixed payments is hay production.

For many medium or small-scale producers the ownership costs for hay machinery are so large that it is virtually impossible for them to ever make a profit, especially if the equipment is relatively new. Therefore, cattlemen who currently produce their own hay may want to consider either purchasing it or finding other ways to reduce their equipment costs.

Instead of raising hay, many cattle operations might be more profitable if they either hire someone else to harvest their hay, or purchase hay. Table 1 shows an example of calculating the cost of producing hay for a given number of cows. If similar quality hay can be purchased for less than the cost of production (green shaded cells), it may be more profitable to purchase hay. The complete budget worksheet can be accessed at www.secattleadvisor.com by clicking on “Decision-Aids/Budgets.” If hay is purchased, more land is available to graze, possibly reducing total pasture cost. Stockmen who are committed to hay production may consider leasing or renting equipment instead of purchasing it. They may also consider sharing or partnering with other cattlemen on large purchases such as balers or bale wrappers.

Table 1. Calculating cost of hay production (assuming six tons per acre production).
 
Number of Cows
35 50 100 200 300 500
Tons/cow 2 2 2 2 2 2
Acres required 12 17 34 67 100 167
Total VCa $470 $470 $470 $470 $470 $470
VC/Ton $80 $80 $80 $80 $80 $80
FCa $8,750 $8,750 $8,750 $8,750 $8,750 $8,750
FC/ton $125 $88 $22 $22 $15 $9
TCa $14,350 $16,750 $24,750 $40,750 $56,750 $88,750
TC/ton $205 $168 $124 $102 $94 $89
TC/1,000# roll $103 $84 $62 $51 $47 $45
TC/Cow $410 $336 $248 $204 $188 $178
a VC = variable cost, FC = fixed cost, TC = total cost.

In reality, none of these steps can be accurately performed without adequate production and financial records. Without good financial records, cattlemen are just guessing at their costs. Not having sufficient production records can lead to retaining unprofitable cows or inferior herd sires.

What types of records do I need?

The best record-keeping system is the simplest one that meets the management objectives. It really doesn’t matter if you use a sophisticated commercial software package or spiral-bound notebook as long as you can make sound decisions with the information you collect.

At a minimum, producers should have financial records that allow them to easily calculate the costs for the categories listed in this section such as pasture (fertilizer, seed, etc.), feed, hay, labor, fuel, repairs, etc., as well as any other costs including rent, payments, real estate taxes, etc.

For production records cattlemen should be able to match calves to dams, as well as know which cows calved. If multiple sires are used, it is also helpful to be able to match sires to calves. Finally, management records that can verify source, age and animal health programs can actually be used to increase the value of the calf crop.

Evaluating Your Herd Nutritional Program

Nutrition represents the largest input cost associated with cattle production, accounting for as much as 70% of the annual carrying cost of a brood cow. As ruminants, cattle are able to utilize a wide range of feedstuffs in addition to forages, so cattlemen have a variety of options when developing a nutritional program. Many producers could improve efficiency in their feed programs by understanding what nutrients they have available in their forages and managing those nutrients so they are allocated properly according to the changing needs of the herd.

Program Evaluation

Evaluating a herd nutritional program and identifying inefficiencies can lead to decreased feed costs. A nutritional program can be evaluated in three basic steps.

  1. Understand your production system. The number one goal in beef production is to have a calf per cow every 365 days. If the calving interval extends past this, producers start to lose money quickly. In order to maintain this interval, a cow has approximately 80 days to rebreed after calving. The ability to do this is highly dependent on nutrition. To put this into perspective, a brood cow will prioritize her nutrients in the following order:
  2. a. Maintenance
    b. Growth (heifers)
    c. Lactation
    d. Reproduction (cycling).

    In other words, the producer’s number one priority (a calf every 365 days) is the cow’s lowest priority (reproduction). To further complicate the situation, the breeding season comes during the peak of her energy demands due to lactation (Figure 3). Figure 3 illustrates the large fluctuation in nutrient needs of a cow that calves in one year, weans, and calves again the following year. If a herd does not have a controlled breeding season or is not separated by production stage, it becomes quite difficult to manage nutrient needs. However, if these changing nutrient demands are understood, a nutritional program can be tailored to meet these needs.

    Daily crude protein and total digestible nutrient replacement Figure 3. Daily crude protein (CP) and total digestible nutrient (TDN) requirement throughout a 365-d calving interval.

  3. Understand your forage program. Under proper management, forages are the cheapest source of nutrients available for cattle producers. Therefore, maximizing the nutrients harvested from forages can tremendously reduce the need for supplements. In many parts of the Southeast, fresh forage can be produced throughout most of the year and can form the backbone of a nutrition program. On average, hay is fed for 120 days during the winter. In some cases forages can provide the majority, if not all, of a herd’s needed nutrients.

    Handling and understanding the nutrients available from hay may be an obstacle. Typically, a hay producer will get three to four cuttings of hay a year. Inevitably, there will be quality differences between cuttings. If producers will 1) inventory hay by cutting, 2) store it properly to minimize storage losses, and 3) test it by cutting, they will understand the stock and potential range of nutrients available. This will allow them to match nutrients available in hay to the herd’s changing nutrient needs.

  4. Develop an economical supplement. In an ideal situation, supplementation of crude protein and energy will be minimal or unnecessary. However, there will be times when supplementation is needed. The key is to identify feeds that supply the nutrients needed and evaluate those feeds on a price-per-nutrient basis (i.e., correcting for moisture content and nutrient content) using the following equation:



    Example:

    $⁄lb of nutrient = ($/ton ÷ [% dry matter × % nutrient (CP or TDN )] ÷ 2000

    $⁄lb of CP from SBM = ($395 ÷ [0.90 × 0.49] ÷ 2000

    $⁄lb of CP from SBM = $0.448

    This allows comparisons across feeds of the actual nutrient in need. The UGA Feed Cost Analyzer is available online to help perform these comparisons (www.ugabeef.caes.uga.edu/Tools.html). Table 2 goes through the exercise of evaluating a few common byproduct feeds compared to corn and soybean meal on a price-per-pound of TDN and CP basis.

    Note: With the volatility of today?s market, these prices change on a daily basis. Given these prices, it is logical to supplement with corn gluten feed or distillers grain when protein is limiting, or a blend of one of the former with soyhulls if energy is limiting.

    Table 2. Price per pound of CP and TDN calculated based on current feed prices
    Ingredient $/ton % DM % CP % TDN $/lb CP $/lb TDN
    Soybean Meal $380 90 49 87 $0.431 $0.251
    Corn $180 90 10 90 $1.250 $0.111
    Corn Gluten Feed $125 90 25 83 $0.256 $0.077
    Distillers Grain $135 90 28 90 $0.268 $0.083
    Soybean Hulls $115 90 12 77 $0.532 $0.082
    Whole Cottonseed $165 90 23 95 $0.367 $0.096

Develop a New Program

After developing a plan to address a herd?s nutritional needs, it is important to look at the three concepts together. In Table 3, 1) a herd is broken down into four stages of production, 2) three sources of hay/pasture have been tested and inventoried, and 3) an economical supplement of corn gluten feed and soyhulls has been identified. This step can often be overwhelming because it requires the balancing of multiple rations. The use of a ration balancing program will make this step much easier. The UGA Basic Balancer was developed to perform this task and can be found on the UGA Beef Team Web site (www.ugabeef.caes.uga.edu/Tools.html). By utilizing this tool, you can tailor a nutrition program that matches nutrients from forage to the needed class of production. The result is that supplementation cost decreased by as much as $0.80/cow/day, which can tremendously cut costs on a feed bill without cutting corners on nutrition.

Table 3. Supplement needed (Corn Gluten Feed:Soyhulls, 50:50) to meet the daily requirements of a 1,200-pound cow using three different qualities of forage as a base.
Stage of
Production
CP and TDN
Requirement
Poor Forage,
7% CP, 45% TDN
Average Forage,
10% CP, 50% TDN
Excellent Forage,
13% CP, 56% TDN
--------------- lb of supplement/head/day ---------------
Dry Cow 6% CP, 45% TDN 0 0 0
Late Gestation 9% CP, 56% TDN 9 5.5 0
Early Lactation 11% CP, 60% TDN 13.5 10.5 5
Late Lactation 8.5% CP, 55% TDN 8.5 5 0

Soil Testing and Fertilization

At current prices, fertilizer costs constitute up to 85% of the total variable costs in pasture production and up to 75% of the variable costs in hay production. It is entirely logical to look for ways to reduce fertilizer costs in forage production. However, if the reduction in fertilizer costs results in reduced yield (i.e., less fertilizer often equals lower yields), then the cost of the forage per ton (or pound) can actually go up! The reason for this can be seen in the following equation for calculating the unit cost of forage production:

Cost of Forage ($/ton) = Total Cost ($/Acre) ÷ Forage Yield (tons/acre)

Consider Table 4. Let?s assume in this example that the field we are dealing with has a yield potential of 6 tons/acre for hybrid bermudagrass hay. Based on current prices, the average cost of production for hybrid bermudagrass hayfields is approximately $750/acre (or $125/ton). If production costs are reduced and yields essentially remain the same, the unit cost ($/ton) decreases (green cells). However, it is likely that substantial reductions in forage production costs will come from fertilizer expenditures (because fertilization constitutes such a big part of the total variable costs). Indiscriminant reductions in fertilizer use will likely lead to reductions in yield. This may very well result in an increase in the unit cost ($/ton) of the forage (yellow cells). Thus, it is critical to remember that cutting costs in forage production should be done in a way that has a minimal impact on the forage yield.

Table 4. The unit cost of forage produced under different levels of cost (relative to the current average for hybrid bermudagrass hay) at different levels of forage yield.
Yield (tons/ac) Cost of Production Compared to Average
60% 75% 90% 100% 110% 125%
----- Unit Cost of the Forage ($/ton) -----
8 $56 $71 $85 $94 $103 $118
7 $64 $80 $96 $107 $118 $134
6 $75 $94 $113 $125* $138 $156
5 $90 $113 $135 $150 $165 $188
4 $113 $141 $169 $188 $207 $235
3 $150 $188 $225 $250 $275 $313
* The average cost of production for a hybrid bermudagrass hayfield is approximately $750/acre. If the yield goal is 6 tons/acre, the unit cost of the forage is $125/ton. Consider the scenario where costs are reduced to 90% of the average production costs. If forage yield decreases from 6 to 5 tons/acre, then the cost per ton actually increased from $125 to $135 per ton.

Management Tips

So, how is it possible to reduce forage production expenses without compromising yield? The following tips can help you reduce fertilizer expenses or at least make your fertilizer investment more efficient.

1. Soil Test and Follow Fertility Recommendations. Without applying fertilizer and/or lime based on the results of a soil test, it is likely that producers are either 1) not applying enough fertilizer/lime and therefore not maximizing the forage yield, or 2) applying more fertilizer than required to meet yield goals and therefore wasting money. Few other practices in the entire cattle enterprise can improve profitability more than soil testing and following UGA fertility recommendations.

The relationship between soil pH and the relative availability of plant nutrients in mineral soils Figure 4. The relationship between soil pH and the relative availability of plant nutrients in mineral soils: The wider the bar, the greater the availability.

2. Do NOT Cut Back on Lime. Keeping an optimum soil pH will ensure that soil tilth is maintained, root development is encouraged, and (most importantly) the nutrients in the soil are freely available to the plants. If the soil pH drifts much below 6.0, the availability of some nutrients in the soil will decrease and, in some cases, other nutrients can reach toxic levels. The availability of nitrogen (N), phosphorus (P), and potassium (K) is severely reduced as the soil pH declines (Figure 4). This can translate to a major waste of your “fertilizer dollar.” Table 5 demonstrates the cost of this inefficiency in an example comparing a soil pH of 5.6 vs. 6.2. Although lime applications should rectify soil pH problems for several years, they usually take 6-12 months to affect a substantial change in soil pH. Major adjustments in soil pH should be made well in advance of the addition of large quantities of fertilizer.

Table 5. A comparison of the annual value of decreased fertilizer efficiency in a soil where the pH is 5.6 relative to a soil with a pH of 6.2. This example uses a moderate to low amount of fertilizer and represents the cost of inefficient nutrient use incurred in one year.
Nutrient Amt. Used
Annually
(lbs/acre)
Unit Price
($/lb)
Dec. in
Efficiency*
Value of
Decrease
($/acre)
N 200 $0.60 35% -$42
P2O5 50 $0.30 50% -$8
K2O 150 $0.67 10% $10
Total -$60
* Resulting from the lower soil pH.

3. Focus Your Resources. Apply fertilizer to pastures or fields where soil test P and K values indicate an economic response to the addition of the fertilizer AND the soil pH is in the optimum range. If the soil pH is inadequate, attempts to raise P and K levels will result in a lack of return on the fertilizer investment. Instead, focus on raising the soil pH value in those fields.

4. Avoid Using Stand

Status and Revision History
In review Oct 6, 2010
Reviewed on Oct 1, 2013
Reviewed on Mar 31, 2017