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Cow/Calf Expansion Considerations

Cow/Calf Expansion Considerations Ross Pruitt, Department of Agricultural Economics and Agribusiness
The October Cattle on Feed report from USDA NASS was the second report in a row with total cattle on feed below year ago levels. This trend is likely to continue for the foreseeable future due to declining calf crops over the past few years and high costs of gain which will encourage the use of forage as a relatively cheaper substitute to expensive grains. USDA’s initial estimate for the 2012 calf crop is 34.5 million head which is approximately 800,000 fewer calves than last year. With early estimates of beef cows to start 2013 at 29.3 to 29.5 million (400,000 to 600,000 lower than the beginning of this year) combined with larger than year ago dairy cow slaughter, the 2013 calf crop should be less than 34 million calves.
Fewer calves and cows result in higher prices with the strength of demand beef impacting how high those prices go. The graph below for replacement females at the Oklahoma City Stockyards shows that prices have been moving higher, but have been limited by pasture conditions. Prices at private sales have been higher, but do reflect a different set of buyers and possibly genetic potential of replacement females.
As producers continue to consider the potential returns associated with expansion, there are some additional points to remember. The cost to expand in terms of purchasing replacement females (or developing your own) will be higher but calf prices will be higher to help offset the increased investment cost. As the costs and returns are penciled out, producers should not forget that the salvage or cull value of replacement females needs to be raised. This has the potential to change the decision on whether to invest in a replacement female as the days of culls bringing $35 to $45/cwt are gone. There are fewer cows out there which is supportive of overall prices as well as tight supplies of lean beef trim. The supplies of lean beef trim tightened as a result of consumer rejection of lean finely textured beef. Prices for lean ground beef trimmings have held steady above $200/cwt for most of the year.
The other point to consider is managing costs. Producers have more control over their cost structure than the price received when cattle are sold. Thorough analysis and understanding of the costs of production will highlight areas where the operation can save money. Over the productive life of a female, for every dollar in reduction of annual cow costs a $4 to $5 increase in the value of the female occurs. That is an important point when the rise in costs more often than not exceeds the increase in revenues