December 2017 Articles

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Considerations for the Small Cow-Calf Producer

Considerations for the Small Cow-Calf Producer Source: Kurt Guidry, Southwest Region Director and Extension Economist, LSU AgCenter Based on the latest USDA Census of Agriculture data, roughly 80 percent of all cattle operations in Louisiana have fewer than 50 head of cows. Most of these “small” cow-calf operations are operated “on-the-side” or in addition to the producer’s primary source of income. Because most operations are not relied upon to generate a significant portion of the producer’s annual income, we often find that there are other goals besides profitability that motivates the producer. While there is nothing wrong with having non-financial goals, the first step in working toward increasing the financial performance of the operation is setting maximizing profit as a major priority for the operation. With this goal as the guiding principle in management decisions, much of the emotions that impact decisions can be limited. Just having maximizing profit as a major goal does not, however, necessarily guarantee success. Small cow-calf producers are often limited in their marketing options, are unable to effectively purchase in bulk for cost savings, and typically have high investment costs per cow. All of these challenges are typical of small cow-calf operations. But these challenges do not preclude the operation from generating profits. Basic economic principles still apply regardless of the size of the operation. While “economies of scale” do provide benefits to larger operations, small cow-calf operations can still be profitable if they make decisions within a simple marginal cost/marginal revenue framework. Simply put, if a change in the operation will cost more than the additional revenue it creates, then this framework would say not to make that change. Key to being able to effectively utilize this marginal cost/marginal revenue framework in making decisions is having accurate and dependable records. Often, the first step in improving the financial performance of an operation is establishing an accurate set of production and financial records. Monitoring these records over time, will allow the producer to identify areas of strengths and weaknesses in their operation and provide them with the information to make decisions that will have positive impacts on their operation. Beyond following this basic framework, there are other issues & factors that can be considered by the small cow-calf producer when attempting to increase the financial performance of the operation. The following provide a brief overview of some of these issues.  Keep Overhead Low Keeping overhead costs low can be a challenge for small operations. Even investing in the minimum amount of equipment and infrastructure can still result in high investment costs per cow given the low number of cows in a typical small operation. Overhead and fixed expenses are going to be there year after year and often time heavy debt loads can be the downfall of many operations. First, only acquire the absolutely necessary equipment needed. Also, it may be more economical to rent equipment or custom hire certain functions of your operation. Another potential option is sharing equipment with fellow small producers to lower the overall ownership costs for either operation. Keeping overhead low will allow the operation to more easily withstand down periods in market.  Grazing Versus Feeding Because many small cow-calf operations are part-time businesses for producer, there may be a limit on the amount of time that can be devoted to the operation. One of these examples could be in forage management and production. From a time perspective, it is likely easier to go to the feed store then spend the time needed to properly manage forage production on the operation. However, it is universally recognized that economic performance can be enhanced by relying more on forage to meet the nutritional requirement of the cow herd versus meeting those nutritional requirements with purchased feed.
 Choosing The Sector of the Industry That Best Fits You
Producers must determine which sector best fits their resources and time. It may be that it may be more advantageous to focus on seed stock production versus a traditional cow-calf operation. If land and forage is not a limiting factor, it may prove that a stocker operation offers more potential than the traditional cow-calf operation. Choosing the sector that best fits your situation will offer the greatest potential for financial success. Can Value Be Added? Are there management practices, improvements in genetics, or improvements in nutrition and health programs that can result in a product that is in more demand by the market? Several studies have shown that by simply de-horning calves or having a strong vaccination program can increase the value of calves marketed by $3.00 to $7.00 per
hundredweight. We have all seen market reports that show 500 pound calves selling in a range from $120 to $160 per
hundredweight. As cattle numbers increase, buyers can be more selective in their purchases which typically results in that range widening. The goal would be to have cattle that would always demand the high end of that range. Another avenue of adding value is looking for a niche market for your operation. Can you establish a local market where you market cattle straight to end consumers? Can you look at alternative management practices like grass fed beef or organic beef and can you attract enough consistent demand. Marketing will be the most critical component. From a production standpoint, most things are feasible. The trick is finding a reliable and consistent market that will pay you for the additional value you have created.
· Pooling Cattle for Increased Marketing Opportunities
While there are many marketing alternatives available to cattle producers, most have lot size requirements. While some of these markets offer larger buyer numbers, reduced marketing costs, and higher potential prices, small cowcalf producers are often unable to utilize these due to simply not being able to offer enough cattle to sell at any one time. In an effort to overcome this limitation, some producers have effectively pooled cattle to increase numbers to access different market options. For pooling to work requires finding producers with similar genetics and similar
management practices that result in a uniform set of calves. In addition to numbers, buyers want uniformity in the cattle they purchase. Much, if not all, of the benefit of pooling cattle can be loss if the result is a group of cattle with a significant amount of variation.
· Group Purchasing of Inputs Another challenge for small cow-calf producers is having to purchase inputs in low quantities. This typically eliminates any potential for receiving price discounts and often results in paying a higher per unit price than larger operations. Producers have effectively formed groups to purchase inputs in bulk to take advantage of improved pricing
opportunities. This allows all producers to reduce their per unit costs and helps to improve the overall financial performance
of the operation. While all of these may not fit every operation, looking at creative ways to either increase revenue or decrease costs is key to
improving the long-term financial performance of an operation. Utilizing some of these options in conjunction with making
sure that maximizing profit is a high priority for the operation provides the greatest potential for sustained success.