Cow-Calf Profitability

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One does not have to spend a great deal of effort in reviewing 2008 beef cattle receipts or production expenses to recognize the direction of cow-calf net returns. While there are many economic outlooks available to cattlemen for 2009 and beyond, it is rare that they drill deep enough to project net returns to cow-calf producers. However, the Food and Agricultural Policy Research Institute (FAPRI) based at the University of Missouri provided 10-year baseline projections to Congress in 2009 March. The baseline is not a forecast of what will happen, but rather a projection of what could happen if current policies remain in place. They are shared here also not as a forecast but rather as food for thought in examining cow-calf profitability. The values presented in Table 1 represent 2008-2018 projections for cow calf receipts, feed & non-feed expenses and net return. All values are expressed as dollars on a per cow basis.

A preliminary release of these net returns projections in November by FAPRI painted a much darker picture ahead. The decline in cattle inventory numbers released in January probably was the major factor in casting these latest projections in a more positive direction. The major item of note should not be the net return projections but the steps necessary to get there. These projections will continue to be adjusted based on the multitude of factors which impact cattle prices and inputs. The number of variables which impact an individual cow calf operation versus the national projection of net return is almost as large. Comparison of net returns across different individual’s operations net returns per cow in Virginia would vary several hundred dollars. Thus these national projections do not describe individual operations, but rather set the economic environment that all cattlemen face.

Table 1 Cow Calf Baseline Projections
	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018
receipts	546.20	528.11	574.26	611.73	639.81	651.34	661.81	662.62	663.45	666.35	666.11
non-feed expenses	414.44	396.51	413.88	438.93	453.67	462.54	468.73	471.32	475.31	480.75	485.84
feed expenses	169.17	148.87	145.61	144.78	143.82	145.46	147.32	151.07	154.07	157.04	160.24
net returns	-37.41	-17.27	14.77	28.02	42.32	43.34	45.76	40.23	34.07	28.56	20.03
U.S. Baseline Briefing Book, Projections for agricultural and biofuel markets, FAPRI-MU Report #01-09

For this process to be applied to an individual enterprise, similar economic information needs to be available. Most operations keep the basic cost and receipts information necessary for taxes but with little additional detail. With this level of information we can begin to address the bottom-line of net returns, but with little guidance as to why or where to make changes. There are many intersections of management decisions and the cost of those decisions which impact the net return. Use of cattle enterprise budgets found at your local Virginia Cooperative Extension (VCE) office or on the VCE website (http://www.ext.vt.edu/pubs/agecon/446-048/446-048.html) is a great way to start examining the cost and return of decisions in a cow-calf enterprise.

Seven interrelated factors play key roles in determining the profitability of a cow-calf enterprise:

Consider that these factors are more interrelated than simply adding together their impact. A more accurate illustration should perhaps be one of links in a chain. This analogy would give the impression that the enterprise’s profitability is limited by the weakest link rather the strongest. An example would be that the best genetics cannot reach their potential in a nutritionally limited environment; or the inverse that nutrition can only have an impact up to an animal’s genetic potential. Similar examples can be used with the other factors. It can not be overstated that in the review of a cow-calf enterprise that all of these factors need to be reviewed to locate the weak links that are negatively impacting net return.

The bottom line is that cow-calf profitability is impacted by several interrelated variables. Excelling in a few areas will not economically compensate for sub par performance in others. Only by close scrutiny of all components can progress be made in advancing your cow-calf profitability.