Wednesday, July 28, 2010

Cow Size Efficiency

As the optimum cow size debate rages on, I have become interested in whether cow size really makes that much difference from an economic perspective. Common sense and general knowledge of biology would suggest that you don't need to have a PhD to figure out that a smaller cow should eat less than a larger cow and therefore should have a lower annual feed cost. I don't think there is really much debate on this point either amongst academia or industry.

Similarly, but less obvious, is the question of whether a larger cow will produce more pounds of weaned calf than a smaller cow. There are a few research papers out there that show it both ways. In some reports, smaller cows produced less total pounds of weaned calf than larger cows and in other reports they weaned about the same number of pounds.

Unfortunately, many of these reports don't address the economic side of the issue. They simply report comparative weaning weights vs. cow size and proclaim that one is more profitable than the other (whether one is really more profitable can't really be determined from the data presented).

And finally, the question that many have attempted to answer subjectively is whether cow size affects overall profitability and if it does, by how much? So the questions becomes not so much whether small cow A produces more or less pounds than larger cow B, but rather does smaller cow A convert dollars of feed fed into pounds of weaned calf more efficiently than larger cow B.

Inevitably, I got tired of wondering about this so I began amassing a data set of cow weights and weaning weights. I have pulled data from reported literature, producers around the state, and at the SDSU Cow Camp Experiment Station. All-in-all I have about 1,750 pairs in the data set.

So let's look at the first question, Do larger cows wean more pounds of calf than smaller cows?

To look at this, what I did was take the data set and sort by cow weight and then grouped into the lightest 25%, the second lightest 25%, the heaviest 25% and the second heaviest 25%. So out of 1,685 pairs in this set, there are approximately 420 pairs in each weight class. I then the average cow weight in each weight class and divided it by the average weaning weight for that same class, giving a weight production ratio.

Most academians don't like these weight ratios, and I tend to agree with them. The problem is that when you look at these weight ratios, you tend to make all kinds of assumptions about them with no real data to confirm or deny. So, when you look at a cow weight to weaning weight ratio, it is just that, a ratio of weight produced by weight maintained.

The first table shows that as cow weight increased, calf weaning weight also increased. So it seems that larger cows do tend to produce slightly larger calves on average. There is 114 lb. difference between the weaning weights of the lightest and heaviest groups of cows.

What is interesting though is to look at the ratio of cow weight to weaning weight. This ratio does not tell us anything about efficiency per se, but it does indicate that weaning weight does not necessarily increase at the same rate as cow size.

If you look at data from the SDSU Cow Camp you see the same trend:

The actual weaning weights did not increase as linearly as cows got larger as they did in the other data set, but the weight ratio shows approximately the same trend.

Well, that's fine if larger cows produce slightly larger calves on average, but does it really make that much of a difference to the bottom line of a cow outfit.

What I did to test this was to model the economic inputs and outputs of these pairs based on weight class

This model shows that in fact it does make quite a bit of economic difference between the smaller and larger cows as the smallest cows returned 50% more on a per head basis than did the largest cows even though the smaller cows weaned 19% less weight.

The principle reasons for this is that smaller cows eat less and therefore have a lower annual feed cost. It's that simple. The larger cows weaned more pounds and grossed more on a per head basis, but the cost differentiation of getting there compared to a smaller cow with a lighter calf was larger. Therefore, the efficiency of feed fed to production was greater for the smaller cows.

We see the same pattern in the cow herd out at the SDSU Cow Camp.

The big thing here to understand is that from this data we cannot say that Rancher A has smaller cows than rancher B therefore rancher A must be more profitable.

This is simply a misnomer that has no factual basis. In fact, this is so dependent on feed cost, that rancher B, with bigger cows could easily be more profitable than rancher A with smaller cows, simply because rancher B can produce cheaper feed.

What we can say about this data set is that if rancher A currently has 1500 lb. cows and works towards a more moderate cow size through breeding and culling management, rancher A can improve profitability pretty dramatically.

Let's look at a model of this concept:

This model illustrates that if we fix land area and stocking rate, all other things equal, as would be the case with an individual cow outfit that changes cow size, how profitability changes.

In this model I fixed land area at 5,000 acres with a fixed stocking rate of 0.75 AUM's/acre.

By changing from a cow size of 1541lbs. to an average cow size of about 1000 lbs., profitability increases by about 68%. The big difference here is that on a fixed amount of land, you can run 36% more 1000 lb. cows at the same fixed stocking rate than you can 1541 lb. cows.

Again, you see the same pattern using the data collected from the SDSU Cow Camp:

Here, we are running on less acres and a higher stocking rate, but it is fixed across all weight groups.

What is really striking is that the difference in profitability between the largest group and the smallest group is about the same as the other, totally unrelated data set at 68%!!

I was very surprised by the results of this, as I stated earlier, I figured that small cows ate less than large cows and large cows wean more weight, but I never realized there was such a large efficiency difference.

Monday, July 19, 2010

This Week in Cattle

There are some incredible values in the market place right now in both the cash steer and heifer markets for guys that are willing to protect their investment on a relatively static futures market.

As usual, there is pretty strong demand for 6 and low 7 weight steers that has slightly over valued cattle in this weight class.

However, heavier steers and heifers are pretty reasonably valued right now, especially for those that can put on some relatively cheap gain (<$0.70/lb.) in a backgrounding yard.


Buy steers, medium 1, 693# @ $124.21
Lock NOV '10 at $113.90
Grass 60 days @ $0.72/day
Background 60 days @ $0.70/lb. cost of gain.
Sell: 921#
Breakeven: $111.72
Profit: $20.05/head less basis and commissions

Buy steers, medium 1, 792# @ $115.00
Lock NOV '10 at $113.90
Grass 60 days @ $0.72/day
Background 60 days @ $0.70/lb. cost of gain.
Sell: 996#
Breakeven: $107.48
Profit: $63.92/head less basis and commissions

Buy steers, medium 1, 819# @ $113.84
Lock NOV '10 at $113.90
Grass 60 days @ $0.72/day
Background 60 days @ $0.70/lb. cost of gain.
Sell: 999#
Breakeven: $108.47
Profit: $54.17/head less basis and commissions

Buy heifers, medium 1, 724# @ $114.55
Lock NOV '10 at $113.90
Grass 60 days @ $0.72/day
Background 60 days @ $0.70/lb. cost fo gain.
Sell: 928#
Breakeven: $106.58
Profit: $67.85/head less basis and commissions

Buy heifers, medium 1, 839# @ $106.05
Lock NOV '10 at $113.90
Grass 60 days @ $0.72/day
Background 60 days @ $0.70/lb. cost fo gain.
Sell: 1019#
Breakeven: $102.17
Profit: $119.52/head less basis and commissions

Buy heifers, medium 1, 896# @ $99.40
Lock NOV '10 at $113.90
Grass 60 days @ $0.72/day
Background 60 days @ $0.70/lb. cost fo gain.
Sell: 1052#
Breakeven: $98.24
Profit: $164.66/head less basis and commissions

Wednesday, July 14, 2010

Late Season Forages for Wet Acres

Extremely wet conditions in northeast and north central South Dakota have prompted many producers to consider late season forage options. Producers have been unable to get corn or soybean crops planted on some of these acres due to excessive moisture. In many instances, Prevent Plant Insurance has limited some of the secondary options producers might consider for those acres. Additionally, some of these soils tend to be fairly alkaline which further limits forage options. Even though there are confounding factors in these situations, there are still forage options for producers to exercise under a variety of different circumstances. Figure 1 will help simplify the different forage options for saturated soils.

Hay or graze?

The first thing a producer needs to decide is whether grazing is an option. Many fields aren’t fenced, have no available water, or just aren’t that convenient for grazing. Obviously hay would then be a much better option for that scenario.

Some forages are much better suited to grazing than haying. Sorghums, sudangrass, sorghum-sudan hybrids, and cover crops (e.g., turnips, radishes, lentils, etc.), are generally much better suited for grazing than haying because of the high yields and difficulty in getting these forages dried in a windrow. Harvesting these forages on the hoof is typically a much easier endeavor.

Conversely, cereal grains, millet, cover crops and annual ryegrass are suited to either haying or grazing. These forages are all excellent for grazing and typically are easier to get dried in a windrow and make good hay for livestock.

Prevent plant insurance?

Prevent plant insurance is probably going to be the deciding factor for many producers as this will determine which forage will work for their situation and which forages won’t.
Prevent plant insurance restricts planting forages for harvest, therefore, the most legitimate forage for producers restricted by prevent plant insurance is probably a cover crop mixture. This mixture can contain a variety of brassica species (turnips, radishes, lentils, etc.), cereal grain species, and/or summer annual species. Planting this type of crop can help suppress weeds and soak up excess moisture but doesn’t leave an excessive amount of residue to contend with next spring.

Alkaline soils?

Another key factor producers should consider when looking at forage options is alkalinity. The important thing is not to over analyze alkalinity situations. Slightly alkaline soils are not going to make a tremendous difference on the yield of most forage crops, especially in this situation where absolute maximum yield is not the most important issue.

Strongly alkaline soils however, can cause germination problems as well as yield drag in forage crops. Therefore, if soils are more towards the strongly alkaline (pH >8.0), planting forage barley is going to be the best option. Barley is pretty tolerant of alkaline conditions and should do pretty well in these types of soils.

Weed suppression?
Some producers may just want some vegetation cover on these types of acres to suppress weeds. They may not necessarily be interested in hay or grazing and don’t want a bunch of tall, standing residual to contend with next spring. In this case, cover crops will meet this type of objective at a very reasonable cost.

Tuesday, July 6, 2010

This Week in Grass Cattle

I think most guys are realizing they have way more grass than they have cattle this year and I have gotten five calls today from guys wondering if it is too late for grass cattle.

As I stated last week, for grass cattle alone, the answer is yes, it is too late. I can't find any steers or heifers right now that would pencil with only 65 days or so left in the grazing season.

A lot of this is due to the fact that there very light runs at the sale barns this time of year, so any cattle that are available are pretty spendy. On top of that, the SEP 10 did rally 250 pts. very breifly last week, as I expected but it wasn't sustained, also as I expected.

We are sitting about 92 points higher than we were last weeka t this time, but that's not enough to make these cattle pencil right now.

So to make cattle work on grass is going to require some time in the background yard and a sell on the NOV 10 to stay out of the red.

Let's look at some cattle that work:

Buy steers, medium 1, 748# @ $116.00
Sell NOV 10 @ $113.20
Grass for 65 days @ $0.72/day
Background 60 days at $0.70/lb. gain
Sell 957#
Breakeven = $107.91
Profit = $50.60 per head less basis and commissions

Buy steers, medium 1, 808# @ $112.50
Sell NOV 10 @ $113.20
Grass for 65 days @ $0.72/day
Background 60 days at $0.70/lb. gain
Sell 992#
Breakeven = $107.19
Profit = $59.54 per head less basis and commissions

Buy heifers, medium 1, 623# @ $117.33
Sell NOV 10 @ $113.20
Grass for 65 days @ $0.72/day
Background 60 days at $0.70/lb. gain
Sell 832#
Breakeven = $107.41
Profit = $48.09 per head less basis and commissions

Buy heifers, medium 1, 708# @ $110.63
Sell NOV 10 @ $113.20
Grass for 65 days @ $0.72/day
Background 60 days at $0.70/lb. gain
Sell 892#
Breakeven = $105.12
Profit = $72.05 per head less basis and commissions

Buy heifers, medium 1, 831# @ $101.25
Sell NOV 10 @ $113.20
Grass for 65 days @ $0.72/day
Background 60 days at $0.70/lb. gain
Sell 990#
Breakeven = $99.73
Profit = $133.25 per head less basis and commissions

Again, the heavier cattle are working pretty nicely in this arrangement as they are grossly undervalued. The mid-weights are working well too, and may work even better if you can feed them a bit longer on a JAN 11 contract with a cheap cost fo gain.

The heifers are still amazingly undervalued in this cash market. It's really unbelievable. If any of you have any mid-8 heifers you want to get rid of, let me know.

Friday, July 2, 2010

Economics of the Weaning Percentage Measurement

As I glance across a couple of studies pertaining to cow-calf economics, there is one factor that receives continuous attention and that is the measure of weaning percentage. There are numerous studies that have reported that weaning percentage is one of the primary factors in the profitability of cow calf outfits.

That in and of its self is not that surprising. What is surprising is how much weaning percentage affects profitability in cow-calf outfits. Both in terms of cash cost and value cost.

First, let's make sure we are all talking about the same thing. Weaning percentage, as defined by NCBA 1992 and used by the Standardized Performance Analysis tool, is simply a ratio of live calves weaned to the total adjusted number of females exposed during the breeding season.

Weaning percentage is calculated as follows:

Weaning % = Number of live calves weaned
Adjusted number of females exposed breeding season

Average weaning percentage in South Dakota according to the 2008 SDSU Cow Calf Business Report was 86%. Of course it varies up and down a little each year depending on what the weather was like in March and April, but for the most part, it hangs right around that average.

So, what is the true cost of weaning percentage? Let's take a look:

Our example outfit has an 89% weaning percentage and a total unadjusted annual cow cost of $423/cow.

Of course what weaning percentage really represents is the fact that in this scenario, 11% of the herd used up resources, but never weaned a calf. Therefore, the cost associated with the 11% that didn't produce anything needs to be spread across the remaing 89% of the herd that weaned a calf to figure the true cost of production.

So if we look at our example: we will take the unadjusted annual cow cost and multiply it by 1-(weaning percentage/100). So the calculation looks like this:

1) Cow cost adjustment = $423 x (1-(weaning %/100))

2) Cow Cost adjustment = $423 x (1-(89/100))

3) Cow cost adjustment = $423 x (1-.89)

4) Cow cost adjustment = $423 x .11 = $46.53

So each of the 89% of cows that weaned a calf must carry an additional $46.53/cow to cover for the 11% that didn't wean a calf.

Now the total adjusted annual cow cost = $469.53

If you put that in terms of calf breakeven on a 525 lb. average weaning weight:

A) $423/525 = $0.81/lb.
B) $469.53/525 = $0.89/lb.

That's how weaning percentage affects an outfit on a cash basis. Now let's look at a value basis.

If you figure that the 525 lb. average weaning weight brought $120.00 this fall, you would gross $630.00/head. Subtract the total adjusted annual cow cost of $469.53 and you would net $160.47/head.

However, 11% of you calves never made it to the weaning pen, so we lost out on 11% of $160.47/head.

$160.47 x .11 = $17.65/head

So now on a value adjusted basis, the total adjusted cow cost is:

$423 + $46.53 + $17.65 = $487.18/cow

On a breakeven basis: $487.18/525 = $0.92/lb.

Now, as a business manager, you are primarily concerned with the cash basis adjustments. Looking at value is important to understand the true depth of this issue, but we aren't going to use value basis for determining profitability.

So the point here is that although pharma products, precon programs, feed supplements, etc. may or may not have their place in your management program, some good old fashioned animal husbandry can pay big dividends by getting more calves to the sale barn in the fall.