I was thinking about his presentation and reviewing my notes and needed a little clarification so I shot him an email. This started because I’m working on the economics of each of our enterprises trying to answer a simple question: Would I be better off financially living in the suburbs? I don’t work for free and I certainly don’t want to pay my livestock for the privilege of owning them.
I asked David:
I heard you speak in Indiana this spring and you said, “Cows must be 6 years old and rear 4 calves to pay for her development costs. Optimal economic return is in years 8-11 for commercial cow/calf operations.”
I’m hoping you can give me a little more detail on that. Spell out for me what you believe it costs to raise a replacement heifer on grass, when you sell her calves and what your expected return per calf is. Also, how much should it cost a grazing operation to keep a cow each year? This article suggests $350 per head but I have a hard time with that math.
Rather than reply to my email, which he said would require him to write a book, he asked me to call him back. Over two phone conversations and nearly an hour of chatting I ended up with 5 pages of notes on top of the 5 pages of notes I took during his presentation. (Talk about a generous man!)
He was ready when I called and, after greeting me politely, started right in. “Cost is wildly different between ranches but you can roughly figure $500-550 for every weaned calf. This counts salt, mineral, vet, medicine, land charge (calculated on how much it would cost you to rent your neighbor’s ground) and how much time you spend.” Obviously packing more animals in per acre without raising your feed bill is a good thing and spreading your time across more animals helps with the labor charge, not to mention discounts for buying salt and mineral in volume. Labor is the big expense and reckoning the rest of the data as closely as I can I come up with $450 to keep a cow each year. Since some percentage of cows are going to come in without a calf at weaning that price should go up but let me be a little lazy in this post. We’ll stick with the $500 figure for my farm, you calculate your own for your farm. Feeding hay can really ratchet that annual maintenance up.
That takes us to point of weaning. Now that we know what a calf costs, let’s find out what she’s worth. Right now, that 450 pound weaned heifer – that cost us $500 to raise – is worth $2/pound. That varies by year. So, any heifer we keep this year should be reckoned at that price and we should work from there. Think of it this way, you could have had $900 but you got this heifer instead. It costs money and time to raise and maintain that heifer and it costs something to breed her…either by bull or by straw. However, not all heifers breed so you need to reckon your heifer costs by the group.
Hope you’re keeping up here, David was moving pretty quickly.
Let’s ratchet up the cost of that heifer. You ready? I’ll relate David’s example. Of a group of 30 heifers, 25 settle in your breeding window. Of those 25 pregnancies, 20 wean calves. Of those 20 heifers that brought in calves, 17 re-breed. Those other 13 heifers don’t fit our program. My cost per heifer is not reckoned per head…it’s divided over the 17 that were successful at breeding a second time. If that’s too harsh for you, Chip Hines says to measure profit by the calf across your entire operation but when talking to David, I was specifically talking about development costs of a heifer. He took it through the second pregnancy. As time passes and you select for thrifty, fertile, long-lived cows you’ll have a higher rate of success weaning calves but you should probably count on culling 10% of your herd each year. For the sake of simplicity, let’s pretend those 17 heifers are built to last in the example below.
Starting at the beginning (where else?) you are paying $27,000 for 30 weaned heifers..maybe 6 months old. You find a quality bull and pay $20 per head ($600) to have them bred at 15 months so they will calve at 24 months. I’m choosing not to buy a bull to keep total costs at a minimum. A bull eats every day, I need one for 6 weeks. We could have started with 30 bred heifers for $45,000 which might be worthwhile if they were high quality animals. More on that next time. Keeping those 30 weaned heifers for 18 months (until calving) costs you another $22,500 but when you breed again you are down to 20 cows (the ones that calved). The rest were sold as springing heifers who missed your breeding window or as open heifers. Let’s say you can sell them for $1,200 each ($12,000). After all of that we sold 20 heifer calves ($900 each) and 10 grown heifers for a total of $30,000 and it only cost us $50,100 to do it! The heifers owe us $20,100.
But we have to breed our 20 remaining heifers. That’s another $400. 17 of those breed in our window but we carry all 20 through the year. Our cows only owe use $10,000 for maintenance this year. We sell the 3 late breeders for $3,600 and sell our 17 calves for $15,300. This year we’re doing all right making $8,900 so the cows only owe us $11,200.
When those heifers (all 17 of them) drop their third calves (in our fictional scenario) we’ll see another $15,300 with breeding costs of $340 and maintenance of 8,500. We’re looking at $6,460 in profit as long as we can keep this thing running. This year the herd only owes us $4,740. Looks like the heifers will pay us back next year!
That’s why David says it takes four calves for a 6-year old to pay for her own development. “Optimal economic return is in years 8-11 for commercial cow/calf operations.” If she falls out at 6 years old we haven’t gotten ahead. Every year she calves after 6 increases the desirability of her offspring.
The cattle market is a wild ride at times…who knows what the price will be next year. Along with keeping my production costs minimal, I have to work to provide a quality product so I can make the numbers listed above. I don’t think Gordon Hazard is paying $2/pound for calves, but he’s not buying calves of the quality under discussion here (small, British breeds, grass-genetic, long-lived). We have always believed that it costs just as much or more to maintain a poor cow compared to a good cow but Hazard looks for the undervalued calf of any class, gets it to feedlot weight and sends it down the road. We can’t sell into that market with the numbers presented above. From what David described, he sells a fair number of culls and calves into the commodity market but sells 150 bulls each year for breeding stock to help make the numbers work.
Any business you start will require an investment and several years to achieve profitability. A cow/calf operation is no exception. Is it right for me? My pastures are currently pretty poor quality. Cows can get by on less than stockers…requiring a lesser quality pasture. Right now, cows look like a good way to improve my pastures…but the climb to profitability looks pretty steep.
That wraps up most of page one of my conversation with David Hall. Next time I’ll share my notes about buying or breeding genetics in your herd, stock selection, adding in other livestock types and keeping a job in town. Let me know if you have any trouble with my math or if you have any questions or suggestions. I want to emphasize, my goal here isn’t to discourage the raising of cattle. I’m sharing my thoughts and research as I analyze the costs and work to put my farm and my time to its best and highest use. You know…stewardship.