One thing about writing a blog, you often think about what topics are on the minds of producers in the industry and then start looking for information to help shape our opinions and come to a conclusion about that particular topic. We are all aware of the recent increase in calf prices over the last decade and how that has impacted the beef industry (see graph). Weaned calves weighing 550 lbs were once in the $400 to $500 range in the 90’s and are now more like $800 or higher at the present time. A common question that often comes up when looking at the dramatic increase in calf value in recent years, is what has happened to the costs of production associated with raising weaned calves, especially when considering feed costs.
When gathering information to address this question, I came across an article authored by Steve Metzger who is the ND Farm Business Management Coordinator. He had focused his article on Cow-calf costs over the last 10 years based on records from the ND Farm Business Management program. After talking with Steve, he directed me to a very easy to use website with a variety of agricultural production records that have been collected through various University efforts. It is called FinBin and is a Farm Financial Database collected from producers who use FinPack farm financial planning and analyses software. It can be accessed at http://www.finbin.umn.edu/ and is supported by the University of Minnesota. The benchmarking database has cow-calf records from primarily ND, MN, NE, MO operations accessing over 40,000 cows with an average of 333 farms/ranches each year starting in 1993 up to 2011. The website pulls together the Beef cow-calf enterprise and provides a comprehensive overview of the costs and returns from the information provided. It is very easy to use and I would encourage anyone who is interested in comparing their production records to use these benchmarks.
Getting back to the question at hand: Have the costs of production went up more, less or at the same pace as calf value in recent years? Being a nutritionist the first area I am always interested in is with feed costs. As you look at the graph below you can see why feed costs are so important. Because feed costs make up a substantial amount of the total Direct expenses associated with maintaining the cow herd, it is always a logical target for managing costs. Feed costs were generally $200 per cow in the 1990’s up until early 2000 to 2001. They then moved to around $300 per cow in 2007 and are presently at around $350 per cow. As we look at total direct expenses that would also include veterinary charges, supplies, fuel and repairs, we see these increased in a similar manner with a sharper increase in the last few years. I then included historical CattleFax prices for 550 weight calves to look at the trend over time. You can see that the calf prices generally have more variability from year to year compared to either feed costs or total direct costs, but the trend for calf prices appears to be providing enough returns to more than compensate for increases in feed cost.
Because of year to year variability, one should really look at the trends as one could really skew the take-home message by pulling out individual years. If we estimate calf prices were about $450 in the early 90’s and today they are $800 you see that they rose about 178%. Likewise, if you look at feed costs per cow at $200 in the early 90’s and they are $350 now they increased 175% or at basically a similar rate. How have these changes impacted profitability for Cow-calf producers?
In the Second part of this discussion next week, I will bring in some observations that CattleFax has made over the same time period and see how impacting calf prices, or increased direct costs, including feed costs, impact profitability.
Graph: Feed costs and total direct costs are as reported by FinBin, a Farm Financial Database supported by the University of Minnesota, http://www.finbin.umn.edu/. CattleFax 550 lb choice steer prices are from the March 13’ CF Factors to Watch Report.