Cow calf producers are finding higher input costs squeezing their margins. Today, producers have to face higher feed costs due to grain prices, higher fuel prices, higher repair costs, and higher interest costs. In the course of the cattle cycle, breeding female inventories will increase causing calf prices to fall. Few operators believe that the input costs will fall as calf prices come down. This will pose a threat to many cow-calf producers in the future.
According to the Southwest Standardized Performance Analysis (SPA) database, the total cost to maintain a female in a herd in 2007 is $590.33 per female, while the 2007 cost per cwt. of calves weaned is $116.90 per cwt. Both of these measures have been increasing since the late 1990s, however, it has only been since 2002 that the rise has accelerated.
Both of these measures are in Figures 1 and 2. Figure 2 does not show the increase due to 2003 through 2005 being dry years where an unusual number of breeding females were sold. This will lower the calf per cwt. cost, but in those instances, the operation is selling its factory.
Figure 3 combines the calf costs per cwt. with the price received for the calves. As shown, when the calf cost line is above the calf price the average net income is negative. Conversely, whenever the calf price line is above the calf cost line, the average net income is positive. It should be pointed out that all costs are included in the SPA analysis including family labor and depreciation. This differs from other cost estimates that typically do not include these costs.
A cow-calf operator should include his labor and will eventually have to replace his equipment or improvements. If a ranch is not accounting for these costs, it will be profiting at the expense of its resources.
Since 1991, there have only been five years where the herds within the Southwest SPA database recorded a positive net income. Does this mean that the herds were liquidated for want of a profit? No, this simply means that that particular year adequate revenue was not generated from the cows to cover all of the costs, including family and depreciation, to maintain the females. In those years, the herds were not replacing depreciable assets or they cut back on their distributions going out of the herd.
In each of the figures, an acceleration of inputs can be noted since 2003. For the purposes of this article, a sub-set of 56 Texas herds that have completed the SPA analysis since 2003 were isolated in order to determine just what the specific costs were.
Click here to view the full article with the regional locations and a more detailed listing of operating expense averages.
Stan Bevers is a professor and extension economist with the Texas Agrilife Extension Service in Vernon, Texas.