MONITORING COSTS AND PROFITS IN A COW-CALF OPERATION

Originally published on January 11, 2001

 

I participated in a conference call last month with a client and his banker regarding a request for partial financing of some cows that were scheduled to be purchased before the calendar year end.  The banker's response was swift and immediate.  "We have no problems with cows.  Go out and write your cheque."

Today's cow-calf operators are the darlings in agricultural lending because most cow-calf ranchers are making money.  For those of you running a mixed farm, you might be surprised about the actual financial contributions your beef cows are making to your grain farming enterprise. 

Despite the warm reception from their banker, prudent cow-calf ranchers will continue to monitor their costs and ultimate profitability.

Using the enterprise-costing approach set out by Donald Fedie in How to Farm for Profit, published by Iowa State University Press, I have compiled some tables that I hope will assist those in the cow-calf business to better segregate their costs and track profits.

First, let's meet our rancher.

Rancher Al owns a herd of 100 cows and weaned 88 calves in 2000.  Al raises replacement heifers rather than buying them.  In 2000, 10 cows will be culled and replaced with 10 heifer calves.  Al has some hay and grain land and has done his best to segregate expenses to each enterprise. 

Table one shows the total fixed and variable costs for the cow-calf enterprise.  Note that a return for farming labor and management has been set at $11,700.

           

Table two shows our calculations for winter-feed costs over and above pasture grazing.  In this table we assume the rancher feeds hay and barley over the non-grazing period.

 

 

 

Table three examines the cost of cow replacement.  The first cost is weaning the calf that has been selected for breeding.  This cost of $456.58 can be retrieved from table one.  Feed costs of $182.53 can be retrieved from table two.

        

We have assumed that after the 10 heifers are selected, they are grown for two years before calving.  For simplicity we have estimated annual or yearly costs associated with replacement heifers to be $307.53 per animal.  By adding these two years of cost to weaning costs, we can estimate the cost of replacements.

Determining profit

Table four implements all data from the previous three tables and tells us the profit story.  Note that we include in accrued revenue the 10 heifers that were held back as replacements.  By reporting only cash sales, we would not be matching all realized expenses with the actual accrued or earned revenue.

While costs vary from farm to farm, it is important to know your own costs, which will help you determine herd profit.

 

 

Allyn Tastad, certified general accountant, is a partner in the accounting firm of Hounjet Tastad Harpham in Saskatoon at 306-653-5100, e-mail at allyn@hth-accountants.ca or website www.hth-accountants.ca. He is also involved in the family farm near Loreburn, Saskatchewan.  The opinions expressed in this column are for information only.