At this time of year, cattle producers are probably thinking about how slowly winter is moving and how quickly the feed stack is disappearing. Some tough decisions may have to be made before grazing starts again in late spring – buy more high-priced hay to hold the herd over or pull the trigger and sell the herd?
“Before making a solid decision on this issue, a couple of factors have to be addressed,” says Ted Nibourg, business management specialist with Alberta Agriculture and Rural Development. “One of the factors involves the market outlook for calves and the other involves calculating cost of production.
“Reduced cattle inventories, lower feed grain prices and a declining Canadian dollar are all bullish to calf prices next fall. Bearish factors include weakened demand for middle and prime cuts due to the struggling American economy and the possibility of the Canadian loonie strengthening against the American greenback. How one weighs these factors will determine an individual’s optimism for the future of the beef industry and how long it will take for the cow-calf sector to return to profitability.”
If the decision is to ride out the storm, it’s important to know how much it costs to produce a calf. Alberta Agriculture and Rural Development has developed a tool to help producers calculate their cost of production. It is a downloadable Excel spreadsheet called Rancher’s Return.
The program can be found on Alberta Agriculture’s web-site at www.agriculture.alberta.ca.Just click on the Decision Making Tools tab and then Farm Management in the left-hand column to bring up the program link.
Rancher’s Return helps cow-calf operators calculate profitability by determining cost of production, break-even selling prices, gross margins and returns to equity. It lets producers use their own feed prices, selling prices, selling weights and weaning rates to arrive at profitability numbers.
“All costs are shown as dollars per head and percentage of total costs,” says Nibourg. “Comparing itemized costs to overall costs gives producers an opportunity to make changes in the cost areas where the greatest economic impact can be realized. As the program is spreadsheet-based, it is easy to do ‘what if’ analysis to help in decision making. Different calculators in Rancher’s Return give producers the opportunity to compare various marketing options.
“Rancher’s Return will not, in itself, bring profitability back into the cow business, but at least it will give producers an opportunity to make informed economic decisions about their cow enterprises.”