Evaluating Your Cost of Production in the Cow Herd

The discovery of a single cow with BSE in Alberta has had a significant impact on the Canadian Beef Industry and will for some time. Predicting markets in a normal environment is difficult but under current conditions, it is nearly impossible. As producers you need to focus on what you have some control over. Producers, no matter what sector of the industry, must develop financial and production strategies to manage their operations. Decisions must be based on cost of production, financial risk, cash flow and facts.

The first step for cow-calf producers, in determining management and marketing decisions must be to determine cost of production to raise a weaned calf. Calculating your cost of production for a weaned calf will look relatively easy compared to forecasting fall feeder prices this year. Table 1 shows an estimated cost of production and breakeven price for a beef herd in Ontario. To get an accurate number you will need to take the time to determine your own cost of production. This information can assist you in making the appropriate marketing and management decisions during these difficult times.

Based on Table 1 with a cost of production of $1.04/lb and if the market price of calves was $0.70/lb, a 600 lb calf sold at weaning will result in a loss of $204/head. In a 50 cow operation, this results in a $10,200 loss.

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Once you determine your cost of production, the next step is to evaluate your marketing options. With the current trade ban of some beef products and live cattle, calf sales will be severely effected and cow-calf producers may be faced with heavy losses unless some planning is taken to offset this loss. You need to base your decision on profit, risk and cash flow and in some cases, acceptable loss that you as a manager are willing to undertake. Table 2 indicates the return at four levels of cost of production and five levels of market price. None of these returns look very optimistic based on the uncertainty of the markets.

It is important to assess all your options fully before making a decision. Retained ownership and contract feeding are two options many producers are considering.

Other articles in this issue look at options and raise questions you need to consider when making decisions to sell, retain ownership or contract feed. All of these need to be budgeted, planned for and, discussed fully with your financial institution because they will impact cash flow.

Visit the OMAFRA webpage (www.omafra.gov.on.ca) and select the BSE button for additional technical information to assist you in managing your herd through these difficult times.

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