The Big Herd Beef Cow Secret: Do Less With More

Background

No, the title is not a typographical error - but it does require some explanation. First, some background:

Historically, making money with a beef cow herd has been a challenge. But in spite of this, due to its very nature, the beef cow business has been a popular enterprise in Ontario, with a lot of small herds, some medium sized, and a few large ones.

Why this popularity? For farmers wanting a relatively low investment (no quota, minimal housing), low labour enterprise which can be scaled to meet their existing land base and available time (including an off farm career), beef cows provide a solution. As a trade-off, annual revenue per cow is relatively low. So to a large extent, profit potential depends on both having lower than average operating costs and/or the ability to allocate some fixed costs to either another farm enterprise or to a lifestyle choice (e.g. beef cows are a sideline to crops, the tractor is needed to clear snow off the laneway; I want to live in the country and own some land). So in some instances, beef cows have been a by-product of land ownership and lifestyle choice rather than a core economic activity. Regardless of motivation, with a low COP and good breeding and marketing programs, the cows could more than cover operating costs in all but the most dismal years (BSE), and contribute significantly to fixed costs in good years, which was enough to keep these farms in the business.

Large Herds are Different

However, there have always been some large scale beef herds where the cows are the focus of the enterprise and expected to provide enough revenue to cover all costs and provide for family living expenses. Part of their success is utilizing marketing power to capitalize on premiums from the larger groups of uniform calves and yearlings they produce, and having them feedlot ready (vaccinated, bunk adjusted etc.). So running a large numbers of cows does have some inherent advantages, but the well documented economic realities of smaller herds indicates that there must be something really different about the economic structure of large herds than just scale. So how do they do it? Years of studying our industry and accumulating survey, research and on farm data have led me to some tentative conclusions about how and why these cow herds are different from the average Ontario beef cow operation:

They have achieved a production model which allows both a larger volume of production for a given amount of labour and capital and a lower cost of production per unit.

Simply put, through innovation and wise use of capital they have changed the paradigm of cow-calf production. These large herds aren't simply bigger units using the same methods as smaller enterprises.

How Are They Different?

Here are some of the key differences which make large scale beef cow enterprises work#:

  1. Lots of cows

    With relatively low net revenue per cow, a much larger than average scale of production is needed to generate sufficient net revenue and also utilize the potential of the machinery line, which reduces COP dramatically.
  2. Low labour and investment per cow

    The management system must be very labour efficient and require a minimum investment in buildings (pasture calving, out wintering, windbreaks instead of barns).
  3. Sell yearlings

    Retaining calves to the yearling stage increases net revenue per cow (cow costs are the same whether you sell calves or yearlings)
  4. Reduced feed costs

    Rotational grazing improves production per acre, increasing the carrying capacity of a given land base. Extending the grazing season with stockpiling, bale grazing, grazing annual crops etc. lowers winter feeding and manure removal costs.
  5. Relatively low cost land

    Access to land which is best suited to forage production and which has few alternative uses

# note that many smaller herds also utilize one or more of strategies 2-4

Taken all together, the large herd managers do less with more - that is, while they have many more cows than average, each cow requires far less labour and investment. On a whole farm basis, this gives the double benefit of more profit per cow and more cows to profit from. These combined factors really impact an operation's bottom line! In essence, the large herds operate on a different type of business model than the average or small herds.

Analyses of Cost and Revenue Over a Wide Range of Herd Sizes

Below are several graphs which are based on the outputs of a beef cow/yearling budget spreadsheet which was constructed to compare the economic performance of operations ranging from 25 to 300 cows. The production and economic components were compiled using data and input from many sources.ii,iii

Like any model, it is dependent on the input data and assumptions which underpin it. This model was constructed to give a basis for comparing across herd size, and as such it is the relative differences between scenarios which are important, rather than the absolute numbers generated. The model recognizes significant differences in production techniques between small-medium sized herds [25-100 cows] and large herds [150+ cows]; these are described below. In recognition of the two distinct production systems, trend lines were plotted separately for herds in the 25 - 100 hd range and the 150 - 300 head range. All herds are assumed to retain calves after weaning and sell 850 lb yearlings. The model was run over 3 different price regimes to represent the wide variations the cattle market has seen in the last 5yrs (see Table 1).

Table 1. Model description

  • yearlings are sold off pasture @ 850 lbs; cow replacement rate = 15% for cow herds <150, 18% for cow herds >= 150; weaned calf crop = 92% for herds <150 cows, 88% for herds >= 150; revenue per cow = yearling sale value X 83% [accounts for heifers kept as replacements and calf and yearling death loss] + cull cow sale value X 12%;
  • Price regimes
    • Low: yearlings @ $0.90, cull cows @ $0.55
    • Medium: yearlings @ $1.20, cull cows @ $0.76
    • High: yearlings @ $1.60, cull cows @ $0.95
  • Premiums for larger lot sizes (see Table 2.)
  • Costs and revenues are given on a per cow bred basis, which includes the cost of raising replacements, death losses etc.
  • Cow herds less than 150 head use some form of confinement calving system with an operating cost of $800/cow bred. Cow herds of 150 and greater use some form of extensive calving system and have an operating cost of $720/cow bred
    • The $80/head difference is due to higher costs for manure handling, bedding, vet expenses, building maintenance etc.
  • Large herds (150+) have a lower range of fixed costs on a per head basis than smaller herds due to a much lower investment in buildings and machinery on a per head basis. Within each herd size group, fixed costs/head decrease with increasing herd size as building and machinery ownership costs are spread over more cows

Results

Line graph showing low, medium and high prices by cow herd size.  Dollars per cow bred are listed on the left hand side. The numbers start at $600 on the bottom and go up by $100 increments to $1500 at the top.  The number of cows are listed along the bottom starting at 0 on the far left hand side and going to 300 on the far right.  A green line with triangles at the top shows the high price. A red line with squares in the middle showing the medium price. A blue line with diamonds at the bottom showing the low price.

**Low: yearlings @ $0.90, cull cows @ $0.55

Medium: yearlings @ $1.20, cull cows @ $0.76

High: yearlings @ $1.60, cull cows @ $0.95

Line graph showing operating margins at low, medium and high prices by cow herd size.  Dollars per cow bred are listed on the left hand side. The numbers start at $100 on the bottom and go up by $100 increments to $800 at the top.  The number of cows are listed along the bottom starting at 0 on the far left hand side and going to 300 on the far right.  A green line with triangles at the top shows the high price. A red line with squares in the middle showing the medium price. A blue line with diamonds at the bottom showing the low price.

**Low: yearlings @ $0.90, cull cows @ $0.55

Medium: yearlings @ $1.20, cull cows @ $0.76

High: yearlings @ $1.60, cull cows @ $0.95

Line graph showing operating margins per enterprise at low, medium and high prices by cow herd size.  Dollars per enterprise are listed on the left hand side. The numbers start at -$25,000 on the bottom and go up to $225,000 at the top.  The number of cows are listed along the bottom starting at 0 on the far left hand side and going to 300 on the far right.  A green line with triangles at the top shows the high price. A red line with squares in the middle showing the medium price. A blue line with diamonds at the bottom showing the low price.

**Low: yearlings @ $0.90, cull cows @ $0.55

Medium: yearlings @ $1.20, cull cows @ $0.76

High: yearlings @ $1.60, cull cows @ $0.95

Line graph showing net profit margins per cow at low, medium and high prices by cow herd size.  Dollars per enterprise are listed on the left hand side. The numbers start at -$50,000 on the bottom and go up to $200,000 at the top.  The number of cows are listed along the bottom starting at 0 on the far left hand side and going to 300 on the far right.  A green line with triangles at the top shows the high price. A red line with squares in the middle showing the medium price. A blue line with diamonds at the bottom showing the low price.

**Low: yearlings @ $0.90, cull cows @ $0.55

Medium: yearlings @ $1.20, cull cows @ $0.76

High: yearlings @ $1.60, cull cows @ $0.95

Line graph showing net profit margins per enterprise at low, medium and high prices by cow herd size.  Dollars per enterprise are listed on the left hand side. The numbers start at -$50,000 on the bottom and go up to $200,000 at the top.  The number of cows are listed along the bottom starting at 0 on the far left hand side and going to 300 on the far right.  A green line with triangles at the top shows the high price. A red line with squares in the middle showing the medium price. A blue line with diamonds at the bottom showing the low price.

**Low: yearlings @ $0.90, cull cows @ $0.55

Medium: yearlings @ $1.20, cull cows @ $0.76

High: yearlings @ $1.60, cull cows @ $0.95

Line graph showing net profit margin per full time equivalent at low, medium and high prices by cow herd size.  Dollars per enterprise are listed on the left hand side. The numbers start at -$40,000 on the bottom and go up to $80,000 at the top.  The number of cows are listed along the bottom starting at 0 on the far left hand side and going to 350 on the far right increasing by 50 cow increments.  A green line with triangles at the top shows the high price. A red line with squares in the middle showing the medium price. A blue line with diamonds at the bottom showing the low price.

**Low: yearlings @ $0.90, cull cows @ $0.55

Medium: yearlings @ $1.20, cull cows @ $0.76

High: yearlings @ $1.60, cull cows @ $0.95

Table 2. Levels of variables by herd size
Number of cows in herd
Average lot size (head)
Price premium (%)
Variable costs/head ($)
Fixed costs/head ($)
Full time workers per herd
25 5 0 800 400 0.50
50 10 2.0 800 340 0.70
75 15 3.1 800 310 1.00
100 20 3.6 800 280 1.20
150 30 4.5 720 200 1.20
20 40 5.5 720 190 1.60
250 50 6.5 720 185 2.00
300 60 7.2 720 180 2.25

Discussion

Due to the length of this article, the discussion section will be presented in the next issue of this newsletter (OMAF & MRA Virtual Beef).

i Note: most of the information used in this paper was collected prior to the initiation of and is independent of the Beef Farmers of Ontario Northern Beef Expansion consultant study of late 2013 - mid-2014. However, the author would like to acknowledge the intellectual input of Al Mussell (George Morris Center, Guelph) and Wayne Stark and Mike Farley (Pursuit Development Labs Inc, Toronto) for inspiration in the approach to this work. Thanks also to John Molenhuis (OMAF & MRA) for previous input on cost of production budgeting and analysis.

ii References:

  1. Ontario Beef Cow Calf Summary - 2007. Molenhuis. OMAF & MRA.
  2. 2013 Annual Report. Ontario Cattlemen's Association.
  3. Nutrient Requirements of Beef Cattle. Lalman. Oklahoma State University.
  4. Economic Evaluation of a Production Protocol for a Biologically Efficient and Economically Profitable Beef Cow-calf Industry in Northeastern Ontario. Hamilton. OMAF & MRA. 2013.
  5. Producer Survey of Calving Systems in Ontario. Hamilton, Noecker, Potter. OMAF & MRA. 2003.
  6. Decision Guide for Backgrounding Beef Cattle. Hamilton. OMAF & MRA. 2012
  7. New Liskeard Agricultural Research Station Beef Cow Herd Production Systems Data Review 1998 - 2012. Hamilton. OMAF & MRA. 2013.
  8. Various publications from the NLARS Beef Research Program. Ontario Beef Research Update 1999 - 2004.
  9. Buying and Selling Feeder Cattle: Factors affecting price. Kansas State U. 1996


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