Buying feed or selling the herd? That is the struggle. Back »

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Drought conditions are expanding rapidly across South Dakota, leaving many producers trying to determine if feed should be purchased to maintain the herd through the summer or if reducing the herd size should be considered. Depending on the financial situation of the operation, the genetic base developed and the anticipated length of the dry weather, some producers may find purchasing feed to be a better option than selling the herd.

Selling vs. Feeding: Things to consider

Traditional instinct says that a reduction in the number of animals being fed will allow the owner to maintain the condition of the remaining cows and that purchasing replacements at a later date will return the herd size back to pre-drought levels. This action may be needed for some producers. However, the fixed costs related to the cowherd, as well as the expense of purchasing bred replacements may indicate that maintaining herd size and providing supplemental feed is a better financial option for some operations.

Culling has its place, and there are legitimate reasons why some animals are culled every year (See iGrow Beef: Best Management Practices for Cow-Calf Production book). Any marginally productive or problem cows are prime candidates to be sold. Culling those cows improves the average of the herd, reduces some management problems, and generates additional cash flow.

Example Scenario

The table below evaluates four options against an example baseline herd consisting of 200 cows; production costs of $600 per head (determine your cow costs by utilizing the budget calculator), 1,300-pound cows, 85 percent weaning rate, and 500-pound calves selling for $150 per hundredweight.

  • Baseline: Maintain 200 Head
    Baseline option maintains the existing herd size, allows the operation to keep a closed herd, reducing the introduction of new pathogens, and maintains the genetic base the owner has established. Total costs for the cow enterprise are $120,000 with $127,500 of income from 170 calves sold. Operations able to maintain feed costs and traditional sales dates may realize a $7,500 profit for the cow enterprise.    
  • Option A: Sell 35 cows in July 2017-Buy replacements January 2018
    Option A sells 35 cows in July and early weaning their calves. An additional $1.50 per head per day to feed the calves is added to the variable feed costs, bringing total costs to $126,300. Cull cow income of $31,850 is based on a 1300 pound cow selling for $70 per hundredweight. Replacement costs in January 2018 are expected to be $61,250 considering a $1750 replacement rate. Net income in this option is negative due to the need to purchase replacements at a price higher than received for the culled cows.
  • Option B: Sell 100 pairs in July 2017-Buy replacements January 2018
    Compared to Option A, with Option B, all calves are sold with the cow. This decision eliminates daily feed costs for early weaned calves and reduces the variable costs for the cow herd due to a smaller herd for six months. In this option, the reduced variable costs are not enough to offset the difference between the income from the pairs and the expense related to purchasing replacement animals.
  • Option C: Drylot 100 pairs and run 100 pairs on pasture
    Option C maintains the current herd size. The operation utilizes all regularly grazed pastureland for half of the herd, and drylots the other half at a rate of $2.25 per pair per day, thus increasing variable costs. While increasing the total costs, all calves are weaned and sold in a traditional timeline. While Option C has a negative net income figure, it is a smaller value than the other options and maintains the health and genetic integrity of the cow herd.
  • Option D: Sell 200 pair in July 2017-Buy replacements January 2018
    Option D is the most dramatic option listed as it liquidates the entire herd. The operation will have 100 percent of the fixed costs related to the cow herd and half of the variable costs to cover. Given the $1,500 per pair received in July and the expected $1,750 replacement expense in January 2018, this option has the largest negative net income (-$147,500).

In each of the options listed, the net income is negative due to a combination current market prices for feed, calves, cull cows and replacements. In addition to the financial component of the decision, the producer must also consider the effect continued grazing will have on future grass production.

  Baseline Option A Option B Option C Option D
  Maintain 200 head. Sell 35 in July 2017-Buy Replacements January 2018. Sell 100 pairs July 2017-Buy Replacements January 2018. Drylot 100 pairs July and 100 pair on pasture. Sell 200 pairs in July 2017-Buy Replacements in January 2018.
COSTS          
Variable Costs $45,000.00 $51,300.00 $33,750.00 $72,000.00 $22,500.00
Fixed Costs $75,000.00 $75,000.00 $75,000.00 $75,000.00 $75,000.00
Total Costs $120,000.00 $126,300.00 $108,750.00 $147,000.00 $97,500.00
           
INCOME          
Cull Cows $- $31,850.00 $150,000.00 $- $300,000.00
    1300 pounds at $70/cwt $1500 per pair   $1500 per pair
           
Calves $127,500.00 $127,500.00 $75,000.00 $127,500.00 $-
  170 calves 170 calves 100 calves 170 calves 0 calves
  500 pounds at $150/cwt 500 pounds at $150/cwt 500 pounds at $150/cwt 500 pounds at $150/cwt 500 pounds at $150/cwt
           
Total Income $127,500.00 $159,350.00 $225,000.00 $127,500.00 $300,000.00
           
REPLACEMENT EXPENSE $- $61,250.00
35 head at $1750 each
$175,000.00
100 head at $1750 each
$- $350,000.00
35 head at $1750 each
           
NET INCOME $7,500.00 $(28,200.00) $(58,750.00) $(19,500.00) $(147,500.00)
           
PER CULL COW COST $- $1,020.00 $662.50 $- $775.00

 

 

Determine which option, or combination, is best.

The options provided are a framework for evaluating the decisions being made by cattle owners and herd managers. Things to consider as alternatives are:

  • Understand your current situation.
    Know what the current land, labor and capital situation is. Given current weather forecasts, the current and future market conditions and your financial situation, how much feed you have available, how much are the animals worth and could you self-finance or receive a loan to feed the herd through the drought?
  • Determine what is more feasible.
    Forage and water resources are critical to production in 2017, but also in the years to follow. If the number of animals grazing are not reduced either by selling or feeding elsewhere, what will the longer term effect to the rangeland be? Would a combination of feeding and grazing reduce the negative impacts overgrazing can cause?
  • Collect the needed data.
    Estimate how long animals will be fed. Inventory current feed supplies. Determine how many tons of hay would be required to feed through the expected end of the drought. Then evaluate the cost of hauling hay to the cows, or hauling the cows to the drylot or new pasture.

The Big Picture

Partial budgets are a method to analyze the options available to producers during drought. Proper analysis of the long-term effect of production decisions needs to occur to maintain an economically stable operation. Feed availability and finding enough feed will be large components of the decisions made operation to operation.

Producers should also consider tax consequences of selling a non-typical number of animals in a given year. Talk to your tax advisor about the implications the increase in income will have.  Evaluating dry-lot options, limit feeding and purchased feed prices, implementation of intensive or rotational grazing practices to better utilize existing forage, adding annual forages, and early weaning strategies may allow the producer to maintain a constant herd size through periods of drought (Drought  Management Tips for Beef Cattle Producers).

Additional Help

SDSU Extension Experts:

Resources:

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