Record high cattle prices have led to questions about additional revenue-generating options in the market. This has led some producers to wonder if there is potential for additional revenue. One of the possibilities for creating extra revenue is to buy bred cows this fall and sell both the cow and calf. The main factor for producers to consider when looking at this option is what comparative advantages they have. Some questions the producer should ask themselves are:
- Is there enough feed supply (raised vs. bought) to support extra livestock?
- Is there available labor to calve the extra cows?
- Is there adequate space available for cow-calf pairs in spring/summer?
- Do producers need to rent more pasture?
- What does the futures market look like for calves?
- Should we consider Livestock Risk Protection (LRP)?
- What is the potential health risk to my herd from buying a late bred cow?
- What is the potential of losing the cow and/or calf?
After answering these questions and determining their cost structure a producer will have a better understanding of whether or not their operation can support extra cattle. An enterprise budget for this endeavor will provide answers to the financial components of these questions. A labor and resource analysis can answer the labor and space requirement issues. If all of these components are favorable then this could be a way for the operation to make additional revenue in 2015.
Table 1. Cow-Calf Enterprise Budget Example
I. OPERATING COSTS
|Veterinary and drugs||$15.00|
|TOTAL DIRECT OPERATING COSTS||$467.51|
II. AVERAGE OPERATING CAPITAL REQUIREMENTS - PER COW
|Average bull value||100.00 cows / 2.00 Bulls =||$0.00|
|Replacement charge per cow||100.00 cows / 3.00 Culls =||$0.00|
|Other direct costs||$16.00|
|Indirect Costs||interest, electric, depreciation||$22.22|
|TOTAL COW COSTS PER YEAR||$532.75|
III. INCOME - PER COW
|Calf (considering a 50/50 steer/heifer mix)||$1,260.40|
|Cull cow income||$1,164.50|
|Cow purchase price||$1,350.00|
|Total direct and indirect costs||$568.752|
|TOTAL Profit for the Pair||$506.15|
Budget is available on SDSU economics page
Table 1 above shows a budget example, which should be taken into consideration when deciding if buying late bred cows is a feasible option. If this producer has extra capacity in terms of land, feed, labor, etc. this strategy has potential for making a good short term profit. In this case according to Table 1 if the producer has extra land and labor available the producer could afford to buy extra bred cows and carry them through winter into spring or summer.
While this is just one example of what a producer could potentially do it is important to remember that not all producers will have the same cost structure, labor, and resources in their operations. This strategy has some potential in the short run while calf and cull-cow market prices are high and feed prices are low3. While some producers can capitalize on its potential, it is important to remember this endeavor needs carries a certain amount of risk with it. Therefore it is important producers analyze the potential for profit each year as prices for feedstuffs and the cattle markets change4.
- To calculate death loss, the percent of expected loss was multiplied by expected selling price
- Total direct cost and indirect costs is the sum of total direct costs, other direct costs, death loss, and indirect costs. This is done so as not to double count the feed costs when calculating the total costs for raising the cow.
- This is a short term strategy and not one intended for long run growth.
- The information in this article is believed to be reliable and correct. However, no guarantee or warranty is provided for its accuracy or completeness. This information is provided exclusively for educational purposes and any action or inaction or decisions made as the result of reading this material is solely the responsibility of readers. The author and South Dakota State University disclaim any responsibility for loss associated with the use of this information. See more in the iGrow article Corn Reports Benefit Cattle Feeders.