Investing in Our Business

We are all aware that cattle prices are stronger. The increase in prices has occurred in the last 6 months. If you market calves or home raised yearlings you have yet to experience the stronger prices. Hopefully the market will continue strong through the fall run so that we can all benefit from the stronger prices. Personally I think we have a good chance of the stronger prices lasting 4 or 5 years. This of course is only speculation. The fact is that we are all being given an opportunity at this time to invest our increased profit wisely. Making a good investment choice could pay us big dividends for 25 or 30 years.

In my experience the most effective way to increase your profit is to improve your land. Many producers who practice H M have doubled their grass production on a set land base. This is the quickest & surest way to profitability & sustainability. Let me share some numbers for your consideration. Let’s start with a gross profit for a cow calf operation. Remember this is only an example. To make this meaningful you need to use your numbers. The formula for gross profit is income per cow minus the variable expenses. Variable expenses are defined as those that increase as cow numbers increase (think of adding one cow). The answer is gross profit. This is not profit but money to cover your overheads. Profit is determined by doing a financial plan.

GROSS PROFIT COW CALF

# CALF $ / # $ / HEAD % CALF $ / COW

STR 500 $2.00 $1000 90%
INCOME $814
HFR 450 $1.80 $810 90%

VAR. EXP
# FEED $ / TON
HAY 4 $60 $240

VALUE CULL WT $ / # CULL %
DEP $1200 1300 $1.00 20% ($20)

BREED $35

SALT / MIN. $10

DEATH 2% $24

MARKET $30

VET $20

INT. $0

TOTAL $339

Gross Profit $475

Income: In this example we have a 500# steer @ $2.00# & a 450# heifer @ $1.90. Using a 90% weaning percentage each cow produces $814 income.
Hay cost is $60/ton. We feed 4 tons. Total cost is $240.
Depreciation is the value of a young cow (on our books) minus the value of a cull cow times the culling percentage. In this case depreciation is actually a positive $20.
Breeding: The breeding cost is the price of the bull ($4000) minus the salvage value ($2000) plus the feed cost for the bull ($2/day/200days for 3 years total $1200) divided by the number of cows bred. (30/yr. X 3 yrs.) The breeding cost is $35 per head.
Salt & mineral: Estimated at $20/hd.
Death loss: Estimated at 2% of book value.
Marketing: Estimated at $30.
Vet: Estimated at $20.
Interest: May or may not apply.
Any other variable costs you may have.

Summary

Income per cow $814 minus variable costs $339 the result is a gross profit of $475 per cow.
Next we will estimate our overheads. I will use $300 per cow. It is essential that you use your numbers to make this meaningful.
We are now able to look at how increasing our carrying capacity will affect our bottom line.

# of cows 100 125 150 175 200
income $814 $814 $814 $814 $814 $814
Var costs $339 $339 $339 $339 $339
G Profit $475 $475 $475 $475 $475
Overhds $300 $240 $200 $171 $150
Profit/Cow $175 $235 $275 $304 $325
Profit/Ranch $16,500 $29,375 $41,250 $53,200 $65,000
% increase 1.7 2.5 3.2 3.9

Increasing our carrying capacity results in a higher profit per cow. This increases our profit but since we have more cows our profit increases even more. The above calculations show that with a gross profit of $475 per head & an overhead cost of $300 per head increasing our carrying capacity will result in:

A 25% increase profit increases 1.7 times.

A 50% increase profit increases 2.5 times.

A 75% increase profit increases 3.2 times.

A 100% increase profit increases 3.9 times.
Is there anything you can do
that will have this
kind of a positive impact on your bottom line?
I don’t think so.

What has your experience been? Remember not only is our profit improved but our sustainability is improved at the same time.
Could your land be improved? What steps do you need to take to improve your land? Would this be a good investment for you? I invite you to consider these questions.

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