| | In past issues, we’ve covered a broad range of topics, including setting objectives, marketing, benchmarking and budgeting. The one item we’ve keyed in on is that to be profitable in the cow/calf business, it is essential to focus on being a low cost producer, measured as the total production herd, and then cost per lb. of calf weaned.
Creating Management Information In the previous issues' So What column, we reflected on Harlan Hughes' thoughts on the relationship he's observed in his IRM program participants regarding management information systems and unit production costs. He found that cow/calf producers that create and use production and economic "management information" tend to have lower unit production costs.
A message should be clear from Harlan's chart. The transition to increased use of management information is a gradual process. If you try to progress too fast, you can become overwhelmed with information.You wont be able to differentiate between what is important and what is not.
Furthermore, many of the performance criteria we will address are supported by a reasonable set of production and financial records, along with a As you progress down these steps, you will be making better, profit-oriented decisions, plus you will also get a sense for the information you need and its value to you.
What Do We Measure?
In this issue, we'll address the productivity side of cow/calf operations. The GOLD indicators will be used as examples of a few of the measures we can use to monitor production performance. Each of these will be put into context with their relationship to unit production costs. The goal is to develop a path to the second last step in Harlan's chart, "Manage by Cows".
The AgriProfit$ research data base was visited to develop performance and costing profiles of Alberta and Saskatchewan cow/calf operations (1999). For each of the GOLD criteria, the data was sorted into upper and lower 1/3rds to complement the means. For each of those groupings, the average total cost of production, per lb. of calf weaned, was computed.
As you will see when we look at the results for each indicator, there are some things we expected, and perhaps some things we didn't. We'll come back to how to use these together as part of a management information system.
Growth
The average wean weight for the upper 1/3rd group was 642 lbs. compared to 491 lbs. for the lower group and an overall mean of 564 lbs. per calf. Costs per lb. of calf weaned were $1.031, $1.203 and $1.099, respectively.
We likely expected this result, right? It follows that if the average calf weight is higher, the unit cost should decline, right? Let's not jump to that conclusion quite yet.
Open Cows
The upper 1/3rd group averaged 14% open cows, the lower 1/3rd averaged 1.5% and the overall mean was 7.7%. Unit production costs for each were $1.165, $1.162 and $1.099 per lb. of calf weaned, respectively.
The high open cow rate group makes sense. Dollars are invested in taking cows through the year, with the expectations of yielding a calf. When this doesn't happen, costs per lb. weaned rise. However, the unit costs for the low open cow rate group were almost identical to the upper group. There are a host of reasons that could drive this result. The underlying messages seems to be that a reasonable balance in measures to improve breeding efficiency and employing "crisp" culling criteria regarding "opens" tends to pay off.
Length of Calving Period
There was a 72 day difference in the average calving period for the upper and lower groups, with a mean length of 101 days. Costs between these groups varied minimally, with the upper group at $1.105, the mean at $1.099 and the lower 1/3rd at $1.095 per lb. of calf weaned.
Did we expect a major difference in unit costs? When you think about it, perhaps not. Gains in feeding cost are likely related to shifting the timing of the calving season, not necessarily the length of the season. As well, the driving force behind tightening the calving span was to get more uniform calves ... a revenue-based intention that appears to have little direct affect on unit costs.
Death Loss of Calves
Calf death losses ranged from 5.2% for the upper group, to an overall mean of 2.7%, and 0.5% for the lower group. Unit cost averages varied by $0.20 per lb. of calf weaned, coming in at $1.209, $1.099 and $1.090, respectively. Once again, death losses result in fewer lbs. weaned profits.
Once again, death losses result in fewer lbs. weaned and drive up the unit costs. From the costing
differences, it would appear to pay to keep these losses in check but the rate at which savings occur diminishes as you try to drive it lower.
The results show why we should consider this factor as one of our "key management performance measures". The upper group achieved 609 lbs. weaned per cow, the mean was 525 lbs. and the lower group came in at 442 lbs. per cow. The unit cost difference was even more substantial with the three groups at $1.006, $1.099 and $1.231 per lb. of calf weaned respectively.
Multiplying the cost difference between the upper and lower groups ($0.225) by the average weaned of 525 lbs. works out to about $118 per cow!
A Balanced Approach
Is this $118 on the table for everyone? No! Does this mean we should strike out to maximize the lbs. weaned per cow? Definitely not! Each operation has its own production and financial characteristics that limit what can be achieved.
A balanced approach, taking advantage of the strengths of your operation, will help you achieve some of this $118. Remember that when you select for a specific trait or criteria, you're applying "selection pressure" that can push back against profits.
For instance, you set out to increase your herd's average wean weight. Although you may end up with more lbs. of calf weaned, you also inherit the other things that come with it. These can include offsets to productivity (such as increased calving problems), larger cows (accompanied by higher feed costs), and so on. Perhaps another productivity performance measure, such as wean weight as a percent of mature cow weight, should be brought into your management information system to provide the balance you need.
Home Stretch
We've been good at measuring production performance, and to some extent, financial performance. However, we often come up short in linking the information we have at hand into an integrated "management information system" ... which can be directed to improving overall economic performance.
Analysis of the AgriProfit$ program data has shown the role of production indicators such as GOLD, and how you can incorporate these into broader performance measures, like lbs. weaned per cow. On the production side, the primary goal is to increase the "lbs. weaned" thereby reducing unit costs per lb. weaned.
In the next issue, we'll review some financial and costing criteria, looking for performance measures on the dollars and cents side. When this is all brought together, you'll have the basis for developing your own management information system, from monitoring criteria through overall performance measures. From there, you'll be armed
with information you can use to make knowledgeable short and long term decisions ... leading to increased profitability and lower risk.
Market Watch
With the strong feeder cattle movement we've seen through the first half of the year, an increasing percentage of the animals have been lightweight calves and cows drawn into feedyards by high prices and cheaper feeding costs (barley versus forage). Depending on which way the moisture situation goes, grazing and feedgrain issues are a big wildcard for seasonal gains on feeder cattle and calves through the summer months. |
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