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So What's...The "Best" Size of Cow Herd for Me? | |
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From the Jan 18, 2006 Issue of AgriProfit$ | |
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| | Cost of production pressures facing cow/calf operators have contributed to a trend in growing herd sizes. In order to maintain longer term profitability, some producers are pursuing size economies … spreading their overheads over a larger number of cows. In many instances, this is linked to a change in production systems within their herds and at the farm level as well.
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The AgriProfit$ team recently completed an economic analysis that addresses a couple of key questions from Alberta cow/calf producers during a time when the pressure to seek out operational efficiencies is mounting … that is,
- “how large should my cow herd be?” and
- "what are the key factors I should consider in moving to this new target size?"
The context for the analysis was not to prescribe that one “best” herd size. It was intended to show that there is some economic justification for the move to a larger herd size.
The second question drives at the notion that gaining cost efficiencies through larger herd size is base on more than just adding cows. It is presumably a function of the right combination of many operational/systems factors as linked to their related "overhead" costs.
Is Bigger Better?
Likely … the analysis shows that there definitely are cost efficiencies associated with larger herd sizes.
Economists measure economies of size using an “elasticity” measure, Cost Elasticity of Size (CES), which indicates the percentage change in cost per percentage change in output. Figure 1 shows the analysis results with output (lbs. weaned) converted to a per cow basis. As long as the elasticity is less than 1, economies of size exist … for every percentage increase in size, relatively speaking average cost decreases.
So what does the chart tell us?
- general gains from increased herd size are substantial up to about the 200 cow range,
- reasonable gains are available through to the vicinity of 500 cows.
- over the 500 cow mark, CES tends to flatten out. Although cost efficiencies may be available, the rate of improvement from increased size diminishes proportionately.
- CES was not projected to reach “1” over the range of herd sizes observed in the AgriProfit$ database, so a “maximum cost effective herd size” has not been defined.
The analysis suggests that the answers to the 2nd question, ie. key factors in defining an “optimal” size, have implications on what that size might be. The results indicate that a multitude of factors, based on individual farm strengths and weaknesses in productivity and economic performance, can drive out size economies. As well, the analysis focused at the enterprise level, so potential profitability and risk management benefits at the farm level, considering strengths and weaknesses of other farm enterprises, are not accounted for.
A technical bulletin on this analysis is posted on Ropin’ the Web under "Economics & Business Management/Production Economics/Livestock". I invite you to take a look through the report, see how the "key factors" relates to your list, and analysis, of "what you do well”. The assessment of "how big is best for you" starts out there. |
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For more information about the content of this document, contact Dale Kaliel.
This document is maintained by Gail Atkinson.
This information published to the web on January 18, 2006.
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