State of Beef Conference focuses on profitabilityWritten by Gayle Smith
North Platte, Neb. – With cattle prices declining, scientists and industry analysts are showing producers ways to raise calves more efficiently. Close to 150 producers were in attendance at the second annual State of the Beef Conference in North Platte, Neb. on Nov. 2-3.
With the event kicking off with a market report still showing declining cattle prices, research specialists focused on showing producers how to reduce costs and encouraging them to try new ideas to get the best return.
Randy Blach with CattleFax said he expects beef production to continue to increase in the U.S. but at a slower rate.
In 2000, packers were harvesting 30 million head, but now that number is closer to 20 million head. This significant decline in harvestable cattle over the last several years has caused some packing plants in the U.S. to close.
Based on a 40-hour week, Blach said packers are harvesting about 460,000 head a week, which is a decline from 570,000 head several years ago.
After prices started to decline in 2015, feeders began holding fat cattle, and the market responded by not staying current. When those cattle did go to market, processors began to see too many yield grade fours and fives. To prevent this from reoccurring, packers have put a 1,600-pound weight limit in place.
Despite ongoing market adjustments, Blach said consumer demand for beef at the retail level is still good, and exports are picking up with stabilization in U.S. currency.
“Trade is going to be essential,” Blach said. “We will need to increase exports to handle any additional cattle expansion.”
Blach doesn’t predict a lot of Brazilian beef moving into the U.S. this year because of the tariff quota.
“We will have to monitor the exchange rate,” he said.
Role of genetics
Matt Spangler, geneticist with the University of Nebraska, discussed ways to maximize profitability of the cowherd. He told producers to focus on traits that will maximize profitability.
“If our cows excel in the same areas as our bull battery does, we are not maximizing profitability,” he said.
Spangler added that cows can be cheap to maintain, so producers should focus on selecting bulls that have a good rate of gain and growth.
“Smaller cows can reduce maintenance requirements,” he explained.
The geneticist cautioned producers about genetic selection.
“More is not always better, depending on what the goal is,” he said.
Despite that, most breeds have elected to continue increasing weaning weight and yearling weight.
Environment is also important, Spangler noted. In some areas, producers continue to select for increased weaning and yearling weights, but the calves won’t get any bigger. He said resources can be limited, so cattle can’t get any more out of the inputs.
“The environment just can’t handle anymore,” he said.
Spangler said producers need to look at their labor costs.
“I know we don’t do this because it is important to us to save every calf we can, but have we ever determined how many dead calves we would have by not checking them at night?” he asked producers.
Spangler told producers that if they want to reduce their input costs, first they need to determine all their costs.
“Sometimes we just make selections based on profit, not just revenue. We know how much we got out of our calves, but we don’t always know what it costs to produce that calf,” he says.
Calf health considerations
Stewardship is the careful and responsible management of the cattle entrusted to one’s care.
Jerry Stokka, livestock stewardship specialist at North Dakota State University, explained to producers how they can better protect the health of their cattle. Using a chart showing the relationship of calf health and genetic potential, Stokka told producers that 90 percent of health failures relate back to stress.
“We impact a lot of these factors,” he pointed out.
“How do I know, from a health standpoint, that the bull I select will produce cows suitable for the environment?” he asked producers. “It is easy to make genetic selections to make the cows bigger. It is a lot harder to keep them moderate.”
The question, according to Stokka, is how to determine which cows will produce healthy calves.
“As a producer, we want calves that will get up and nurse immediately to take advantage of passive immunity,” he said.
“If we abandon the pillar of health and genetic selection, we will get to the point where we will need to cull heavily, sell out or start over,” he explained.
Stokka also questioned whether late gestation supplementation can help. Many believe runt piglets are the result of uterine crowding, causing a failure of the runt to obtain adequate nutrition.
In the case of cattle, Stokka said how the cow is fed relates to the health of the cow and its unborn calf.
“Plumbing also makes a difference. Most producers cull cows with bad bags because it is a health issue,” he explained, recalling an incident where a cow kicked her calf off while it was nursing because it had mastitis, and it hurt her to allow her calf to nurse.
Colostrum is also crucial.
“The cow passes live cells to the newborn to protect it from diseases and antigens,” Stokka said. “It is very important that they get colostrum. My question is, have we done everything we could to make the environment so that calves can get up and nurse all the colostrum they need to the full mark?”
Leasing cows may be mutually beneficial for starting operators, retiring ownersWritten by Emilee Gibb
In light of overwhelming startup costs in cow/calf operations, as well as a volatile market for established producers, University of Nebraska-Lincoln Extension Educator Aaron Berger recently advised producers to consider whether entering into a cow leasing agreement is an economically viable option for their operation.
Lease agreements can meet the needs of both the cow owner and the operator, said Berger.
“Cow/calf production requires a large amount of capital, which can be a challenge to beginning producers,” he said. “When leasing a cow, the producer can access cows without having to purchase them.”
Cow owners are then able to maintain or phase out of ownership without providing labor.
“This option can be particularly attractive to those cow owners who are nearing retirement and want to phase out of the production side of the business,” explained Berger.
Two main agreement options exist for cow leases. The first option is a cash lease.
“This is where the cow/calf owner is paid a set amount by the person leasing the cows,” continued Berger.
The second option is a cow/calf share agreement. In this type of agreement, the cow owner receives a percentage of the calf crop based on their contribution toward the production of calves.
Pros and cons
Each type of lease agreement has benefits and disadvantages for the owner and lease operator, said Berger.
In cash leases, benefits for the owner include having a known income, lower risk and simplicity.
“It’s simple to understand and owners get a guaranteed payment,” noted Berger.
However, cow owners may lose income if calf prices are high.
Cash leases benefit the operator primarily in the simplicity of the agreement.
“It’s a simple payment of the cow/calf’s owner for the portion they would normally get in the calf crop, except the cow owner gets their payment in cash from the operator,” said Berger.
The disadvantage of a cash agreement for the operator is that they are accepting all of the calf price risk and must have cash to pay the owner.
A cow share agreement benefits the owner because they have the option to sell or retain the calves in their share, but they also share production and price risks.
“That might be an impact to them in terms of what they might get back in return on their investment,” he continued.
Operators do not have to pay for the lease in cash. They do, however, give up a portion of the calf crop.
“It may be a situation where the operator wants to grow their herd,” said Berger. “Maybe they have an investment in the genetics that are there and they would just as soon keep the calves and give the cow owners the cash value instead of giving them calves.”
When agreeing on a cash price or percent of the calf crop, many factors influence the needed price for both the owner and operator.
The first factor driving price for cow owners is cow value. Berger noted that owners should expect a different return in investment in a cow valued at $2,500 compared to a cow valued at $1,200.
Other important considerations include replacement rate, interest rate and cull cow value.
“Cull cow value is the difference between cow purchase price minus her salvage value,” explained Berger. “If we can find ways to increase the value of those cows when they leave the herd, that’s going to decrease depreciation expense and decrease the amount that the cow owner needs to get back from the calf crop percent or as a cash lease.”
The final major factor for owners is whether the owner or operator is responsible for the bull.
“In some arrangements, the cow owner provides the bull. In other arrangements, the cow operator provides the bull. That can make a significant difference on what the breakout should be,” said Berger.
As feed costs account for 60-65 percent of annual cow costs, a major driver is price for the operator, said Berger.
Overhead costs, including equipment and labor, are other important factors for the operator to consider.
“How much equipment is used in the care of those cows and whether the operator is providing labor himself or is hiring someone is important,” continued Berger.
Like cow owners, the agreement on the bull in a significant factor for operators in lease costs.
“If that person who is operating the cowherd is keeping back calves, they might specifically want to provide bulls to move themselves genetically toward where they want to go,” said Berger. “That can be an impact in terms of what they’re going to get, percent of calf crop or cash leasing those cows what they need to pay that cow owner.”
Wyoming attorney encourages ranch families to create business plansWritten by Natasha Wheeler
Bob Berger, an attorney at Lonabaugh and Riggs, LLP, encourages ranch families to sit down and create a plan for business management and operation.
“We might call the process estate planning, transition planning, business planning or legacy planning. The key word is planning because it really does make a difference,” he says.
There are bound to be conflicting goals for how to keep the ranch operating and how to treat everyone fairly, but working through the planning process can help sort those conflicts out, he says.
Berger comments, “The ultimate objective is to have enough communication that we know what everybody wants and we can come up with a plan.”
Planning can easily be put off due to the priorities of other ranch work, uncertainties surrounding how a plan should be managed and the potential for changes in the future, but Berger encourages families to set aside time for the conversation.
“We’ll change if we’re lucky enough to continue operating and continue living for a longer period of time. We can tweak the plan as things change, but don’t let that uncertainty drop it all together,” he notes, discussing ownership and management decisions. “I think, we would probably rather decide ourselves than have someone else, like a judge in a courtroom, decide for us.”
There are many tools that can be used in the planning process, including a basic will.
“The concept of a will is pretty simple. We’re telling the world who is going to get our stuff. We’re making some decisions, and we are giving direction as to who is going to be in charge of the estate, who is going to talk care of the minor children and where things are going to go,” Berger explains.
He recommends designating both a power of attorney for healthcare and a power of attorney for business to avoid the probate process, save expenses and keep the information out of public domain.
“We can make personalized plans that are appropriate for the family,” he states.
Gifts are another tool that can be used in planning, allowing for small, incremental transfers from one generation to the next.
“We are working on that with many families, where we have essentially solved the tax problem for the first generation. We are working right now on moving it down from generation two to three, because there is a lot of wealth accumulated in the second generation,” adds Berger.
Creating a business entity, such as a partnership or limited liability corporation (LLC), is also useful in some cases, and operating agreements can also be created to outline the roles of everyone involved in ranch ownership and operation.
“Life insurance also often works into things. People are using life insurance policies to fund a buy-out of a family member who passes away, to provide cash for that person’s family and to bring the ranch stock back into the group that’s operating it,” he suggests.
Diversified operations provide additional opportunities as well, often providing family members with options for staying close to the ranch while building their own financial stability.
“Maybe the backhoe that’s used for cleaning ditches on the ranch is also used to build a well pad the next day. Eventually, families branch out and have separate businesses, which allows for better planning for multiple family members. It’s been remarkably effective with many families I have worked with,” remarks Berger.
He further comments, “Holding assets in joint tenancy is another good way to plan for a transition.”
Conservation easements and private foundations are additional tools that can be used in the planning process, especially for families that would like to use their property for charitable causes.
“What’s important is how we combine these tools. We can do lots of different things,” Berger states.
In one example, a family created multiple businesses relating to different ranch objectives, gifts annual shares to the children and ties everything together with flexible, long-term lease agreements.
“The family has given enormous thought to it. They have worked out something that is so thoughtful and so workable for their family,” he says.
Berger stresses the importance of planning and communication and recommends incorporating the advice of advisors such as an accountant, banker, investment advisor, attorney, appraisers and other relevant professionals.
“We can think of a lot of reasons to put it off, but planning now is going to make a difference for you and your family,” he says.
Looking at Ranch ReturnsWritten by Bridger Feuz
Ranch profitability is influenced by many factors. Oftentimes, on Wyoming ranches, there are enterprises other than livestock that may account for significant sources of income. However, the primary source of income on most Wyoming ranches is livestock production.
A majority of Wyoming ranches can be characterized as cow/calf operations. A smaller number could be characterized as sheep operations. There are also a few ranches that utilize both cattle and sheep for livestock production.
The Livestock Marketing Information Center (LMIC) estimates returns for cow/calf producers in the U.S. The estimates are returns over cash costs plus pasture rent. LMIC has consistently ratcheted-down estimated cow/calf returns this year, as forecasted cattle prices for the fourth quarter were lowered. As of late September’s revisions, LMIC’s 2016 estimate was a return over cash costs plus pasture rent of about $15 per cow, which is the lowest since 2009. That is a huge one-year decline of about $285 per cow – 2015 was about $300 per cow – and was even more disappointing when compared to 2014’s record high level, about $550 per cow.
Returns this year will not cover the total economic costs for most cow/calf operations. While estimated costs of production have decreased slightly in 2016, based on cheaper fuel, feed and slight drops in pasture cost, it has not been enough to offset declining calf prices.
An LMIC working group also recently developed and published a “U.S. Baseline Lamb Cost of Production Model.” Best estimate industry parameters were used to generate regionally representative budgets. These budgets were then aggregated into a national model. I shared the Western Region budget in a Wyoming Livestock Roundup article a couple of months ago.
Utilizing the aggregated national model, I calculated an estimate for lamb returns as cash costs plus pasture rent for 2010-15. The high was $71 per ewe in 2011 with the low being $8.20 per ewe in 2013.
It is important to note that in both cattle and sheep, these calculated returns do not include all economic costs of production. They are used in market analysis and estimated cash costs plus pasture rent. Of course, every operation has different resources and costs. Year-over-year changes in calculated returns are more insightful than the specific numeric levels.
With that said, I was interested in comparing cow/calf returns with sheep production returns from 2010-15. At first glance, it seems like cattle is the clear winner. The low return for cow/calf in the 2010-15 timeframe was $30 per cow while the high was $530 per cow. Clearly on a per-cow versus per-ewe basis, cattle is king.
However, this is not an accurate comparison based on resource use. Ranchers are generally able to run five ewes on the same set of resources as one cow. Therefore I adjusted the sheep returns to reflect this relationship.
While the specific numeric levels are not as important as the trend, it is very instructive that the six-year average for adjusted sheep production is nearly identical to the cow/calf average. It is also interesting to note that over the last six years, while the average was nearly identical, the timing and magnitude of the returns have been different. Certainly over the last six years, those few ranches in Wyoming that have a mix of sheep and cattle have had a more consistent return than those that relied on one or the other species.
Not all ranches have resources that can be utilized efficiently by both sheep and cattle, and not all ranches are structured with appropriate personnel and management skill sets to run both species. However, for those ranches that are able to run multiple species, a combination approach may serve to mitigate fluctuations in returns.
Inside the numbers: Don’t let the numbers overwhelm when buying a bullWritten by Gayle Smith
With the amount of bull data available, it can be easy for ranchers to become overwhelmed when they attend a bull sale. Travis Taylor, Colorado State University Extension specialist, has some advice for producers.
“Ranchers should do their homework before they attend the bull sale. Go to the bull sale with herd improvement goals in mind. We need to know what we want to change and have our goals laid out,” he told producers during a recent beef profitability meeting.
“Going to a bull sale without herd improvement goals is like shopping the supermarket hungry,” he continued. “Analyze the records that are available beforehand. We don’t want to buy the Snickers bar that only satisfies us one breeding season.”
In addition to looking at value indexes and EPDs, producers will still want to look at the visual appeal of the bull. Soundness and scrotal circumference are still important.
“We want to remember that 75 percent of the genetics in our herd is a result of the past two generations of sire selection,” he said.
Taylor told producers that scrotal and udder scores are hard, tangible values that producers don’t always remember to look at. He shared a story about purchasing a bull with tremendous performance numbers and high dollar value.
“This bull produced fantastic calves, and a large number of heifers were retained. Within three years, most of those heifers were out of the herd because of their udders. They really fell apart. That is why it is important to look at the numbers to avoid some of these downfalls,” he said.
Beef Improvement recommends bulls have a scrotal circumference that is a minimum of 30 centimeters just to pass a breeding soundness exam. Terminal sires should have a scrotal circumference of 32 centimeters and maternal sires 34 centimeters.
“What ranchers need to find out when they are looking at a bull, is if the scrotal circumference score listed is actual or adjusted,” Taylor said.
If a 10-month old bull is adjusted to 34 centimeters, will he actually become 34 centimeters? If he is actually less than that, he may not settle as many cows as he should, Taylor added.
“When we visit with a producer, it is important to understand what the numbers they provide actually mean,” he commented.
Bull customers can be bombarded with EPDs, pedigrees and phenotypic data to calculate heritability estimates. However, the accuracy of these numbers is also important. Taylor said a young, unproven bull will have an accuracy of 0.05, although he may have 0.18 if he has proven ancestors.
What this means is, if a bull has an average weaning weight of 500 pounds, his offspring could range from 450 to 550 pounds on an average accuracy bull. As the bull has more offspring, the producer will get a truer measurement of what that bull is capable of producing.
“It is important to pay attention to accuracies to eliminate some of the variation in a bull,” Taylor said. “When buying a bull, remember the calf has a mother, so some of that variability will depend on the maternal side, as well.”
The problem with EPDs, Taylor continues, is they are individual traits like birth weight, weaning weight or yearling weight.
“If producers select on a single trait, they could get themselves into big trouble by ignoring the other traits,” he said.
Taylor shared a story about a rancher who couldn’t sell his bulls because their birth weight was too high. He stopped feeding protein to his pregnant cows 30 days before they calved. It brought the birth weights and EPDs for birth weight down enough that he was able to sell the bull calves as easy calving bulls.
“There was no difference in genetics, it was strictly environmental effects,” he said.
Producers are responsible for reporting every calf that is born to the breed association, but they might not always do so. If 105-pound calf is born, the producer might make it into a steer.
“A lot of those bulls don’t get reported back to the breed,” he said.
Red Angus, Gelbvieh and Shorthorn have whole herd reporting systems, which requires producers to turn in records for every cow they have. Buyers have the advantage of information that is the result of more accurate reporting.
“Take a look at the association, their reporting rules and how things are reported back,” Taylor said.
“Some EPDs may be more accurate than others because of reporting requirements,” he said.
At many bull sales, buyers also have access to genomically enhanced EPDs to analyze for each bull. These EPDs were developed to enhance predictability and accuracy of EPDs for young, unproven bulls. Taylor said this technology can be used on young animals to help producers determine whether a bull calf should be a steer.
“It also helps producers analyze difficult to measure traits like feed efficiency, maternal and carcass traits,” he said. “It allows producers to identify sires with superior genetics a lot sooner.”