Improving profitability: Producers encouraged to benchmark herd performance
The Colorado State University (CSU) Department of Animal Sciences hosted the 28th Range Beef Cow Symposium Dec. 13-14 at The Ranch Events Complex in Loveland, Colo., highlighting a variety of industry speakers who delivered valuable, cutting-edge information on beef cattle management strategies, ranging from consumer drivers of sustainability to feeder calf marketing.
Guest Speaker Matt McQuagge studied animal science at the University of Florida before attending CSU where he earned his master’s degree and is currently completing his PhD in beef systems, focusing on profitability indicators in Colorado cow/calf and stocker operations.
Benchmarking is the process of conducting a comparative analysis of cow/calf businesses with the averages of the benchmark herds.
Creating benchmarks
“We need to define benchmarking,” stated McQuagge. “Benchmarking can exist either on an internal standpoint or an external standpoint, and today I will focus on external benchmarking. This means comparing single ranches and performance metrics to industry standards or key performance indicators.”
The goal of benchmarking is to identify strengths and weaknesses or areas not performing as well, compared to others in the industry, which gives producers an opportunity for improvement through some different techniques.
“There are a few challenges associated with benchmarking in the cow/calf industry. First, the beef cattle industry exhibits a very strong seasonal pattern,” McQuagge explained. “No operation is the same from year to year, and every opportunity is different, meaning no two operations will be exactly alike or have the same resource, creating external benchmark challenges.”
Another challenge can be the operations accounting systems, but utilizing a standardized performance analysis (SPA) program can help cow/calf producers reduce their cost of production and improve their production and marketing efficiency.
The objective of SPA is to help cow/calf producers achieve goals effectively by analyzing their production and financial performance. Producers complete an in-depth financial and production analysis of their cow herd using the standard methodology.
T.R.A.C. program
Total Ranch Analysis for Colorado (T.R.A.C.) was developed as a statewide collaborative partnership with CSU Extension personnel, cattlemens’ associations and beef producers.
“Participating ranches provided in-depth financial, production and management analysis of the ranch, using a standardized methodology. The T.R.A.C. members visit with producers, listen to their unique successes and challenges and collect an array of production and financial data,” McQuagge noted.
“Data collected was then analyzed to determine critical production, financial and integrated measures, creating a customized report with benchmarks which provided a unique opportunity to identify areas to reduce cost of production and improve production and marketing efficiency,” he continued.
The goal of the program was to provide ranchers with the most accurate analysis possible by using accrual adjustments, including non-cash expenses – depreciation – and allocating overheads based on animal unit months.
Uncovering profits and loss
“The results I am reporting on today will cover operations across Colorado for Fiscal Years 2018-20, with an average herd size of 420,” McQuagge said. “All in all, cow/calf producers in the region are doing very well in terms of their production efficiencies.”
The program benchmarks over 20 different production, financial and cost of production key performance indicators (KPI), and through the KPI analysis, it discovered one driver of profitability is overhead costs, McQuagge noted.
Many producers have too much stuff, and depreciation is often the biggest contributor.
McQuagge added, “The keys to profitability are not to focus on maximizing production parameters, but to think about optimizing them.”
“For example, reviewing the KPI, which analyzed the cost of a weaned calf, we used the same methodology to calculate cow cost to calculate cost per hundredweight of weaned calves, but instead of dividing the total cow/calf enterprise expenses by the beginning fiscal year number of breeding females, those expenses are divided by the total amount of weaned pounds produced by the ranch,” he stated.
“However, research has shown a correlation between lower weaning weights and more profitability. While counterintuitive, this means producers need to focus on optimizing resources, not just maximizing pounds,” he concluded.
The types of KPIs used in T.R.A.C. and SPA documents are universal, and producers from other states can use those in their operations.
Melissa Anderson is the editor of the Wyoming Livestock Roundup. Send comments on this article to roundup@wylr.net.
