This article’s objective is to assess cow-calf profitability for a spring calving herd that sold weaned calves in the fall of 2021 and to forecast profitability for the following year. Estimated costs for a well-managed spring-calving cowherd in 2021 are listed in Table 1. Because every operation is unique, producers should assess and adjust these estimates to suit their needs. Note that labor and land costs, as well as depreciation and interest on equipment, fencing, and facilities, are not included in this table.
It is assumed that calves weigh 550 lbs on average when they are weaned and sold. According to the state average, steers in this weight range sold for prices in the upper $140s and heifers for prices in the low $130s in the fourth quarter of 2021. Therefore, a steer/heifer average price of $1. 40 per lb, which was $0, is used in the analysis. 10 per lb higher than last year. But it’s crucial to remember that calf prices in December 2021 were significantly higher than they were in October and November. As a result, the timing of calf sales would have greatly affected cow-calf revenues. Weaning rate was estimated at 85%, meaning that it is expected that a calf will be weaned and sold from 85% of the cows that were exposed to the bull With these presumptions and the weaning rate taken into account, the average calf revenue per cow comes to $655.
Author(s): Greg Halich, Kenny Burdine, and Jonathan Shepherd
In order to estimate profitability for the following year, 2023, this article will examine cow-calf profitability for a spring calving herd that sold weaned calves in the fall of 2022. Estimated costs for a well-managed spring-calving cowherd in 2022 are listed in Table 1. Because every operation is unique, producers should assess and adjust these estimates to suit their needs (see Table 2). Note that labor and land costs, as well as depreciation and interest on equipment, fencing, and facilities, are not included in Table 1’s costs.
It is assumed that calves weigh 550 lbs on average when they are weaned and sold. According to the state average, steers in this weight range sold for prices in the upper $160s and heifers for prices in the low $140s in the fourth quarter of 2022. Therefore, a steer / heifer average price of $1. 55 per lb, which was $0, is used in the analysis. 15 per lb higher than last year. Since then, calf prices have significantly increased, but this analysis is predicated on spring-born calves being sold late in the same year. Weaning rate was estimated at 85%, meaning that it is expected that a calf will be weaned and sold from 85% of the cows that were exposed to the bull With these presumptions and the weaning rate taken into account, the average calf revenue per cow comes to $725.
Cost-wise, the biggest adjustments for 2022 were substantial price increases for fuel and fertilizer. Prices for diesel fuel, potassium, and nitrogen more than doubled between 2021 and 2022. The cost of producing hay was the area that was most affected, but many other areas were also impacted. However, almost all cost categories experienced general price increases. These are all reflected in the cost estimates for 2022.
The cost of maintaining a pasture is estimated to be around $30 per acre and would only cover the most basic cash costs (fuel, maintenance, repairs), as well as a small amount of reseeding, fertilizer, and fencing repairs. Feeding large amounts of fertilizer to pasture land on a regular basis will result in much higher pasture maintenance costs for cattle farmers. The pasture stocking rate is assumed to be 2. 0 acres per cow, but this will vary greatly. The operation’s stocking rate affects the number of grazing days and winter feeding days (i e. More hay feeding days will result from high stocking rates, which will significantly increase costs per cow.
These spring calving cows were assumed to use 2. Each cow requires 5 tons of hay, and the estimated cash cost of producing this hay (fuel, upkeep, repairs, supplies, fertilizer, etc.) ) was $55 per ton. In addition to the $35 cost of minerals per cow, other costs (insurance, property taxes, water, etc.) include $25 for veterinary and medical care, $15 for trucking, $15 for machinery cash costs for winter feeding, and $35 for other costs. ) are $40. Breeding expenses should be $40 per cow and should be divided by the number of cows he services to account for bull depreciation and bull maintenance costs. Marketing costs are assumed to be $35 per cow (adjusted for the 85% calf crop) for average-sized farms selling in smaller lots Greater operations would probably sell cattle in greater groups and charge lower commissions.
Depreciation and interest on breeding stock are significant expenses that are frequently disregarded. Unless you have a loan on the cattle, they are typically not cash costs that need to be paid annually, but they are actual costs that must be paid at some point. Consider the scenario where bred heifers have an average annual value of $1600, eight productive years, and an $850 cull cow value. The average yearly depreciation is calculated as follows:
$1600 bred heifer value
–$808 cull-cow value (adjusted for a 5% death loss)
8 productive years x $793 depreciation = $99 a year in cow depreciation. The actual depreciation will vary across farms. The initial heifer value is evident when purchasing bred replacement calves. With farm-raised replacements, this price should include all costs incurred (such as feed, breeding, pasture rent, etc.) in addition to the revenue lost from not selling the heifer with the other calves. to become pregnant at the same time as a bought bred heifer. Over the course of her life on your farm, at an average value of $1225 (midpoint between bred heifer and cull value), and assuming a 3 5% interest rate results in a $43/cow/year interest cost, or a total of $142/cow/year in combined depreciation and interest
Keep in mind that the revenues per cow are $725, and the total specified expenses per cow are $550 based on the assumptions in our example. Thus, the estimated gross return is $175 per cow. This positive return appears impressive at first glance, but it’s also deceptive. Some costs were purposely left out because they varied so much between operations. Notice that no depreciation or interest on equipment/fencing/facilities was included. Also take note that costs for labor and land weren’t included. Therefore, in order to calculate a true return to the farm, the gross return must be modified by these expenses.
Table 1: Estimated Gross Return to Spring Calving Cow-calf Operation 2022
It may be helpful to choose a specific sized farm and provide estimates for these costs since these costs vary so much from one operation to the next: a 40-cow operation that is producing its own hay and has all farming operations on its own land (80 acres of pasture and 30 acres of hay).
Consider that the equipment on this farm costs an average of $50,000 and depreciates by $1,000 annually, or $25 per cow. At 4% interest, an additional cost of $2000 in interest per year, or $50/cow/year, would be realized Assume also this farm has fencing, barns, working facilities, etc. , with a $50K initial value and a 25-year lifespan. Depreciation would be $50 per cow per year, and interest would be $25 per cow per year.
If we have 2. 0 acres of pasture and . If each cow had access to 75 acres of hay and the land rent was $36 per acre, the annual land rent per cow would be $100. Assume that we have calculated that our labor costs are $100 per cow per year, which translates to $4000 for the entire herd annually.
Summary of Additional Non-Cash Costs (40-Cow Example Farm):
Total Additional Non-Cash Costs $350/cow/year
On our example farm, these non-cash expenses total $350 per cow per year: $150 per cow in depreciation and interest on equipment, fencing, and facilities, and $200 per cow in land rent and labor. Although we encourage you to estimate them for your own business, the unfortunate truth is that most farms quickly accumulate them. Compared to cash costs and cow depreciation, the $175 per cow per year gross return does not seem as good today. The net return (all costs included) after accounting for these additional expenses is -$175 per cow per year ($175 – $350), or -$7000 overall for the 40-cow farm.
Another way to look at this is to exclude land and labor ($200/cow/year) and only include the depreciation and interest for the equipment, fencing, and facilities ($150/cow/year). The return in this instance would rise to $25 per cow per year and represent the farms return to land and labor. No, not if they are employing their own labor and have already paid for their land, did this farm actually experience a cash loss. But the farm also did not make a real profit. The farmer and the land worked for free roughly 7/8 of the time, so this farm effectively paid the depreciation and interest on the equipment, fencing, and facilities in full.
Since these figures will differ between operations, determining your own cost structure is crucial. In Kentucky, we estimate that there are significantly more cow-calf operations of comparable size with a higher cost structure than there are operations with a lower cost structure. Simply put, well-managed spring calving herds likely covered all cash costs, breeding stock depreciation and interest, as well as depreciation and interest on equipment, fencing, and facilities this past year, but they did not produce much of a return on their labor or land.
The analysis can be changed by readers using Table 2 based on their cost structure and calf prices for 2022. The table displays a return to land and labor using the cost structure from our example, using all costs aside from land and labor. As an example, we used $1. In our base scenario, the steer/heifer price for 2022 is set at 55/lb. The expected return to land and labor, given the cost structure we used ($0 change on the left hand side of the table), is $25/cow/year, as previously mentioned. If a cattle farmer received an average of $1 for each calf they sold 55/lb, but with a cheaper cost structure of $50 per cow per year (-$50 change on the left side of the table), their anticipated return on land and management would rise to $75 per cow per year. Suppose a different cattle farmer sold his heifers for $1 on average 60/lb calf and a cheaper cost structure of $50 per cow per year (-$50 on the left), their anticipated return on the land and management would rise to $98 per cow per year. In the final example, they paid all land rent, depreciation, and interest on all equipment and facilities in full, but they worked for no pay.
Table 2: Estimated Return to Land and Labor (per cow) to Spring Calving Cow-Calf Operation given Changes in Cost Structure and Calf Prices
Despite the fact that calf prices were higher in 2022 than in 2021 ($ The projected profitability is lower due to higher cash costs ($94/cow in 2022 vs. $1.15/lb). Once more, substantial increases in the price of fertilizer and, to a lesser extent, fuel, were the primary drivers of this. Compared to what we show here, farms using less commercial fertilizer would have been more profitable.
Additionally, we presummated that a medium-sized cattle farm would sell at the higher commission rate and likely obtain a lower calves sales price in comparison to larger operations. The profitability we show here would have been better in larger operations that can sell at the lower commission rate and typically get better calf prices for selling in larger lots.
Last but not least, a crucial supposition we made regarding the culling of open cows on some farms would change. For a typical-sized farm, we assumed they wouldn’t pregnancy-check cows in the fall and wouldn’t eliminate open cows then. The profitability of farms that were able to wean open cows in the fall and avoid the cost of wintering them would have been higher than what is depicted here. Instead of these open cows, bred heifers would be used in their place, incurring wintering costs but being highly likely to have calves the following spring.
There are valid reasons to anticipate higher prices in 2023, and the cost of calf has already increased significantly since last fall. The size of the US cowherd continues to shrink and is 9% smaller than it was in 2019 Additionally, beef exports broke their previous record in 2021 and did so again in 2022. Despite the uncertainty, the calf market in 2023 is probably going to be the best we’ve seen since 2015.
For the same 550-pound steer or heifer, our best estimate for prices in the fall of 2023 is $1. 85-1. 95/lb range, or $1. 90/lb average. Although spring prices are probably much higher than these, we do anticipate calf prices to start declining seasonally by fall. A return to land and labor of $198/cow/year is achieved by slightly lowering fertilizer costs for hay/pasture and fuel while raising marketing costs and the amount of hay fed in 2023 (due to drought conditions during the 2022 growing season). Remember that we estimated the cost of labor and land rent at $200 per cow in our example? In our example farm, we would effectively cover all of our land and labor costs in 2023, which would be a significant improvement over 2022.
Fertilizer prices have come down in 2023 compared to the unprecedented high levels in 2022. However, they are still roughly 50% higher than pre-2022 levels. In this analysis, we assumed a below-average fertilizer dependency to sustain a beef cow unit. Farms that use higher levels of fertilizer will have lower profits than we show here. Thus managing around these high fertilizer prices is still of paramount importance. For practical strategies to reduce or eliminate fertilizer use on cattle farms see the February 2023 video “Strategies to Reduce Fertilizer Use on Cattle Farms.”
It is also possible to read the article “Reducing Your Dependency on Commercial Fertilizers – Strategies for Cattle Farms in 2022 and Beyond.”
According to market fundamentals, calf prices should be very high in 2023 and largely remain the same in 2024. However, calf prices are only one aspect of the story. We hope that this article has made the significance of cost control clear. The ideal cost structure for a given operation would allow for profitable operations even with these high calf prices. Nevertheless, despite the higher calf revenues, some farms will still find it difficult to cover all of their expenses.
In response to these high calf prices, numerous farms will be enticed to expand the size of their cow herds. However, two cautionary red flags need to be raised at this point: 1) During the previous period of extremely high calf prices (2014–2015), bred heifer prices rose to the point where they could only be profitable with continued high calf prices; and 2) bred heifer prices are currently at an all-time high. Those calf prices quickly fell, leaving those who expanded with little money to pay for those expensive breeding animals. 2) The focus is diverted from bringing down costs that are out of control on many farms by focusing on expensive calves and ways to produce more of them. When calf prices return to more normal levels, you are almost certainly going to be in the red if you are not making a true profit (over what would give you and your land a fair return) in the current market. Most farms would do better to focus on cost-cutting in order to better prepare for the tough times that are almost certain to come.
Greg Halich is an Associate Extension Professor of Farm Management Economics who specializes in both the production of cattle and grains. Halich@uky. edu or 859-257-8841. You can contact Kenny Burdine, an Extension Professor of Livestock Marketing and Management, at kburdine@uky. edu or 859-257-7273. You can contact Jonathan Shepherd, an Extension Specialist in Farm Management, at jdshepherd@uky. edu or (859) 218-4395.
Recommended Citation Format:
Halich, G. , K. Burdine, and J. Shepherd. “Cow-Calf Profitability Estimates for 2022 and 2023 (Spring Calving Herd). Economic and Policy Update (23):2, February 28, 2023, Department of Agricultural Economics, University of Kentucky
Author(s) Contact Information:
Greg Halich | Associate Extension Professor | [email protected]
Kenny Burdine | Associate Extension Professor | [email protected]
Savannah Columbia | February 28th, 2023
For the second year running, Valentine’s Day spending is higher than ever before. Candy or chocolate, flowers, greeting cards, jewelry, and/or dinner reservations are common gift items. Local producers are influencing the local food and business scenes by providing consumers with a variety of “experiences.” Many cut flower growers provided the option to purchase a bouquet subscription as a gift for Valentine’s Day.
Kenny Burdine | February 2nd, 2023
On the afternoon of January 31st, USDA-NASS released their estimates for the cattle inventory as of January 1, 2023. There was really no question that the herd of beef cattle had decreased; the only real question was by how much. A combination of dry weather, higher input costs, and strong cull cow prices resulted in an 11% increase in beef cow slaughter during 2022
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Whiteboard Chat: Cow Herd Profitability
FAQ
How much profit do you make from a beef cow?
A bred cow would bring $1,300 to $1,500 per cow. Individual producers’ profitability varies greatly, but according to Olson, the average per-head profit should range from $175 to $200 per cow; the majority of producers aren’t making enough money.
Is raising beef cattle profitable?
The most lucrative and straightforward livestock to raise for profit is typically cattle. Simple requirements for beef cattle include good pasture, extra hay during the winter, fresh water, vaccinations, and lots of space to roam. If you want to start raising beef cattle, you can affordably purchase calves from dairy farms.
How much money can you make with 100 cows?
According to this reasoning, 100 cows would generate a net profit of about $34,000 per year. A net profit of about $68,000 per year would be generated by 200 cows and 200 calves each year.
How much is a 1200 pound steer worth?
According to the 2019 budget, slaughter cows weighing 1,200 pounds are anticipated to cost $50 on average per hundredweight, while steers and heifers weighing 550 pounds and 520 pounds are anticipated to cost $145 and $130, respectively, per hundredweight.