Diminishing returns in cattle production may have some hobby and small operation farmers rethinking their efforts in 2017. But just as in any business, what may seem like a disaster on one side of the business usually marks an opportunity on another side.
Profarmer.com correspondent Dan Vaught wrote in May 2016 that the USDA is pessimistic about the cattle price outlook for 2017, which is anticipated to come in a range of $118 to $128, down from the 2016 range of $124 to $129. Vaught said that the USDA expects some stabilization during 2017 despite active herd and production increases.
Greg Henderson, writing for Agweb.com at the end of November 2016, reported that the outlook for cattle market is grim, but there are opportunities for better profits.
Expansion of cattle herds in 2015 and 2016, spurred by average profits of about $518 per cow in 2014, is pushing down prices. November prices showed losses of $116 per head of cattle, Henderson wrote.
He also cited the president of Sterling Marketing Inc. in Vale, Ore., who predicted that average cow profits of $433 in 2015 will decline by 65 percent to $154. He also predicted that Oklahoma City yearling feeder profits will reach $118 per hundredweight (cwt) and calves $136 cwt in the third quarter of 2017.
So, where are the opportunities? Oklahoma State University Extension Economist Darrell Peel told Henderson that backgrounding, or holding back, calves to heavier weights than they are typically purchased for winter grazing may have some benefit for stocker operations. Retaining ownership within the feeder cattle market, along with lower cattle costs and lower feed costs, could bring some profits in finishing programs, as well.
Key to knowing if you can hold on to those calves is knowing the costs of forage, if produced, and costs of gain on dry lot or grass. That means knowing if the marginal cost of an added pound does not exceed the marginal revenue from that additional pound.
It comes down to knowing your unit cost of production, according to Aaron Berger of the University of Nebraska Extension office. Berger has said that unit cost of production is a value based on a relationship in production between costs and units of product made or produced.
The first step in knowing what it costs to produce a calf is to keep accurate and thorough production and financial records. By taking into account the product produced and the input costs, a manager can calculate the unit cost of production by dividing costs by units produced.
Knowing the unit cost of production will help producers understand how the purchase of a piece of equipment or expansion of a field will influence the overall profit from each calf. Knowing how to project unit cost of production can help them confidently make decisions that improve profitability and meet their financial goals.
Another key piece of information is working with your financial advisor to make sure you are effectively managing those costs you can control. Your advisor can help you map out where you are and where you want to go with your hobby or small farming operation. You don’t have to make all the decisions alone; your advisor is available to help provide information, create tax strategies or find the best way to pay for what you need to keep everything operating.
Riding the hills and valleys of agriculture markets can sometimes be a stressful life. Talk to your advisor to find out if they can help lessen those extremes and your stress.