Financial management tips offered to beef producers
STATE COLLEGE, Pa. — As part of its Ag Profitability Series, Penn State Extension educator Cheryl Fairbairn outlined numerous points on the cost of beef production and its impact on profitability.
Fairbairn noted that Pennsylvania’s beef industry is is very diverse — each operation has a different goal. She added that what works for one person may not work for her or someone else. She emphasized that producers must work for their individual goals.
She said that thin margins are normal, but this year they are beyond normal.
When producers question what they should ask for to attain profitability, she stressed, “Always consider your costs.”
Fairbairn gave a brief review of fixed and variable costs. Put simply, fixed costs are constant regardless of production, while variable costs vary with the level of output. She reported that one expert at a recent seminar advised using fixed costs to determine base profitability, and controlling variable costs to determine what profit-eating measures need to be changed.
She continued with tips on cost control for variable costs. Regarding feed and hay expenses, careful shopping should be in order. Also, purchasing feed rather than producing your own must be continually measured to assess the best profit strategy. Fertilizer costs variability fits in with the feed system.
Supplies can represent small costs which potentially can get out of line. Evaluate supplies to determine if truly needed or simply wanted. Keeping good records will help manage supplies.
If medical supplies or services become excessive, managers should find out the root cause.
Fairbairn noted that profit can depend on the maximum number of cows and the pounds of calf weaned while maintaining the land.
She said managers should known the stocking rate for their area, and the inputs that affect the weaning weight.
Cow nutrition affects weight. Weed pressure limits forage capability. Body condition affects score. Fat of course, adds weight for a better price for market calves and culls.
Continual grazing versus rotational grazing obviously must be cost controlled differently. At any rate, drought can cut into profits.
Expenses for repairs can spot equipment problems. Questioning whether you are constantly losing money for repair costs can aid in determining the need for replacement.
“There’s nothing wrong with old equipment,” Fairbairn said. She advises assessing the replacement and repair costs considering factors such as wear and tear, and if equipment is too small. For example, evaluate the cost of crop damage or loss if adverse weather is imminent and one’s equipment is inadequate for the harvest. The cost of lost time must enter into decisions as well.
Management style and preferences influence costs. Fairbairn related the opinion of a beef farmer who dislikes paying the AI breeder costs. She suggested the farmer should gain expertise in this instance.
Managers need to evaluate the costs of an open cow. Fairbairn indicated that technology and genomics should be considered. Also, the somatic tests should be obtained, and the bull studied for growth as well.
A manager’s time is critical for profit potential. Fairbairn noted that many are attached to farming. However, she pointed out that the dollar amounts that another operation may bring must be assessed and that opportunities versus satisfaction should be evaluated.
Poor time management at the farm can rob profits. Fairbairn listed as time wasters, “chasing cows back inside when the fence needs work, continually running around for parts and driving between rented farms which are too far apart.”
But some situations such as freezer beef shoppers demand time. Noting the current prevalence of customers shopping and who desire to buy local, she reported that explaining and showing people the respective cuts is time-consuming. “Weigh the benefits before making a final decision,” she said.
Finally, she pointed out that there is no right or wrong way to manage a beef operation. All factors, including off-farm income, she noted, should be the operator’s decision.
Fairbairn mentioned the “Cornell Meat Price & Yield Calculator,” available at http://calculator.meatsuite.com. This tool helps a manager set prices for the cuts sold for various channels including restaurants, farmers’ markets and grocery stores.
Also, she and extension beef specialist Tara Felix authored an article on costs, available at https://extension.psu.edu/calculating-the-cost-of-beef-production.
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