Cow-calf profitability not as good as it seems

Cow-calf producers have been pleasantly surprised by the upturn in feeder calf prices through the fall run. However, from a profitability perspective the news isn’t that great.

Using 500 to 600 pound steer calves as a benchmark, prices have been trending upward since the end of August, leading many to extol the strength of the market and the profitability of the sector.

In 2016, calf prices were at similar levels in the late summer but trended sharply lower through the fall run before staging a bit of a comeback in the last couple months of the year.

Producers selling calves this fall will have received a much better price than last year, but prices are substantially lower than in the falls of 2014 and 2015.

Will cow-calf producers make money this year? Calculating an accurate cost of production is not a simple exercise, particularly if the cattle operation is intertwined with purebred production or a grain operation.

Most producers grow their own feed, so feed doesn’t become a direct expense. However, to do a true evaluation of profitability, feed and pasture should be factored in at market prices.

The Western Beef Development Centre used to do cost of production studies with cow-calf producers across Saskatchewan. Studies were published for nine of the years between 2000 and 2012. The bottom line margin per cow ranged from a high of $144 to a low of minus $110. The average over the years was just $23 per cow.

The centre is no longer doing cost of production studies, but it has a producer-friendly cost of production tool on its website to help producers run their own numbers.

Alberta Agriculture still does cost of production calculations, and it recently released a multi-year summary for 2012-16. The level of return for 2014 stands out in the report.

That year, despite winter feed and pasture costs that had increased dramatically, the net return per wintered cow was nearly $614. Feeder calf prices were very strong in the fall of 2014 and trended upward for most of the run.

In 2015, feeder calf prices reached the stratosphere through the summer but tapered off sharply through the peak of the fall run. In the cost of production analysis by Alberta Agriculture, the net return per wintered cow dropped to just $114.

Then came 2016 with a much lower price for calves and higher winter feed costs. Based on the analysis, producers lost more than $159 for each overwintered cow.

Of course, the numbers for every producer will be different, and it’s those individual numbers that matter. Still, the analysis provides a broad perspective of overall profitability for the cow-calf sector.

What will profitability look like this year? Calf prices have been higher than 2016 but lower than 2015, and it’s reasonable to expect that winter feed and pasture costs will have continued to increase.

When all the numbers are crunched, including fixed costs, the analysis might show a modest net return per cow or it might show a small loss. In any case, despite the optimistic tone in the market this fall, cow-calf producers are not raking in sizable profits.

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