Grass Fed Beef Production: Counting the Costs
By: Allen Williams, featured in GRAZE Magazine
Cattle prices have risen for more than three years in a row, and we continue to set new record highs for all classes of live cattle along with wholesale and retail beef. And with a record-low national cowherd inventory and severe to exceptional drought still occurring throughout the Southwest and California, we are quite a ways off from any significant national herd rebuilding. With those facts in mind, and barring a significant reduction in consumer demand for beef, we can anticipate higher cattle prices for the foreseeable future.
The higher prices have been a boon for cow/calf producers. However, they have not come without a rise in input costs. For those buying cattle down the line — stocker operators, feeders, grass finishers and processors — a sharp pencil is required to make sure the purchase costs, along with input costs, still provide a decent net margin.
With that in mind, my colleagues and I at the Pasture Project have developed a resource tool named the Grass Fed Beef Decision Calculator. This tool is comprised of a comprehensive, interactive Excel spreadsheet that allows you to examine the costs of various beef cattle enterprises and make informed financial decisions.
The spreadsheet is broken down into multiple worksheets modeling various cattle enterprises such as Cow/Calf, Stocker, Finishing, and Direct Market. In addition, the decision calculator also provides a five-year cash flow projection tool that allows you to change various inputs and model cash flow for a multi-year period based on anticipated input costs. Finally, there is a Overvalue/Undervalue decision calculator that helps in making informed sell-buy decisions.
The current model posted on the Pasture Project website includes actual input costs and performance data from grass-finishing operations in the Upper Midwest. It allows you to view real-life scenarios and compare your input costs and cattle/forage performance to the farms we used to construct the model.
Since it is an interactive spreadsheet, you can enter your own production costs and performance data and run your own scenarios. In each worksheet you will find shaded and unshaded cells. The BLUE cells are input cells where you can change the entered data to reflect your actual costs or data. If in doubt about any cell being an input, simply click on the cell. If there is a built-in equation or formula, it is not an input cell. Only enter data in cells that do not contain a formula. When you enter new variables or data, the built-in formula cells automatically recalculate outputs, such as total costs, total revenue, net margin, return per head and return per acre.
Let’s run a few scenarios to examine how the decision calculator works. Open the master spreadsheet and click on the Cow-Calf tab at the bottom left-hand corner of the spreadsheet. As I mentioned earlier, the numbers populating the blue-shaded input cells reflect current, real-life numbers from grass-finishing operations in the Upper Midwest.
The current performance and cost numbers show the model cow/calf operation generating a total gross revenue of $1,447 for a 550-pound weaned calf, with a gross margin of $944 per calf and a return per acre of $470.
Let’s change a few input variables and see how that affects overall projected profitability. If calf prices were $25/cwt. lower, falling from $2.63/lb. to $2.38/lb., and all other costs stayed the same, the gross margin per calf would dip to $1,309, with a gross margin of $807 per calf and a net return per acre of $402.
If we kept the calf price at $2.38/lb. for a 550-pound weaned calf, and our cost of purchased feed per cow rose from $120 to $200 per head, our total gross revenue per calf would still be $1,309, but the gross margin per calf would fall to $643 and the net return per acre would fall to $320.
In the Stocker scenario, using current prices for 400-pound calves ($3.16/lb.) with the projected calf performance and input costs, you would stand to LOSE $116.96 per head, with a NEGATIVE return per acre of $213.58. This scenario assumes you will carry the 400-pound calf to a sell weight of 750 lbs. and sell at $2.05/lb. However, if the sell price for 750-pound calves was $2.43/lb., then the net margin per calf increases to a net gain of $168.04 per head, and the net return per acre increases to $306.85 per head.
The Finishing worksheet models the purchase of feeder calves and finishing on grass before marketing on a dressed weight basis to a grassfed beef branded program. Using the current scenario of purchasing a 700-pound feeder calf at $2.33/lb., carrying to a finished weight of 1,200 lbs. and marketing to a branded program for $3.15/lb. on a dressed weight basis, the net margin per finished steer/heifer would be $204.04 per head, with a net return per acre of $192.50.
However, if that same 700-pound feeder calf cost $2.50/lb. and all other costs stayed the same, the net margin per calf would drop to $85.04 and the net return per acre would decrease to $80.23. If we take the scenario further and the average daily gain (ADG) for each calf dropped from 2.4 lbs./day to 1.8 lbs., the net margin per steer/heifer sold would fall to $39.92/head and the net return per acre would drop to $28.25. The worksheet allows you to determine what you would have to receive for the finished steer/heifer at marketing in order to break even or make a net profit based on your input costs and performance parameters.
The Direct Market worksheet accounts for either transferring weaned calves from your cow/calf operation to a grass-finishing operation, or purchasing feeder calves for finishing, and direct marketing. This worksheet not only accounts for live calf and forage performance, but also post-harvest costs such as processing plant per-head kill fees, per-pound processing costs, cattle and beef transport costs and marketing and sales costs. It allows you to effectively determine where you need to price your end product (retail cuts of beef) on a per-pound basis in order to make the margin you require for desired profitability.
The Pre-Harvest Costs portion of the worksheet functions the same as the Finishing worksheet. However, there is an added Post-Harvest Costs section that accounts for all processing and marketing/sales costs.
If we run a quick scenario for the Direct Market worksheet based on current numbers, you would need to charge an average of $6.00/lb. on a retail yield basis (actual pounds of sellable beef derived from the fabricated carcass) to make a net return of $483.95/head. If you sold the beef to your customer on a hot carcass weight (HCWT), or hanging weight basis, at an average of $4.00/lb., the net margin per head would drop to $344.75.
If individual animal’s dressing percentage (HCWT divided by the actual pre-slaughter live weight times 100) were to drop from 58% to 54%, then the net margin per head at the same $6.00/lb. on a retail yield basis would drop to $312.66/head. To carry the scenario a little further, if we kept the dressing percentage at 54% and dropped the finished live weight at harvest from 1,200 lbs. to 1,100 lbs. per head, then the net margin on a retail yield basis drops to $157.41/head.
The Cash Flow worksheets automatically incorporate input data from the previous individual enterprise worksheets. They allow you to understand how changes in inputs and cattle/forage performance alter potential for short- and longer-term profitability. These worksheets allow you to alter animal numbers within each enterprise on a year-to-year basis.
In summary, the Grass Fed Beef Decision Calculator allows you to have fun running many different scenarios while using the models presented to make serious decisions about your operation.
I understand that everyone has different costs, animal and forage performance, and goals and objectives. The decision calculator lets us account for those differences and make sound, fact-based decisions about our operations.
So dive in and have fun running any possible scenario you can imagine. If you have questions about the Grass Fed Beef Decision Calculator, please feel free to contact me at firstname.lastname@example.org, or at 662-312-6826.