One Size Doesn't Fit All
We get a cross-section of livestock producers at the Ranching For Profit School. In 2011 we had outfits with more than 10,000 cows and others with less than 100 attend the course. When it comes to enterprise selection and structure, most of the small places look like miniature versions of the large ones. That’s a problem because size matters and what works for the large scale producers isn’t always a good idea for folks working at a smaller scale. One size doesn’t fit all.
One of the things limited-scale producers should challenge is their replacement strategy. Like most of their bigger neighbors, most small scale producers assume they should raise their own replacements. Assuming that a cow/calf enterprise is best suited to their situation (a dangerous assumption), most small scale producers are well advised not to raise their own replacements. The gross margin per unit of heifer enterprises is usually significantly lower than the margin per unit in the cow herd they support. When capacity is limiting, it is hard to economically justify having an enterprise with a relatively low gross margin. Of course, if you don’t know your enterprise gross margins, decisions regarding enterprise mix and structure can only be based on guesswork and emotion.
Some argue that they have special genetics. This claim is similar to the results of a recent survey in which 90% of American drivers felt they had above average driving skills. By definition at least 40% of them are wrong. I’ve been told by geneticists that producers with fewer than 400 cows simply don’t have a large enough of a genetic pool to select from to claim an outstanding breeding program. This doesn’t mean that it isn’t possible to raise quality cattle on a limited scale, but the deck is stacked against it.
There are economic realities every business must face. We must keep overheads low, the margin per unit high and recognize that size matters. If we are limited by scale, a limitation that is usually self-imposed, trying to produce profit by copying the business model of larger scale neighbors rarely works. One size does not fit all.
Really appreciate the insight
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I think most of the replacement economics articles are off base because they assume some high cost supplemented lifestyle. We can run 2 replacement heifers on the same amount of forage that a pair eats, they do not get any supplement nor a dry lot, and they will return a much higher gross margin than cow/calf in a flat or AN UPWARD MARKET. Timing...
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Let me know if you'd like to have one of our replacement heifer cost worksheets. We don't base on our conclusions on anything but the actual costs entered by commercial producers...this isn't a matter of University costs studies. It is from people who are willing to look at the true costs of doing business and open to finding a more profitable way. E-mail me privately at rmc@ranchmanagement.com if you want me to send you one of the worksheets. Thanks for the comment.
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Please forward the heifer cost worksheet offered. Thanks, Steve
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Hi Dave enjoy your blog and had to comment. We have raised our own heifers and purchased heifers,but have found our purchased heifers don't rebreed in our native range. We have had better luck buying 3 and 4 year old cows. Hope all is going well with you folks at RFP,we appreciate all you did for us in the EL . Say hello to Sally and Allan,I really enjoyed the school with Allan in Regina last year. ps We are getting out of the haying business and will be purchasing our hay. We have had a very mild winter like the year we took the school in Edmonton,when we had to leave the hotel because it was to hot in Feb. Thanks again Lyle & Sandra
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Thank you for the comment. You make an excellent point, no one ever said replacements had to be "replacement heifers."
I will say hey, not "hay," to Allan and Sally, but they'd rather hear it from you.
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Hello Dave and Sally, I am going to have to agree on one point and disagree on another.We always have to keep in mind the point you have made about whether cow/calf is profitable in the first place if you are just in the wrong geographic location to start with.We have certainly struggled with this and feel that the low input style is the one thing that makes it even possible here. Debt and land values are also taken into consideration. So I think that if the debt is not too high and lower inputs or overhead is the key to profitability we have succeeded but the constraints in buying replacement cattle is finding the right ones. I don't think there are very many replacement cattle out there that will make it on the low input program.Therefore raising your own replacements might be the only answer and likely only makes the enterprise profitable enough to support itself let alone pay for extra debt or other inputs.We are constantly searching for answers to increase profitability without loosing sight of sustainability and strongly feel they can't yet be found in traditional,high input, production driven Agriculture.Thanks for all you do.Clint and Karen Thompson
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Clint, I don't dispute your point. There is value to controlling your genetics, and you may be one of the few producers who is well advised to raise your own replacements. I did write: "MOST small scale producers are well advised not to raise their own replacements." I didn't say all of them shouldn't do it.
That said, unless the heifer enterprise has a gross margin/unit as good as the cows, which is possible, but rare, it makes sense to continue to look for options. I wonder how big a reduction in conception rate a person could take before it equaled the reduction in gross margin by using limited resources with animals that have a much lower gross margin. Of course we can't know the answer about that without crunching some numbers. If you haven't already done it, you might want to complete our Replacement Heifer Cost Worksheet. That should be in your RFP reference manual. If you need copy shoot me an e-mail and I'll send you one. Whether you raise them or not, it would be good to know what they cost.
The bottom line is that to increase the bottom line limited scale operators face challenges that larger scale operators don't face and one of those is the need to maximize margin per unit. It may be that your replacements do this.
If you can produce replacements with a gross margin equal to or better than the GM for cows, you may have some unique and profitable options. Contracting with others to raise their heifers for them, or selling your genetics to other local limited scale operators could be worthwhile enterprises. It might be worthwhile to consider leasing cows to others for a share of the heifer calves, to bring an enterprise like this up to scale.
If the margin turns out to be a lot lower than the GM for cows, Mark's suggestion of getting replacements from the neighbor would be one option to get animals raised in a similar environment. I'm sure if we put our heads together, or threw the question out to an EL board, we'd come up with several other options (e.g. contract with someone in a similar environment to raise them for you).
Mark's second point really gets to the issue I was trying to address in the article. That is, when scale is limited, it especially important to find ways to maximize the gross margin per unit. Replacement heifers are just one of the areas to challenge. Producing hay would be another.
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I have made the argument against keeping your heifers for several years. When you hold back heifers, you give up calves that would go to market. If you replace 1/6th of your herd every year, you give up 1/3 of your calf crop to do so. Buying bred 3 year olds gets you 100% of your calf crop to the market. It is hard to believe anybody's genetics are good enough to make up for 1/3 of the calf crop. Besides, you can buy bred cows from a neighbor with good genetics and not pay for them.
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What about selling your biggest heifers, that probably would make the poorest low input cows and would be worth the most money at the sale barn, then keep your smaller heifers back for replacements. The smaller ones might make better cows and if they came in open you hopefully have added value to her. We have found some value in keeping an animal that was raised on our place and knows the ranch.
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You have to figure out what works best for you, both economically and for herd development. Unfortunately, many people put profit behind the perception of good genetics.
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Someone has to raise heifers if we are going to have cows and while I do not claim to be a master cattle breeder, I had rather risk my judgment on my cattle than 99% of people I know. As far as the Ivory Tower geneticist, most of who probably do not own cows of there own, they may be the primary reason that many producers are looking to consultants like yourself to try to be sustainable with record cattle prices currently. You can buy bred heifers/cows if you have the money, but they're like a box of Cracker Jacks- you don't know what you're gonna get. If you keep your own heifers and sell cull cows, you should be ahead money and genetics-wise (if your using a decent bull)as well as having a younger cow herd regardless of the size of your operation.
I appreciate this forum as I look for better ideas, different lines of thought- where ever they are, but I do not accept all the premises of your argument nor your opinion/conclusion concerning replacements for my farm.
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My point is not that you shouldn't raise replacements, although many small scale producers would be more profitable if they didn't. The point was that it would severe everyone to challenge the practice, to see what it really costs and evaluate alternatives. Are you telling me that you don't agree with that?
As far as the ivory towers, I don't know if the geneticists are right, I base the my case on the experience of hundreds of Ranching For Profit alumni on 4 contents. I don't intend to cram anything down your throat. You may have a different experience, but I've always learned more from people that disagree with me than those who agree.
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We can't all have superior genetics, can we? Isn't is sort of like 90% of us thinking we are above average drivers? I guess I'm th odd duck, because I assume I'm below average. That means I have to pay closer attention, which, ironically, may make me better than the average driver...weird how that works.
So what is an above average cow Is it one that is extremely productive or one that is profitable. Because they aren't necessarily the same thing. Someone's open H2 that I can use as a replacement for my later calving season, or an older cull cow that I can put weight on and add value to, may be way more profitable than what we normally think of as a good cow. It doesn't matter if you shoot bull's eyes if you are aiming at the wrong target. Are we aiming at a productivity target or a profitability target, because they aren't necessarily the same target. The most productive business is never the most profitable. When people are concerned about profit and understand that cow depreciation is the biggest cost of keeping a cow, they tend to welcome exploring alternatives at every decision point...and one of those points is the decision on our replacement strategy.
There is a cost to NOT raising your heifers. I would never dispute that. If we raise them ourselves they are likely to be more adapted to our conditions. Fred Provenza, among others, have convincingly demonstrated that. But there is also a cost to raising our own replacements. Until a person actually puts pencil to paper and calculates the cost and the value, this is a silly argument. It is interesting to see how many people get their nickers in a twist when someone challenges the status quo and suggests that they calculate the true cost of doing business and explore alternatives. Ironically, I've found that producers working at scale tend to be much more open to exploring alternatives than their smaller scale neighbors.
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In response to my blog posting a couple of weeks ago called "Can Cows Pay For The Ranch, a reader named Steve wrote, "We like cows and our cows like us, but... we have a much higher gross margin with stockers. The only way we can cash flow DEEDED land is by running stockers." I wish I'd brought that up in the first place. The debate about, to quote Shakespeare, to raise, or not to raise replacement heifers isn't the primary issue. A prerequisite question is, "Should I have cows?" There are people at workshops and even at the Ranching For Profit School who want to know, or at least say that they want to know, how to make their cows more efficient, when some of them would be better served not to have cows at all...and if they should have cows, sometimes they should be someone else's cows. The replacement strategy really doesn't matter if cows are the wrong enterprise in the first place.
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We historically looked at replacement heifer gross margin per acre - - which currently is higher than cow/calf and lower than stocker. Per head is different, and after tax is way different.
We have cows to utilize crop residue, and we like it complicated - - so our question is the mix between cows, replacements, and stockers. We sold 1/3 of our cows recently and took the capital gain.
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Be cautious when comparing enterprises using gross margin per acre. Not all acres are created equal. Cows often run on harsher ground with lower carrying capacity than the stockers. Were cows run on the same area as the stockers, their gross margin per acre will probably be higher than when they are run on range. Likewise, if stockers were run on the same ground as the cows, you'd see their gross margin per acre drop. That's why gross margin per animal unit is usually a better measure of producion efficiency for comparing grazing enterprises.
The question as to the best enterprise mix depends on many things including your mix of resources. I break pasture and range into 3 classes: breeding, growing and finishing forage. The finishing forage would be equivalent to dairy quality pasture. The enterprise mix depends in large part on the proportions of these feed types you have. Putting cows on growing feed is generally a waste of quality feed and results in missed opportunities. Putting growing animals on breeding feed generally results in pretty poor performance.
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One thing to point out is that a more specific part of adaptation to the place is grazing. Since grazing is a learned behavior you have to find someone that follows the program. Which in turn also brings up calving date discrepancies as most cattle in the local sale barn usually do not calve in may or June on purpose. Is there somewhere to post females or bulls from people who follow RFP?
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I don't agree that "you have to find someone that follows the program." It will probably increase production efficiency if you can, but it depends on the cost of those animals v. the cost from other sources. If I can buy a replacement cow from a different production system for $400 or $500 less than one that comes from one like mine, I might be better off with the cheaper replacement. That doesn't mean they have to come from the sale barn. A lot of people worry about importing all kinds of problems with these alternative replacement strategies. But there are all sorts of ways to avoid them. One simple way would be to take on the late calvers of a reputable producer who happens to have a different production system.
...by the way, isn't it funny how we talk about replacement heifers. We don't need to replace the heifers. We need to replace the cows. We ought to be talking about replacement cows.
As far as the network to post animals, no, we don't provide that. Executive Link provides some good networking opportunities, but there is no formal vehicle for RFP alumni to market to one another.
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