MARGIN DRIVERS IN THE COW-CALF SECTOR
MARKET UPDATE
By Matthew McQuagge CattleFax Analyst
Long-term success in the cattle business is driven by efficiency , or the ability to produce more product at a lower cost . On cowcalf operations , the most profitable producers are typically able to combine low breakevens with more pounds of weaned calves . Results from the 2023 Cow-Calf Survey provide further insights into industry trends and benchmarks .
In 2023 , cash cow costs increased $ 41 , or 6 %, from the previous year to $ 723 / head . It ’ s important to note these costs do not include noncash expenses such as depreciation expenses or unpaid returns to labor and management . However , higher calf prices helped to offset the elevated costs . The average calf value in 2023 was $ 1,421 / head which was an almost $ 400 , or 39 %, increase from 2022 . Calculating a simple profit margin based on cash cow costs , calf revenue , and weaned calf percentage resulted in a net income of $ 589 / head which is $ 326 above the previous year . This margin improvement is reflective of the shift in leverage towards the cow-calf sector .
Despite this impressive average net return , substantial differences between individual operations resulted in a large variation in operating margin among producers . In order to better quantify the differences that set apart the more profitable herds , operations were sorted into three equal-sized groups based upon their adjusted profit margin . When considering costs , low-return producers stand out by having cow costs that were $ 188 / head above average-return operators and $ 251 / head above high-return producers . On the revenue side , high-return producers were able to distinguish themselves from both a price and production standpoint . Operations within the high-return category found
ways to differentiate their calves in order to receive a $ 24 / cwt higher average price for their calves . This is compared to low- and average-return operations which received an almost identical price for their calves . On top of this , high-return producers had higher weaning weights and better weaning percentages compared to the other groups . This led to an average-pounds-weaned per exposed female that was 8 % and 17 % above the averageand low-return groups , respectively . Consequently , the third of producers within the high-return category maintaining a $ 216 / head premium compared with average-return operations .
This ultimately tells us the primary difference between low- and averagereturn operations lies around cow costs while the differences between average- and high-return operations are found within calf characteristics . Simply put , producers on the lower end of the range can make more rapid improvements by focusing on their cost structure while managers in the middle can see quicker results by focusing more on the production and marketing of their calves . Due to the complexity of ranching operations , producers looking to improve profitability should consider potential changes on a unit-cost-of-production basis .
Bottom Line : With the surge in prices seen in the last two years , cow-calf profit margins are approaching record levels . These higher prices will continue to drive cyclically strong margins for the cowcalf producer , a much-needed improvement to drive expansion in this sector as weather patterns allow . www . NCBA . org NATIONAL CATTLEMEN 17