Economic Considerations for Stocking Rate Decisions

1. Economic Considerations for Stocking Rate Decisions Kenny Burdine Agricultural Economics

2. Goals for Today • Discuss stocking rates basics and way to look at them • Walk through the new beef budgets • Think through how stocking rate effects the overall beef budget • Try to group producers into optimal categories

3. Basic Situation • Nobody’s happy • Costs are up, calf prices are down • Back-to-back drought years • Feed situation isn’t great, but it is better • KY beef cow numbers declining for 2nd straight year

5. Farmer stocking rate comments “If I sell some cows, what do I do with all this grass?” “Add more cows, are you crazy? I barely survive the summers now!” “I’ve got a lot more money running 50 cows, than 30”

6. What is a stocking rate? • Total farm acres / # of beef cows • Probably understates stocking rate • Pasture acres + hay acres / # of beef cows • I can work with this one, but want to talk it through • Pasture acres / # of beef cows • I like this one, and then talk about winter feeding program

7. 2008 Beef Budgets • Updated, improved, and available • Changes made to hay, pasture, and overhead cost areas • Hay charged at production cost • Pasture maintenance vs. stocking rate • Depreciation and operator labor lowered • We re-thought the heifer development • Numbers are different to avoid double-counting

8. Beef Budgets and Stocking Rates • Budgets should be the starting place for most any profitability discussion • Walk through each item in the budget and think about which ones change with stocking rate • Consider the total change per cow, per acre, and for the whole farm

9. If we decrease stocking rate… • Pasture maintenance costs per cow should increase • All our overhead costs will go up • Depreciation on buildings and machinery • Taxes and insurance • Breeding (depends on bull battery) • Land charges

10. If we decrease stocking rate… • Feed costs per cow should go down • Fewer cattle on same acreage should lead to decreasing non-pasture feed needs • Breeding costs will only come down if we reduce bull numbers • Labor costs per cow are questionable *Also is a potential productivity effect

11. A typical producer • Runs 50 cows on 75 acres • Feeds hay 130 days per year • Weans 500 lb calves at an 85% rate • Variable costs per cow are about $475

12. Pasture Maintenance per Cow Let’s say pasture maintenance costs are $75 per acre @ 1.75 acres per cow-calf unit - $131.25 @ 1.5 acres per cow-calf unit - $112.50 By reducing cow numbers, we increase our pasture costs per cow by $18.75

13. A Simple Look at Grazing Days • 4 tons per acre fertilized forage production • 50% forage utilization – 4,000 lbs of available forage per cow • 1.5 acres per cow-calf unit • 6,000 lbs / 25 lbs per day = 240 grazing days • 1.75 acres per cow-calf unit • 7,000 lbs / 25 lbs per day = 280 grazing days • 1,000 lbs of additional forage

14. Decrease in feed costs • 1,000 lbs of forage per cow is about 40 days worth • Due to seasonality, we may only get about 2/3 this directly • @ $85 per ton of hay, we’re saving about $1.25 each day • Decreased feed costs - $33

15. Is this a good move… • On a cash basis, probably so • However, if land is not paid for or if overhead costs are high, this could be trouble • This is where fixed costs become important

16. Overhead Costs • Taxes and insurance, likely small effect • Equipment depreciation – allocate appropriately between hay and cows • Building depreciation - WILL GET YOU!! • Land charges Question becomes, will overhead eat this benefit?

17. How to handle land… • Interest on land’s market value? • Interest on land’s agricultural value? • Appropriate rental rate? • Zero, since they never intend to sell it? Our budgets bottom line is usually a return to land and management – let the farmer make the call

18. Producer A • Runs 50 cows on 75 pasture acres • Feeds hay 140 days per year • Uses very used equipment and is an excellent mechanic • Land is paid for and son and daughter are very active on the farm

19. Producer B • Runs 75 cows on 250 acres • Feeds hay 120 days out of the year • Expanded the cow herd in 2005 by buying 35 more cows and purchasing the adjoining 110 acres • Recently upgraded a lot of his farm equipment • He’s a good farmer, but he’s struggling

20. Thinking it through… • If costs are around $450 per cow and you wean 550# calves for $100 per cwt. • Income per calf is $550 @ 90% calf crop = $495 • How much money is left to pay for those cows and land? This really brings us back to those budgets!!

21. Running cows with overhead • For farmers who want to run cows, they can and will if they cover cash costs • They want to cover a portion of overhead costs • Land appreciation will increase net worth • Taxes can skew the way we look at things versus farmers

22. Trimming Cow Numbers Makes Sense if… • Low overhead costs, land is paid for, but pretty high cash production costs • Forage is comfortable in a good year, but tight in a normal year • They could make some improvements in grazing program

23. Culling Candidates • Open cows should already be gone • Poor producers next • Then, go to production records and work from the bottom up • Work through weaning weights and compare to production costs • Larger cows had better be weaning proportionally larger calves