Weigh the alternatives using ROI
I do not necessarily endorse any of these suggestions. But some of them just might work for you depending on your situation.
Now to the criticisms.
Using the Return on Investment (ROI) technique is fine for short-term (one shot-one year) projects that do not require a large capital outlay.
However, the “time value of money” must be considered for longer term projects that anticipate a flow of returns over a period of time. These include the Present Net Worth, Benefit:Cost Ratio and Internal Rate of Return methods (see Chapter 17 RANCH INVESTMENT ANALYSIS AND CAPITAL BUDGETING in A Handbook for Ranch Managers).
Your very first priority should be: GET DEBT FREE!
Also, until you have your ranch split into 100 or more paddocks, your highest rate of return (considering the time value of money) will almost always be on fencing. That is because, each fence you build helps the WHOLE ranch and not just one group of cattle or one pasture of land. — jtl
By Canadian Cattlemen
Twelve years without a raise in pay from the marketplace spawned a lot of cost-cutting measures on cow-calf operations.
Now, it’s time to put those ideas to use to catch up, and maybe even get ahead.
“We are in a new era,” notes Ray Bittner, a livestock specialist with Manitoba Agriculture in Ashern. “Today’s calf prices mean you can, and should, be doing things to enhance productivity. We should push to get more. After all, farms survive hard times by equity buildup in good times.”
Bittner has some tips on ways to improve productivity that may not be obvious until you look at their potential return on investment (ROI).
ROI is calculated by dividing the additional value an improvement is expected to bring by how much extra you’d have to spend to get it. The higher the ratio the better.
Naturally ROI fluctuates with market prices and input costs. The following examples are based on a 500-pound (lb.) calf sold for $2.70/lb. or a gross revenue of $1,350 per cow.
Bittner’s calculations show that the biggest bang for your buck in today’s market will come from investing in nutrition, specifically in three areas: ensuring a cow body condition score (BCS) of 2.5 to 3.0 at calving, renting pasture, and creep feeding calves.
If you implement all three, the additional expense as Bittner recently calculated it, amounted to $67 per pair. The benefit was about 90 extra pounds on each calf by weaning, bringing an additional $243 per calf. The overall ROI is 3.63:1 ($243/$67).
Bittner walks us through the math.
For BCS, he refers to the Beef Cattle Research Council’s new interactive productivity and profitability calculator that quantifies income losses as BCS slides outside the optimum 2.5 to 3.0 (http://www.beefresearch.ca/research/body-condition-scoring.cfm).
When cows aren’t carrying adequate body condition it paid to provide extra energy. The cost for 5.0 lbs. of barley and two ounces of a premium mineral mix per head per day for 60 days was $27.90 per cow with barley is 7.5 cents/pound and mineral 4.5 cents/ounce.
In return you could expect calf and cow survival rates to improve by 3.0 per cent and 0.25 per cent respectively. The total 3.25 per cent boost in productivity spread across the herd represents an additional 16.25 lbs. (3.25×500) of weaning weight per cow. Add to that 3.0 per cent more income from improved milk production and another 15 lbs. per calf. The totals are 31.25 lbs. of additional weaning weight per calf, and a 6.25 per cent increase in gross revenue or $84 per cow ($1,350×6.25=84.37 or 31×2.70=83.70).
The ROI is 3:1 ($84/$27.90). On top of that, a 3.0 per cent improvement in pregnancy rates will increase productivity next year.
Bittner suggests renting pasture instead of pushing the limit on your own pastures if you are expanding, or had to push them hard in the past to stretch your budget.
If it costs $85 per cow (forage cost only) to pasture a cow and you rent 15 per cent more pasture, the added expense is $12.75 per cow.
Given a modest increase in the rate of gain on the calves of two ounces a day, it’s not unlikely they will be at least 20 pounds heavier at weaning. That’s a benefit of $54 per calf.
The ROI on renting 15 per cent more pasture is 4.24:1 ($54/$12.75) and you may be able to keep the cattle on pasture a little longer.
When feed grain prices are low and calf prices are high Bittner says creep feeding can pay.
If calves consume 4.0 pounds of supplement per day for 60 days toward the end of the grazing season and the supplement costs $250 per tonne, the cost would be $26.40 per calf.
Using a typical 6:1 feed-to-gain ratio, the additional gain would be 0.66 pounds per day or around 40 pounds, for a benefit of $108 per calf.
The ROI on creep feeding was 4.1:1 ($108/26.40).
“Don’t miss out on a good vaccination program. There’s always a strong ROI and the return is two weeks to two years,” he adds.
Putting a blackleg vaccine in calves is the most basic and inexpensive program.
Vaccinating cows for IBR/BVD reduces the chance of abortions, stillbirths, weak calves, late calves and persistently infected calves.
Adding an IBR/BVD vaccine for calves will prime their immune systems to better withstand stresses.
Fertilizing forages and spreading manure properly also offer positive ROIs as shown in a phosphorus ramp trial at five sites across Manitoba’s Interlake region. Soil tests were taken after the sites were selected so as not to bias the results by selecting only low-phosphorus fields.
Bittner headed up the study that started in fall 2008 with application of commercial phosphorus at zero, 20, 40, 60, 80 and 100 pounds per acre or cattle manure at 15 and 30 tonnes per acre. Forage yields and phosphorus content in the plants were recorded for the next three years.
With forage valued at two cents per pound and commercial fertilizer at $800 per tonne, the 40-pound rate provided the best ROI at 1.8:1. He suggests that in the long run 60, 80 or 100 pounds (ROI of 1.4:1, 1.5:1, 1.2:1 respectively) could potentially be the best investment in terms of healthier pastures better able to withstand winterkill.
At the three highest rates the phosphorus content in the plants was 0.17 per cent. This meets the daily dietary requirement for lactating cows and growing calves, though dry cows require 0.19 per cent. Phosphorus content averaged 0.16 per cent for the 40-pound sites and 0.14 per cent for the 20-pound and unfertilized sites.
Applying manure evenly and thinly returned more value for the dollars spent hauling and spreading than heavy applications or dumping it and then pushing it around. Spreading 15 tonnes per acre across strips 16.5 feet wide by a half-mile long, cost of $30 per acre, and gave an ROI of 2.4:1. Doubling the rate to 30 tonnes per acre doubled the cost, but didn’t do much for yield resulting in an ROI of 1.4:1. When they applied more the ROI dipped into the negative range because of lodging, disease and hard-to-cure hay.
Extended grazing is definitely a cost saver, but it’s not a production maximizer, Bittner says. Two questions to ask yourself are whether the savings amount to more than the value of production lost and what your time is worth in winter.
The advantages are that it’s the most efficient way to retain nitrogen and provides better nutrient distribution compared to spreading manure hauled from pens.
Some industry-average values for savings per cow with extended grazing are that it reduces fuel costs ($15), eliminates manure removal cost ($6.77, hauling only), reduces machinery cost ($20) and lowers investment cost in machinery ($3), rounding up to $45 per cow over the winter. Lower labour costs bump it to $85 per cow.
The big drawbacks are the risk of nutrient loss and reduced palatability due to weather damage, mould, wildlife and heavy snowfall that makes access difficult. A loss of 150 pounds of feed per bale at 4.5 cents per pound totals $6.75 per bale.
The bottom line is that productivity losses near or greater than 6.2 per cent of gross cow revenue (6.2x$1,350) in an extended grazing program pretty much cancels out the $85-per-cow savings. A 3.2 per cent loss of productivity nears the $44-per-cow saving.
Buying feed versus land
Buying feed is a quick way to increase feedstocks without committing to a long-term investment and it offers flexibility to choose the type and quality of feed you need. Some years, as was the case in 2014, grain was cheaper than hay and a lot more nutrients can be packed onto a truckload of grain than a truckload of hay.
The cost of transporting hay is the main drawback so plan ahead and be on the lookout for local suppliers, Bittner advises. Even if they want a premium, the total cost may be less than importing cheaper hay from farther away.
Sticker shock can be an issue in high-price feed years when hay prices climb to five, six and seven cents a pound, but high calf prices trump high feed costs, he says. Remember, too, that some of the nutrients will accrue to the soil, especially with in-field feeding systems.
Some years it may be cheaper to buy extra hay than tying up your land, time and equipment to grow and harvest it. Couple that with the expense deduction for tax purposes and you may be that much farther ahead by buying feed.