Risk Management and the Cost of Production University of Florida Beef Cattle Short Course May 2-4,...
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Transcript of Risk Management and the Cost of Production University of Florida Beef Cattle Short Course May 2-4,...
Risk Management Risk Management and the Cost of and the Cost of
ProductionProduction
University of Florida Beef Cattle University of Florida Beef Cattle Short CourseShort CourseMay 2-4, 2007May 2-4, 2007
Dr. Curt LacyDr. Curt LacyExtension Economist-LivestockExtension Economist-Livestock
University of GeorgiaUniversity of [email protected]@uga.edu
University of Florida Beef Cattle Short Course
May 2-4, 2007
OverviewOverview
Recent trends and projected profits Recent trends and projected profits for 2007for 2007
Ways to manage risk in 2007Ways to manage risk in 2007
University of Florida Beef Cattle Short Course
May 2-4, 2007
Fertilizer Prices Fertilizer Prices 1997-20061997-2006
$100
$150
$200
$250
$300
$350
$400
$450
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
$/
ton
Nitrogen (AN) Phosphorous (DAP) Potash (Muriate)
Nitrogen prices have increased 76% since 2002
University of Florida Beef Cattle Short Course
May 2-4, 2007
Fuel Prices Fuel Prices 1997-20061997-2006
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$/
Gallo
n
Diesel (bulk)
Diesel prices are up 145% since 2002
University of Florida Beef Cattle Short Course
May 2-4, 2007
Impact of Fuel & Fertilizer Impact of Fuel & Fertilizer Prices on Cost of Prices on Cost of
ProductionProduction
$20$30$40$50$60$70$80$90
$100$110
2002 2007
500# Calf ($/ Cwt.) Hay ($/ ton)
Projected Profits for Projected Profits for 20072007ItemItem Returns Returns
Over Over Variable Variable
Costs Costs (ROVC)(ROVC)
Returns Returns Over Total Over Total
CostsCosts
(ROVC)(ROVC)
Expected Net Returns ($/cow) Expected Net Returns ($/cow) ($0.63)($0.63) ($90.94)($90.94)
Chance for Positive ReturnsChance for Positive Returns 49%49% 6%6%
Returns to Land, Labor, Returns to Land, Labor, Capital and Management Capital and Management ($/cow)($/cow)
$59.50$59.50 $59.50$59.50
Cost/cow ($/Cow)Cost/cow ($/Cow) $390.65$390.65 $481.09$481.09
Breakeven Price ($/cwt.)Breakeven Price ($/cwt.) $97.61$97.61 $120.57$120.57
Assumes 500 cows, 85% calf crop, 523# calf marketed in Aug-Sep
University of Florida Beef Cattle Short Course
May 2-4, 2007
High Return Producers High Return Producers Don’t Cheat On:Don’t Cheat On:
1.1. Animal healthAnimal health
2.2. NutritionNutrition
3.3. GeneticsGenetics
Source: Cattle-Fax
University of Florida Beef Cattle Short Course
May 2-4, 2007
Managing Risk in 2007 Managing Risk in 2007 and the Futureand the Future
1.1. Determine your costDetermine your cost2.2. Increase Calf Value (Revenue)Increase Calf Value (Revenue)
1.1. Higher priceHigher price2.2. More productionMore production
3.3. Reduce Cow CostReduce Cow Cost1.1. Cull open cowsCull open cows2.2. Cull unproductive cowsCull unproductive cows3.3. Examine replacement heifer alternativesExamine replacement heifer alternatives
4.4. Reduce the Cost of ProductionReduce the Cost of Production1.1. Evaluate economics of hay productionEvaluate economics of hay production2.2. Evaluate economics of annual foragesEvaluate economics of annual forages3.3. Consider alternative feedsConsider alternative feeds
University of Florida Beef Cattle Short Course
May 2-4, 2007
Know Your CostKnow Your Cost
1.1. $/Cwt. $/Cwt. ProducedProduced
2.2. $/Calf $/Calf MarketedMarketed
3.3. $/Cow$/Cow
Production Total
Costs Total Costs Variable $/Cwt.
WeanedCalves Total
Costs Total Costs Variable $/Calf
Exposed Females
Costs Total Costs Variable $/Cow
University of Florida Beef Cattle Short Course
May 2-4, 2007
Increase RevenueIncrease RevenueCalf ValueCalf Value
Forward price part of your Forward price part of your productionproduction
Short-term backgrounding/creep Short-term backgrounding/creep feedingfeeding
Retained ownershipRetained ownership StockeringStockering Custom-finishingCustom-finishing
What You Can Sell for Today-What You Can Sell for Today-Futures Based Price Futures Based Price
ProjectionsProjections
$80.00
$90.00
$100.00
$110.00
$120.00
May J ul J ul Aug Sep Oct Nov Dec
Basis Ocala, FL
$/c
wt.
500# steer 750# Steer
Source: CME & www.beefbasis.com
University of Florida Beef Cattle Short Course
May 2-4, 2007
What You Can Sell for Today-What You Can Sell for Today-Futures Based Price Futures Based Price
ProjectionsProjections
$400.00
$500.00
$600.00
$700.00
$800.00
$900.00
May J un J ul Aug Sep Oct Nov Dec
$/H
ea
d
500# steer 750# Steer
Creep-feeding or Short-term Creep-feeding or Short-term BackgroundingBackgrounding
Sell 500# Calf in July vs. 650 or 750 AugustSell 500# Calf in July vs. 650 or 750 August
WeightWeight Value Value ($/Head($/Head
))
AdditioAdditional nal
WeightWeight
AdditioAdditional nal
ValueValue
BreakevBreakeven COGen COG
500500 $541.0$541.088
650650 $661.0$661.022
150150 $119.8$119.844
$79.95$79.95
750750 $746.6$746.633
250250 $205.5$205.555
$82.22$82.22
University of Florida Beef Cattle Short Course
May 2-4, 2007
Reducing Cow Cost
1.1. Cull open cowsCull open cows
2.2. Cull unproductive cowsCull unproductive cows
3.3. Evaluate replacement female Evaluate replacement female economicseconomics
University of Florida Beef Cattle Short Course
May 2-4, 2007
Cull Unproductive CowsCull Unproductive Cows
Yeah Buts:Yeah Buts: Must be able to match cows and calvesMust be able to match cows and calves Based on average cow costBased on average cow cost Borderline young cows may get a passBorderline young cows may get a pass
Cost Cow Total - Price) Calf Weight x (Calf Profit Cow Annual
Cost Cow Total - Value Calf Profit Cow Annual
University of Florida Beef Cattle Short Course
May 2-4, 2007
Replacement Female Replacement Female EconomicsEconomics
Compare alternativesCompare alternatives Include the opportunity cost of Include the opportunity cost of
heifersheifers Do whatever it takes to get second Do whatever it takes to get second
calf heifers bredcalf heifers bred
Replacement Female Replacement Female Economics – Value of Economics – Value of
Getting 2Getting 2ndnd Calf Heifers Calf Heifers BredBred
% of 2% of 2ndnd Calf Calf
Heifers Heifers CalvingCalving
Current Current Economic Economic
ValueValue
Rate of Rate of ReturnReturn
Breakeven Breakeven Purchase Purchase
PricePrice
100%100% ($162)($162) 3.30%3.30% $919$919
85% (Base)85% (Base) ($222)($222) 1.96%1.96% $859$859
75%75% ($262)($262) 1.06%1.06% $819$819
50%50% ($362)($362) -1.13%-1.13% $718$718
$1,080 initial value, 7 years useful life, 7% interest
University of Florida Beef Cattle Short Course
May 2-4, 2007
Reducing the Cost of Reducing the Cost of ProductionProduction
Allocation of Expenses
Feed11%
Labor13%
Interest5%
Mktng + Other5%
R&M4%
Minerals + Vet10%
Hay18%
Pasture34%
Pasture and feed cost make up 63% of Variable Expenses
University of Florida Beef Cattle Short Course
May 2-4, 2007
Reducing the Cost of Reducing the Cost of ProductionProduction
1.1. Reduce pasture costReduce pasture cost
2.2. Hay production economicsHay production economics
3.3. Reduce feed costsReduce feed costs
University of Florida Beef Cattle Short Course
May 2-4, 2007
Reducing Pasture CostsReducing Pasture Costs
1.1. Reduce pasture costReduce pasture cost1.1. Soil testSoil test
2.2. Alternative fertilizersAlternative fertilizers
3.3. Legumes?Legumes?
4.4. Rotational grazing?Rotational grazing?
5.5. Economics of annualsEconomics of annuals
University of Florida Beef Cattle Short Course
May 2-4, 2007
Forage Production RiskForage Production Risk
4,000
6,000
8,000
10,000
12,000
Lbs. DM/ Ac.
00-01 01-02 02-03 03-04 04-05 05-06
Dry Matter Yield of Marshall Ryegrassat Tifton 2000-2006
Marshall
Average Yield
University of Florida Beef Cattle Short Course
May 2-4, 2007
Annual EconomicsAnnual Economics
$/Day Drylot Costs 100$ 125$ 150$ 175$ 200$
0.50$ 200 250 300 350 4000.75$ 133 167 200 233 2671.00$ 100 125 150 175 2001.25$ 80 100 120 140 1601.50$ 67 83 100 117 133
Grazing Days Required to Breakeven at Various Dollars Per Day Drylot Cost & Per Acre Cost
University of Florida Beef Cattle Short Course
May 2-4, 2007
Annual EconomicsAnnual Economics
Cost Feedt Replacemen
Cost Forage Required Days Grazing
Days Grazing
Cost Forage Cost Feedt Replacemen
University of Florida Beef Cattle Short Course
May 2-4, 2007
Reducing Pasture CostsReducing Pasture Costs
2.2. Hay productionHay production1.1. What are your costs?What are your costs?
2.2. Buy hay/reduce stocking rate?Buy hay/reduce stocking rate?
3.3. Corn silage?Corn silage?
4.4. Baleage?Baleage?
5.5. Irrigation?Irrigation?
Costs of Producing HayCosts of Producing Hay
50
60
70
80
90
100
110
120
130
140
150
$/to
n
2000 2001 2002 2003 2004 2005 2006
Actual Production Costs for Hay ($/Ton)Southwest Georgia Experiment Station (Plains, GA)
2000-2006
$/ton
Cost Comparison of Hay Cost Comparison of Hay and Silageand Silage
ItemItem VC VC ($/ac.($/ac.
))
AF/VC AF/VC ($/ton)($/ton)
DM/VC DM/VC ($/ton)($/ton)
AF/TC AF/TC ($/ton)($/ton)
DM/TC DM/TC ($/ton)($/ton)
Bermuda Bermuda hay hay DrylandDryland
413.1413.199
56.3756.37 66.3266.32 74.7474.74 87.7387.73
Bermuda Bermuda hay hay IrrigatedIrrigated
512.2512.288
51.2351.23 62.2762.27 65.3265.32 76.6776.67
Corn Corn silage silage DrylandDryland
491.9491.933
32.8032.80 93.7293.72 35.6135.61 101.74101.74
Corn Corn Silage Silage IrrigatedIrrigated
693.3693.377
31.5231.52 90.0590.05 37.9837.98 108.51108.5185% DM Hay, 35% DM Silage
University of Florida Beef Cattle Short Course
May 2-4, 2007
Reducing Feed CostsReducing Feed Costs
3.3. Reduce feed costsReduce feed costs1.1. Forage testForage test2.2. Consider alternative feedsConsider alternative feeds
1.1. Crop by-products Crop by-products 1.1. CottonseedCottonseed2.2. Soy hullsSoy hulls3.3. MolassesMolasses4.4. DDGDDG
2.2. Commodity feedsCommodity feeds1.1. Bakery productsBakery products2.2. Other manufactured productsOther manufactured products
3.3. CONFIRM INGREDIENTS OF BY-CONFIRM INGREDIENTS OF BY-PRODUCTSPRODUCTS
University of Florida Beef Cattle Short Course
May 2-4, 2007
Alternative Feedstuffs Alternative Feedstuffs Economics CalculatorEconomics Calculator
Excel spreadsheetExcel spreadsheet Users enter current or base feeding Users enter current or base feeding
scenario and alternative feeding scenario and alternative feeding scenarioscenario
Users also enter cost info for Users also enter cost info for additional facilities or equipmentadditional facilities or equipment
Net returns for the alternative Net returns for the alternative feeding scenario are calculated on feeding scenario are calculated on per herd and per cow basisper herd and per cow basis
University of Florida Beef Cattle Short Course
May 2-4, 2007
Decision-aidsDecision-aids
Replacement Female CalculatorReplacement Female Calculator Marketing Alternatives CalculatorMarketing Alternatives Calculator Alternative Feedstuffs CalculatorAlternative Feedstuffs Calculator
WWW.UGABEEF.ORG
University of Florida Beef Cattle Short Course
May 2-4, 2007
SummarySummary 2007 and the next few years will be 2007 and the next few years will be
challenging for beef cattle producers.challenging for beef cattle producers. Don’t cheat on the important thingsDon’t cheat on the important things
HealthHealth NutritionNutrition GeneticsGenetics
MarketingMarketing High feed prices create economic incentives High feed prices create economic incentives
for “grass-weight” on calves and feeders. for “grass-weight” on calves and feeders. Retaining ownership MAY be an alternativeRetaining ownership MAY be an alternative
University of Florida Beef Cattle Short Course
May 2-4, 2007
SummarySummary
CowsCows Cull open and unproductive cows.Cull open and unproductive cows. Compare replacement female Compare replacement female
alternatives.alternatives. Production CostsProduction Costs
Examine your pasture costs.Examine your pasture costs. Revisit hay costs.Revisit hay costs. Consider other forage alternatives.Consider other forage alternatives. Look at alternative feedstuffs.Look at alternative feedstuffs.