What's THE Secret to a Profitable Cow-Calf Operation?

Background

When discussing the optimization of profits, the traditional focus has centered on individual animal performance – driven by the traditional GOLD indicators (Growth of calves, number of Open cows, Length of calving season and calf Death loss) developed in the 1990s. However, the traditional GOLD model has been questioned as production systems have become more diverse . In fact, we are lagging in understanding what that increased diversity has meant for producers in how they make decisions to optimize profits, minimize risks and prioritize other aspects of farm life.

By capturing and understanding the diversity of beef cattle production and the mindsets driving it, the goal of the Canadian Cow-Calf Cost of Production Network (COP Network) is to understand what production and management practices make sense in each region, to better inform technology transfer.

Objectives

• to support peer learning through a network of connected producers,
• to benchmark cost of production and profitability of different production systems across Canada.
• to understand the non-economic motivations behind on-farm decision-making,
• to estimate the potential costs and benefits of adopting different production and/or management practices in different production systems and understand the driving factors for the feasibility of these changes, and
• to identify opportunities and constraints for technology transfer.

What they did

Cost of Production

Canfax Research Services (CRS) collected production and financial data from over 225 producers across Canada through online focus groups between 2021 and 2023. Individual data were aggregated into over 56 benchmark farms representing different production systems across the country.

Future Farms

During the focus groups, producers were asked to brainstorm new practices and technologies that could be adopted, and where incremental improvements could be made around productivity, input costs, and marketing strategies. Future farm scenarios were then developed for each benchmark farm, simulating the potential costs and benefits of the selected practices over a five-year period. More than 100 future farm scenarios were developed with some benchmark farms having multiple scenarios and some farms having one.

Producer Mindset

Three short surveys were conducted focusing on producer’s mindset (n=170), on-farm management practices (n=144) and greenhouse gas (GHG) reduction practices (n=163) to understand producers’ non-economic motivation behind decision-making, and what producers are willing or not willing to undertake.

What they learned

Cost of Production

Total average costs from the COP Network were $1,632/cow in 2022. Of these, 59% ($969) were cash costs, 11% ($183) were depreciation, and the remaining 29% ($480) were opportunity costs.

Most (84%) farms covered short-term (cash) costs, as well as medium-term (cash and depreciation) costs (77%). Only one third of the farms (32%) were able to cover long-term (cash, depreciation, and opportunity) costs. The more profitable farms tend to have larger herds and lower production costs, but profitability did not appear to relate to a specific production system, farm structure or region.

Future Farms

Rotational grazing and increasing weaning weights are two of the most-selected future farm scenarios.

The feasibility of a rotational grazing system depends on the amount of upfront investment, herd size, potential cost savings, revenue gains as well as capital and labour availability, while funding programs could help offset part of the upfront costs.

For increasing weaning weights through a tighter calving window, producers who have a prolonged calving season are more likely to see larger revenue gain from adjusting their calving window, compared to producers who already have a tight calving window. For increasing weaning weights through installing a off-source water system, the feasibility is impacted by calf prices, herd size and the capacity of the water system.

Producer Mindset

Most participants (54%) were categorized as “Custodians” who think Farming is a way of life in my family where we care for the land and animals to carry on/pass on to the next generation; followed by the “Modern Family Business” group (32%) who enjoy day-to-day farm duties but mostly the work of building a business to pass on to the next generation in the family.

In terms of farm management and GHG reduction practices, approaches to improve soil health have the highest adoption rates, followed by grazing management and improving winter feed quality. Respondents were primarily “not sure” about approaches to monetize ecosystem services (50%) and integrated pest management (37%). Practices around manure management garnered the most responses for “not able”, “not willing”, or “not sure” about adopting.

What it means

Cost of Production

Every operation had its distinct approach to achieving financial success. A fundamental aspect of management is that the goals you set often influence the outcomes you obtain. While depreciation and opportunity costs don’t show up as cash expenses, they significantly impact farm viability. Getting a grasp on these numbers can help producers better measure farm financial performance, make informed decisions, and set goals.

Future Farms

The profitability of future farm scenarios varies significantly across different production systems. What may prove successful for one farm might not yield the same results for others. Thus, when considering implementing new practices, adopting new technology or utilizing new tools, understanding the upfront cost, potential benefits and the estimated payback period becomes crucial. Moreover, factors like the operation’s long-term objectives, risk tolerance, prevailing market conditions, and weather outlook should also be considered during the decision-making process.

Producer Mindset

On-farm decision making is influenced by non-economic drivers. For many producers, farming is more than a business, it represents a way of life, a part of their heritage, and a commitment to preserving the environment (the Custodian segment). When it comes to communicating with these producers, the approach should be encouraging rather than forceful. Key messages need to acknowledge their role as stewards of the countryside, acknowledging their contribution to sustainability. On the other hand, producers who are more focus on business (the Modern Family Business segment) should be communicated with in a professional manner, considered as equals or partners in business with respect to programs and will approach change as a business transaction, working out costs and benefits for themselves.

Producers’ uncertainties around approaches to monetize ecosystem services and integrated pest management, and reluctance towards manure management present an opportunity to delve into the barriers and possibilities these strategies offer in enhancing cow-calf profitability.