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Risk Management and the Cost of Production. University of Florida Beef Cattle Short Course May 2-4, 2007 Dr. Curt Lacy Extension Economist-Livestock University of Georgia [email protected] Overview. Recent trends and projected profits for 2007 Ways to manage risk in 2007.

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risk management and the cost of production

Risk Management and the Cost of Production

University of Florida Beef Cattle Short Course

May 2-4, 2007

Dr. Curt Lacy

Extension Economist-Livestock

University of Georgia

[email protected]

overview
Overview
  • Recent trends and projected profits for 2007
  • Ways to manage risk in 2007

University of Florida Beef Cattle Short Course

May 2-4, 2007

fertilizer prices 1997 2006

Nitrogen prices have increased 76% since 2002

Fertilizer Prices 1997-2006

University of Florida Beef Cattle Short Course

May 2-4, 2007

fuel prices 1997 2006
Fuel Prices 1997-2006

Diesel prices are up 145% since 2002

University of Florida Beef Cattle Short Course

May 2-4, 2007

impact of fuel fertilizer prices on cost of production
Impact of Fuel & Fertilizer Prices on Cost of Production

University of Florida Beef Cattle Short Course

May 2-4, 2007

projected profits for 2007
Projected Profits for 2007

Assumes 500 cows, 85% calf crop, 523# calf marketed in Aug-Sep

high return producers don t cheat on
High Return Producers Don’t Cheat On:
  • Animal health
  • Nutrition
  • Genetics

University of Florida Beef Cattle Short Course

May 2-4, 2007

Source: Cattle-Fax

managing risk in 2007 and the future
Managing Risk in 2007 and the Future
  • Determine your cost
  • Increase Calf Value (Revenue)
    • Higher price
    • More production
  • Reduce Cow Cost
    • Cull open cows
    • Cull unproductive cows
    • Examine replacement heifer alternatives
  • Reduce the Cost of Production
    • Evaluate economics of hay production
    • Evaluate economics of annual forages
    • Consider alternative feeds

University of Florida Beef Cattle Short Course

May 2-4, 2007

know your cost
Know Your Cost
  • $/Cwt. Produced
  • $/Calf Marketed
  • $/Cow

University of Florida Beef Cattle Short Course

May 2-4, 2007

increase revenue calf value
Increase RevenueCalf Value
  • Forward price part of your production
  • Short-term backgrounding/creep feeding
  • Retained ownership
    • Stockering
    • Custom-finishing

University of Florida Beef Cattle Short Course

May 2-4, 2007

what you can sell for today futures based price projections12
What You Can Sell for Today-Futures Based Price Projections

University of Florida Beef Cattle Short Course

May 2-4, 2007

reducing cow cost
Reducing Cow Cost
  • Cull open cows
  • Cull unproductive cows
  • Evaluate replacement female economics

University of Florida Beef Cattle Short Course

May 2-4, 2007

cull unproductive cows
Cull Unproductive Cows
  • Yeah Buts:
    • Must be able to match cows and calves
    • Based on average cow cost
    • Borderline young cows may get a pass

University of Florida Beef Cattle Short Course

May 2-4, 2007

replacement female economics
Replacement Female Economics
  • Compare alternatives
  • Include the opportunity cost of heifers
  • Do whatever it takes to get second calf heifers bred

University of Florida Beef Cattle Short Course

May 2-4, 2007

replacement female economics value of getting 2 nd calf heifers bred
Replacement Female Economics – Value of Getting 2nd Calf Heifers Bred

$1,080 initial value, 7 years useful life, 7% interest

reducing the cost of production

Pasture and feed cost make up 63% of Variable Expenses

Reducing the Cost of Production

University of Florida Beef Cattle Short Course

May 2-4, 2007

reducing the cost of production19
Reducing the Cost of Production
  • Reduce pasture cost
  • Hay production economics
  • Reduce feed costs

University of Florida Beef Cattle Short Course

May 2-4, 2007

reducing pasture costs
Reducing Pasture Costs
  • Reduce pasture cost
    • Soil test
    • Alternative fertilizers
    • Legumes?
    • Rotational grazing?
    • Economics of annuals

University of Florida Beef Cattle Short Course

May 2-4, 2007

forage production risk

Average Yield

Forage Production Risk

University of Florida Beef Cattle Short Course

May 2-4, 2007

annual economics
Annual Economics

University of Florida Beef Cattle Short Course

May 2-4, 2007

annual economics23
Annual Economics

University of Florida Beef Cattle Short Course

May 2-4, 2007

reducing pasture costs24
Reducing Pasture Costs
  • Hay production
    • What are your costs?
    • Buy hay/reduce stocking rate?
    • Corn silage?
    • Baleage?
    • Irrigation?

University of Florida Beef Cattle Short Course

May 2-4, 2007

cost comparison of hay and silage
Cost Comparison of Hay and Silage

85% DM Hay, 35% DM Silage

reducing feed costs
Reducing Feed Costs
  • Reduce feed costs
    • Forage test
    • Consider alternative feeds
      • Crop by-products
        • Cottonseed
        • Soy hulls
        • Molasses
        • DDG
      • Commodity feeds
        • Bakery products
        • Other manufactured products
    • CONFIRM INGREDIENTS OF BY-PRODUCTS

University of Florida Beef Cattle Short Course

May 2-4, 2007

alternative feedstuffs economics calculator
Alternative Feedstuffs Economics Calculator
  • Excel spreadsheet
  • Users enter current or base feeding scenario and alternative feeding scenario
  • Users also enter cost info for additional facilities or equipment
  • Net returns for the alternative feeding scenario are calculated on per herd and per cow basis

University of Florida Beef Cattle Short Course

May 2-4, 2007

decision aids
Decision-aids
  • Replacement Female Calculator
  • Marketing Alternatives Calculator
  • Alternative Feedstuffs Calculator

WWW.UGABEEF.ORG

University of Florida Beef Cattle Short Course

May 2-4, 2007

summary
Summary
  • 2007 and the next few years will be challenging for beef cattle producers.
  • Don’t cheat on the important things
    • Health
    • Nutrition
    • Genetics
  • Marketing
    • High feed prices create economic incentives for “grass-weight” on calves and feeders.
    • Retaining ownership MAY be an alternative

University of Florida Beef Cattle Short Course

May 2-4, 2007

summary31
Summary
  • Cows
    • Cull open and unproductive cows.
    • Compare replacement female alternatives.
  • Production Costs
    • Examine your pasture costs.
    • Revisit hay costs.
    • Consider other forage alternatives.
    • Look at alternative feedstuffs.

University of Florida Beef Cattle Short Course

May 2-4, 2007

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