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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 clacy@uga.edu. 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

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  1. 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 clacy@uga.edu

  2. 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

  3. Nitrogen prices have increased 76% since 2002 Fertilizer Prices 1997-2006 University of Florida Beef Cattle Short Course May 2-4, 2007

  4. Fuel Prices 1997-2006 Diesel prices are up 145% since 2002 University of Florida Beef Cattle Short Course May 2-4, 2007

  5. Impact of Fuel & Fertilizer Prices on Cost of Production University of Florida Beef Cattle Short Course May 2-4, 2007

  6. Projected Profits for 2007 Assumes 500 cows, 85% calf crop, 523# calf marketed in Aug-Sep

  7. 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

  8. 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

  9. Know Your Cost • $/Cwt. Produced • $/Calf Marketed • $/Cow University of Florida Beef Cattle Short Course May 2-4, 2007

  10. 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

  11. What You Can Sell for Today-Futures Based Price Projections Source: CME & www.beefbasis.com

  12. What You Can Sell for Today-Futures Based Price Projections University of Florida Beef Cattle Short Course May 2-4, 2007

  13. Creep-feeding or Short-term BackgroundingSell 500# Calf in July vs. 650 or 750 August

  14. Reducing Cow Cost • Cull open cows • Cull unproductive cows • Evaluate replacement female economics University of Florida Beef Cattle Short Course May 2-4, 2007

  15. 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

  16. 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

  17. Replacement Female Economics – Value of Getting 2nd Calf Heifers Bred $1,080 initial value, 7 years useful life, 7% interest

  18. 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

  19. 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

  20. 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

  21. Average Yield Forage Production Risk University of Florida Beef Cattle Short Course May 2-4, 2007

  22. Annual Economics University of Florida Beef Cattle Short Course May 2-4, 2007

  23. Annual Economics University of Florida Beef Cattle Short Course May 2-4, 2007

  24. 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

  25. Costs of Producing Hay

  26. Cost Comparison of Hay and Silage 85% DM Hay, 35% DM Silage

  27. 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

  28. 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

  29. 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

  30. 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

  31. 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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