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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 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 l.jpg

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 l.jpg
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


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Nitrogen prices have increased 76% since 2002

Fertilizer Prices 1997-2006

University of Florida Beef Cattle Short Course

May 2-4, 2007


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Fuel Prices 1997-2006

Diesel prices are up 145% since 2002

University of Florida Beef Cattle Short Course

May 2-4, 2007


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Impact of Fuel & Fertilizer Prices on Cost of Production

University of Florida Beef Cattle Short Course

May 2-4, 2007


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Projected Profits for 2007

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


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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


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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


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Know Your Cost

  • $/Cwt. Produced

  • $/Calf Marketed

  • $/Cow

University of Florida Beef Cattle Short Course

May 2-4, 2007


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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



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What You Can Sell for Today-Futures Based Price Projections

University of Florida Beef Cattle Short Course

May 2-4, 2007


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


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Reducing Cow Cost

  • Cull open cows

  • Cull unproductive cows

  • Evaluate replacement female economics

University of Florida Beef Cattle Short Course

May 2-4, 2007


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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


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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


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Replacement Female Economics – Value of Getting 2nd Calf Heifers Bred

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


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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


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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


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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


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Average Yield

Forage Production Risk

University of Florida Beef Cattle Short Course

May 2-4, 2007


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Annual Economics

University of Florida Beef Cattle Short Course

May 2-4, 2007


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Annual Economics

University of Florida Beef Cattle Short Course

May 2-4, 2007


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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



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Cost Comparison of Hay and Silage

85% DM Hay, 35% DM Silage


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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


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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


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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


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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


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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