Making farm decisions easier
Keep good records and refer to benchmarks to help successfully manage your cattle business
Editor’s note: The following is the first in a two part series on the value of record keeping and benchmarking. In part two, you’ll hear from producers on how and why they keep detailed records.
Keeping records and doing comparisons takes time and effort, and most of us prefer to be outside getting things done than being inside doing paperwork. Your time is limited so you want to be sure added paperwork has advantages and helps you focus on maintaining or improving the important things outside. Keeping detailed records and benchmarking does.
Producers who use benchmarking have higher production with an average of 60 more lbs of calf weaned per cow exposed (Manglai, 2016). Assuming a herd with 100 exposed cows, this is the equivalent to an additional 6,000 lbs weaned for the herd (+11%) valued at $13,200 per year in a high price environment (550 lb calf at $220/cwt), and $9,600 at long-term average prices ($160/cwt).
It has been noted by economists that a major challenge facing North American cow-calf producers is the development, understanding, and use of their own farm production cost and returns information. It is critical for producers to keep records and use their ‘own farm facts’ in making knowledgeable business management decisions.
Producers who use benchmarking have higher production with an average of 60 more lbs of calf weaned per cow exposed (Manglai, 2016). That’s worth $9,600 for every 100 cows (based on 550 lb calf at the long-term average price of $160/cwt).
Whole Farm Financials
Whole farm financials only provide a starting point on the overall financial health of the operation. This high level view of your farm’s financial situation can be evaluated with four major statements:
- Net Worth Statement – Summarizes the property and financial assets owned, the debts owed, and the net worth of the business at a point in time
- Net Income Statement – Summarizes the income generated, the expenses incurred, and the net income earned by the business during a period of time.
- Statement of Cash Flows – Summarizes all the sources and uses of cash by the business during a period of time.
- Statement of Owner Equity – Shows how net worth changed from the beginning to the end of the year.
It is useful to look at the rate of return to farm equity (ROE) which represents changes in your retirement fund and capacity to finance farm expansion and/or improvements. If ROE is low, you may have to ask whether your operation can support your retirement and/or improvement plans.
Whole farm financials can tell you if there is a problem, but they provide limited direction on where to focus efforts in the coming year. For example, they don’t offer direction on which enterprise (cow-calf, replacements, backgrounders, grassers, hay, pasture, etc.) you should focus on reducing costs or improving productivity in order to reach a higher ROE.
Per Unit Cost of Production
Economists stress the importance of calculating the per unit cost of production. For example, cow-calf producers should divide total input costs by the total pounds of calf weaned to yield the unit cost of production or break-even price on calves.
Calculating per unit cost of production requires having both your financial and production data on hand.
Knowing per unit cost of production helps in developing a marketing and risk management plan. Sitting down and making a plan now can make decisions during the busy production season easier and gives peace of mind. Although agriculture in general has a hard time getting exact numbers throughout the production year because things are constantly in flux, estimates are better than no data at all so don’t let the inability to determine exact numbers stop you from calculating an approximate per unit cost of production.
Having per unit cost of production data also ensures that you take into account the cost of achieving higher productivity for any one measure. Sometimes you have to spend some money to make more money, but you’ll want to be careful your extra investment pays off. Chasing productivity benchmarks without the financial picture can be detrimental. For example, if increasing reproductive productivity by 2% costs 3% per cow, the net increased revenue may be positive, but if it costs 4% more per cow, the net return may turn negative (see the example in Table 1 below). You need to record and consider both financial and productivity information.
Table 1. Gain/Loss of Improved Reproductive Efficiency
Assumptions: # of cows = 100, weaning weight = 550 lb
| Calving Rate | Extra Cost | Cost of Production ($/cow) | Calf prices ($/lb) | Total Net Return | Change in Net Return |
|---|---|---|---|---|---|
| 90% | — | $684 | $2.10 | $35,550 (90 calves) | — |
| 92% | 3% | $705 | $2.10 | $35,760 (92 calves) | $210 |
| 92% | 4% | $711 | $2.10 | $35,160 (92 calves) | -$390 |
Is this important now?
When markets are stable, and finances are well in the black, it can be tempting to “coast” and not critically analyze your information and decisions. Keeping costs under control during high priced years takes discipline and careful monitoring, but those who take advantage of high priced years to improve their operations and strengthen their balance sheets reap the reward by being more resilient during low price years. Record keeping and benchmarking can help in that objective.
Those who take advantage of high priced years to improve their operations and strengthen their balance sheets reap the reward by being more resilient during low price years.
What is it?
Record keeping and benchmarking help a producer identify productivity gaps and make management changes to improve profitability.
Record keeping includes:
- Production records – cattle inventories, pregnancy rate, birth date, birth weight, weaning weight, weaning rate, pounds weaned per cow exposed, death loss, culling rate, pasture or feed usage, feed inventories, animal health treatment records, treatment rates, etc.
- Operational records – overhead, unpaid labour hours, etc.
- Financial records – expenses, revenue, assets, liabilities, etc.
When making management decisions, it is important for producers to identify the information they need, and tailor their record keeping system to suit their needs. A complete set of detailed records ensures that as issues from today are addressed and new ones come up in the future, you have your own set of comparisons on-farm to look back on. Many of the records are also useful or necessary in programs like Verified Beef Production Plus.
Benchmarking is the practice of comparing one’s own operation numbers (productivity and financial) against other farms with similar enterprises; this can use a regional or provincial average. A common set of cow-calf production benchmarks are the “GOLD” indicators:
- Growth,
- Open cows,
- Length of calving season, and
- Death loss of calves.
Results from the 2014 Western Canadian Cow-Calf Survey provide the following GOLD benchmark targets:
- Growth measured as a percentage of pounds weaned per mature cow weight at 43%[1] or better,
- Open cows to be less than 7%,
- Length of calving to be 63 days or less, and
- Death loss of calves to be less than 7%.
How does your operation’s GOLD indicators compare to these 2014 Western Canadian averages? Comparing to more regional benchmarks would be even more beneficial. Provincial averages that take numbers from operations at opposite ends of the province with winter feeding periods ranging from 100 to 160 days can create difficulties in making comparisons, but even if there is no benchmark available for a particular measure, keeping records is still beneficial for monitoring your own operation year over year so you can see improvements or areas that are slipping.
Remember that oftentimes a focus on production maximums (like reproductive efficiency) and minimums (like death loss) do not result in optimal profitability because of trade-offs with per unit costs. Production measures should always be evaluated in terms of overall profitability.
Who is keeping records?
In June 2015, a small survey of 67 cattle producers in the prairie provinces found that more than 90% of the respondents recorded birth dates and kept individual ID, calf IDs linked to dam ID records, and culling/death loss records; and 86% of respondents kept health records. However, only 41-48% of the respondents kept records on birth weight, weaning weight, or had more detailed record keeping. The survey reported that only 40.6% of respondents keep detailed production records and only 36.7% indicated that they were familiar with and used benchmarking (Manglai, 2016).
Producers who were more likely to use and keep detailed production records had more years of experience, were older, set production goals and were learning oriented (open-minded and committed to learning). Learning orientation and the use of a banker/accountant also positively impacted the use of benchmarking.
The survey also found that Saskatchewan and Manitoba producers were less likely to use detailed record keeping than producers in Alberta; Manitoba producers were more likely to use benchmarking.
The survey reported that only 40.6% of respondents keep detailed production records and only 36.7% indicated that they were familiar with and used benchmarking.
The reason behind these regional differences could be explained by differences in extension programs that are available in each province. Extension programs provide resources and support in developing record keeping systems that covers the needs of today as well as into the future.
It is not surprising to find a low proportion of producers in the prairie provinces use benchmarking as the availability of benchmarks has largely disappeared outside of AgriProfit$, which is a free-of-charge program run by Alberta Agriculture and Forestry. Participating in surveys and extension programs will help ensure that benchmarks are developed and available.
How to get started:
Explore www.cowprofits.ca
Other resources
- If you’re in Alberta, participate in AgriProfit$, which is a free-of-charge program run by Alberta Agriculture and Forestry.
- Texas A&M Key Performance Indicator Targets for Beef Cow-calf Operations. Fact Sheet. Image.
- Farm Financial Statements. https://www.extension.iastate.edu/agdm/wholefarm/html/c3-56.html
- Farm Financial Ratios. https://www1.agric.gov.ab.ca/$department/deptdocs.nsf/all/econ2198
References
- References
- Manglai (2016). Examining Record Keeping and Benchmarking Effects on the Production and Performance of Cow-calf Farms in Canada. Master’s Thesis, Department of Agricultural and Resource Economics, University of Saskatchewan. https://ecommons.usask.ca/bitstream/handle/10388/7283/MANGLAI-THESIS.pdf?sequence=1&isAllowed=y, accessed on Jan 25, 2018
- Millang, J, Key Success Factor in Cow Calf Enterprise Profitability http://www1.foragebeef.ca/$foragebeef/frgebeef.nsf/all/ccf120/$FILE/keysuccessfactors.pdf, accessed on September 6, 2017
- The Beef Cow-Calf Manual. Alberta, 2008.
- [1] Alberta Agriculture, 2013-15 average
Read part two, “Good records help guide efficient production and profitability, say producers“.
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