Analyst Says Bottom Half Of Beef Producers Unprofitable

Beefs and Beliefs

High income and low expenses make good partners for beef producers but high expenses partner well with nothing.

Published on: March 15, 2013
 

It seems to me a new e-newsletter from Kris Ringwall in North Dakota picks the scab off the wound I keep reopening -- the fact we still have some financial woes in our high-priced industry.

Ringwall, a beef specialist for NDSU, says new numbers from the North Dakota Farm Management Program show 40% of the cow-calf beef producers are "struggling to justify being in the beef business."

Ringwall analyzed net returns per cow from 2006 through 2011 and says he found beef producers who were enrolled in the NDFM program posted positive net returns over direct and overhead expenses.

Here are those overall numbers:

  • $182 profit in 2011
  • $111 profit in 2010
  • $13 loss in 2009
  • $12 profit in 2008
  • $98 profit in 2007
  • $105 profit in 2006

Ringwall says there aren't numbers available yet for 2012 but he suspects the overall trend will show another net profit year.

But here's the rub. When he took the numbers and broke out producers posting "profits" in the lower 40% of the net returns, things don't look so good.

Ringwall says, "This group was in the black in 2011 and 2006 but lost money in 2010, 2009, 2008 and 2007."

The actual net returns per cow above direct and overhead expenses for that bottom 40% look like this:

  • $76 profit in 2011
  • $3 loss in 2010
  • $120 loss in 2009
  • $91 loss in 2008
  • $6 loss in 2007
  • $18 profit in 2006

"The long and short of it is that this group of cattle producers has had to find some other enterprise to pay for an average of $21 [loss] per year, per cow for direct and overhead expenses because the cow could not pay her costs," Ringwall says.

He adds that besides the loss per cow there is a potential opportunity cost for these beef producers, most probably from renting, leasing or selling the land for use to others.

For these producers Ringwall says the poignant question seems to be: "Why expand or even stay in the cow business?"

He adds that this lower 40% of operations essentially posted income of $500 and expenses of $521 per cow over those six years.

Then he adds, "High income and low expenses are good partners but high expenses do not partner well with anything."

This is the unpopular song Texas economist Stan Bevers has been singing for some time now. I wrote this important story with Bevers in January of last year, in which he proposed cow herd expansion would not be as strong as many predict. He listed three reasons major expansion is not imminent.

  • Cow operations are asset management businesses that tie up a lot of capital for relatively low returns.
  • Cow operations face stiff competition for land from cropping and from stocker/grazing operations which have better cash flow and potentially better profits.
  • Costs in the Southwest have pretty much doubled, just as they have in the northern Plains.

The problems of advancing age for beef producers and doubling of expenses in recent years were also mentioned by Steve Kay in his latest column for the March issue of BEEF magazine. Kay says a friend of his, a big ranch operator well over 70 years of age, is planning how to sell out, not scale up.

I also believe we also have so many big, inefficient cows out there that cow-calf operators are scrambling to find something that will make them a profit. Breeding up more big, inefficient cows can't be first on their minds.

Folks, I hate to be such a wet rag on the fires of enthusiasm but my realism keeps damping the flames. I think we have a lot of fixin' to do.