Weaning of spring-born calves has occurred for many cow calf producers. Right after weaning is a good time to analyze the business and see what it cost to produce a pound of weaned calf.
Cow costs and thus the cost to produce a weaned calf have shot up over the last 15 years. From 1987 to 2001, the Livestock Market Information Center reports that annual cow costs increased from $300 to $400 per cow. From 2002 to 2015, cow costs more than doubled from $400 to $875 per cow.
These annual cow costs figures are from National Ag Statistics Surveys. Cow costs in much of Nebraska would be equal to or higher than the national average due to the cost of pasture. Obviously not every cow weans a calf, so the actual cost per calf produced is much higher than $875!
This information prompts the question: What did it cost you to produce a pound of weaned calf this year? What do you project it will cost in 2017?
Unit cost of production (UCOP) is a value based on a relationship in production between costs and units of product made or produced.
Unit Cost of Production = Costs / Units Produced
The relationship between the numerator (Costs) and the denominator (Units Produced) is what drives the UCOP value. The power of the UCOP ratio for cow-calf producers is that everything involved in the production of a pound of calf is represented in the numerator or denominator of the equation. For example, if a producer wants to buy a pickup that will be used in the production of calves, he can estimate how the purchase of that pickup will affect his UCOP in terms of cost per pound of calf produced. The same thing goes for the purchase of a bull. Evaluating the purchase of a bull in light of how many estimated pounds of calf that bull will produce in relation to his cost can give insight into what a producer might be willing to spend.
What did it cost to produce a pound of weaned calf this year? What is it projected to cost next year? The old adage "you can't effectively manage what you don't measure" is true in relation to managing the cow-calf enterprise. The first step in calculating UCOP is to have accurate production and financial records. These records do not have to be complicated, but they need to be accurate and thorough. If current management and information systems don't provide the data to run this type of analysis, consider making changes that will provide the records needed.
Unit Cost of Production takes into account both product produced and input costs. Knowing UCOP allows a manager to look forward utilizing both present and projected input costs with production numbers to make informed decisions. You can’t change last year’s cost of production numbers, but with good information, you can make management changes that will impact the upcoming year. Cow-calf producers who know UCOP numbers and understand the interaction between costs and production can implement strategies to effectively manage resources to meet business and personal goals.
As with most things in life, the first few times you do something, you make mistakes and through the process learn how to get better. The first time someone learns to drive, there is going to be gears grinding, lurching and jerking, and some killed engines. There also is likely going to be some parent or adult with more gray hair (or perhaps less hair) in the process! Passing the driver’s test and being able to drive is well worth the hassle and effort!
Learning how to calculate UCOP is a similar process for cow-calf producers who have never done it before. The first few times through the mental gears will be grinding and there will be frustration along the way. However once someone does it and gets comfortable, the value of knowing this information and being able to confidently make decisions that improve profitability is extremely satisfying!
For many cow-calf producers, pulling together the production and financial information needed to get this year’s cost of production number or to project next year’s number is a daunting task.
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