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I often hear cattlemen say, “With the cost of hay so high, I cannot afford to also buy a supplement.” If a supplement makes sense in your operation with lower priced forage, it only makes more “cents” with higher priced forage.

When we buy a supplement, most of us want to know what sort of payback we get from it. Supplements replace nutrients that are either missing or only available in lower than desired quantities in the base diet/forage. Supplements can also provide performance enhancing additives that are not available naturally. Supplements can provide a third return—their ability to modify the grazing distribution of the herd in a pasture. This is best accomplished by self-fed supplements that are available 24 hours a day, 7 days a week. 

These three benefits “pay” you back for the cost of the supplements, generally with increased gain, better health/reproductive performance, or more efficient production overall. The payback can vary from supplement to supplement and situation to situation. 

Providing supplemental crude protein to low quality forages will boost the digestibility (release of energy). It is not uncommon for supplemental crude protein to increase the digestibility of a low quality forage by 10 percent. This gives you 10 percent more energy from every ton of forage or, theoretically, you could feed 10 percent less of the forage and achieve the same performance. Either way, you have 10 percent more forage energy than if you chose not to feed a supplement. Ten percent of $150/ton forage will always be worth more than 10 percent of $50/ton forage.

If you have two trucks and only have room to put one in a shed ahead of an oncoming hailstorm, which do you choose? The new truck worth $50,000 or the old one worth $15,000? Just as your reward today for saving a single 600 pound calf that gets sick at weaning is worth over $950 versus around $680 three years ago, your payback for using a supplement on $150 forage is far greater than on $50 forage.

CRYSTALYX^® Brand Supplements, available to your herd 24/7, are an excellent way to increase the payback from your forage, no matter the forage cost. Just remember that your payback increases as your forage cost increases.

Cash Flow Considerations THEN and NOW

As I travel in cow calf regions and visit with cattlemen, I have noticed a distinct shift in their plans for retaining heifers. Last year at weaning, a heifer calf was more valuable as a feeder than a breeding animal. On many farms and ranches cash was tight due to increasing input cost.  Generating some cash and paying bills by selling the heifer calf had very little risk. If a cow in the herd needed to be replaced a young cow could be purchased for about the same or less money.

This year the economic considerations for retaining heifers for replacements have shifted. Input costs have increased, most notably forage cost, but we are seeing record prices for feeder calves and replacement heifers. Projections are the nation’s cow herd will be smaller due to the prolonged drought in the southwest.

Another difference between this year and today is related to the value of ground for row crops versus pasture. People that had to decide between planting more acres verses keeping cows and pasture made their choice last fall. Those cows are not on the market today. These and other factors have pushed the value of breeding animals to the point where cash flow is not the only consideration in deciding to keep heifers for breeding stock. We now have more questions to discuss at meetings, coffee shops and sales barns.

1. What will replacement heifers and cows cost in the future?
2. Will raising your own replacements be less expensive?
3. Is there more income potential in selling replacement heifer?

Below is a summary of some recent bred heifer sales.* 

  *Sales results should not be considered “official” and were taken from posted sales data and radio market reports

I had the opportunity to attend two beef industry gathering events this past week that brought together producers and beef industry partners in the plains and western United States. The first was the Outlook and Strategies Seminar offered by CattleFax that painted current and future economic opportunities in the beef cattle business and our overall economy. There were a number of talks that covered a wide variety of topics impacting the beef industry. The bottom line…  It is a great time to be in the beef cow-calf business! This also has strong signals that it will not just be a year or two but indications are that it could last three to five years before market conditions begin to fall. Now, there are always regional issues that can crop up, like the recent drought in the Southern part of the U.S., in addition to other environmental or economic factors that can temper just how good of a ride the cow-calf segment of the industry will have, but right now I would have to say the future has never looked so bright!
 
The other event, which is always a great producer gathering in the cow-calf business, was the Range Beef Cow Symposium held in Mitchell, Neb. The Cooperative Extension Services sponsor this symposium that is held every other year and rotated between the four states of Nebraska, South Dakota, Wyoming and Colorado. The content is focused on production systems specific to cow-calf producers and covers a wide range of topics.

There will always be certain events or market factors that could change the potential returns to cow-calf producers but more than likely plans should be made based on calf prices that are expected to average $175 per cwt. based on a 550 lb. steer calf for 2012. There are also indications or times of the upcoming year where projections closer to $200 per cwt. might be expected (see attached chart). CattleFax has shown that cow-calf producers have not only been profitable since 1997 but in  the next few years they will have record profits that could range between $200 and $300 per head or higher. These profits are well over three times what producers enjoyed within the last decade.

If you have gotten to this point in the article, this is generally where many start pointing fingers to increased costs associated with inputs like feed, supplements, animal health products, fuel, cash rents, etc. There is no question that production costs have been on the increase as well. Many of the feed or supplement cost increases are a direct result in higher commodity prices that farmers are receiving for the cereal grains that they produce. Because the cow-calf industry is primarily dependent on forage systems, those producers who own or have access to low-cost forages, which can also include crop residues, will be more insulated from increases in feed costs when compared to the feeding segment of the industry. Of course, extended drought conditions can cancel this advantage once you start trucking feed to maintain a cow herd. Even though there may be some increases with inputs, the prices that cow-calf producers are projected to receive will more than outpace the increase one can expect with input costs.

So what does all of this mean to cow-calf producers. It certainly doesn’t mean that you can become more careless or pay less attention to the details of running a profitable operation. At the same time, I would say that the criteria you used to make decisions in the past, may not provide the same conclusions when you pencil in $1.75 or $2.00 calves.
 
Return on investment (ROI) for inputs or practices where you might have questioned their returns in the past, may now be something you should definitely be considering. One example might be simply the total value of calves. How many open cows, fewer cows calving in the first 21 days, lighter weaning weights or sick calves can you afford when they are worth $1050 versus $720 per 600 lb. calf ($1.75 vs. $1.20/lb.)? Inputs that can help you achieve added weaning weights or healthy calves are more important now, than they ever were with the dramatic increase in calf value.
 
Nutritional supplements, preventative health inputs, feed additives or management practices that can make sure cows produce a healthy calf and breed back as early in the breeding season as possible, more easily pay for themselves in addition to increasing calf value with improved health and/or added gains. These inputs are not only confined to the cow-herd. Supplemental inputs for stockers on forage-based growing programs should also be evaluated for improving returns. I would challenge you to take another look when your local animal health or feed rep pulls into your yard. Current beef industry economics dictate that you reevaluate the potential returns and would highly recommend that you take the time to do the math!