Commodities vs. Beef

Published February 24, 2005

The Economics of Commodities vs. Beef

Kit Pharo, a “no-nonsense” seedstock producer in eastern Colorado, recently wrote a piece published in a popular grass-farming publication emphasizing the economic advantages of small-framed cows raising smaller calves versus large-framed cows raising larger calves. He said that if a ranch could raise only 50,000 pounds of calves annually it would be better off to market the calves as four weights rather than six or eight weights. Does that theory pass a cowboy-economics evaluation?

To answer that question I did a “back of the envelope” (spreadsheet) cowboy-economics comparison and came up with some numbers. For starters, Pharo is right. In every 100% pastured-based ranching scenario I could dream up, large-framed cattle lost out. But the actual weaned calf advantage is much slimmer than Pharo’s projected $10,000 to $12,000. It is more like $5,000. Yes, in a large-framed cow scenario there are 38 fewer cows, which consume slightly more grass than 156 small-framed cows. But with four fewer replacement heifers and one less bull to feed there is more grass for marketable calves. Consequently, even though fewer calves are sold from large-framed cows, the weight of the 600-pound marketable calves ends up being 56,640 pounds rather than 50,000 pounds of 400-pound calves from small-framed cows.

Small-Framed Cattle Are More Efficient

Most of the cattlemen with whom I communicate (from all around the world) know that in a pasture-based operation small-framed cattle are far more efficient than large-framed cattle. So I was not surprised by the results of my large frame versus small frame comparison. But I couldn’t believe for an instant that selling 400-pound calves would be more profitable than selling 600-pound or even larger calves. I’m a big believer in raising beef for the American consumer. Calves are a commodity; finished cattle are beef. Does it make sense to raise beef rather than a commodity others turn into beef? The numbers tell the tale.

Pharo assumed his hypothetical ranch could raise only 50,000 pounds of 400-pound calves annually. That assumption defined the forage base, which is the limiting factor. To determine the forage base I calculated how much grass it would take to support a sustainable cow-herd infrastructure that could raise 125 marketable calves weighing 400 pounds at weaning.

To do the calculation I made the following assumptions: The total calf crop would be 90% of the exposed cows. Ten percent of the cows would be replaced each year by retaining replacement heifers. One bull was required for every 25 females. Every critter consumes 3% of its body weight in forage per day. Cows averaged 1,100 pounds and bulls averaged 1,600 pounds. Calves weaned off at 400 pounds. Thereafter they grew 1.75 pounds per day. Replacement heifers grew slightly slower. At year-end, 16 cows were sold as culls for added income.

These assumptions resulted in a livestock inventory of 156 cows, 16 replacement heifers withheld, 125 calves sold at 400 pounds, and six bulls. This cattle inventory requires 2.38 million pounds of forage annually.

Crunching the Numbers on Larger Calves

If a ranch’s annual forage base is 2.38 million pounds, what happens if the cattleman decides to raise 600-pound calves? What about 800-pound calves sent to a feedlot? Or how about 1,100-pound grass-fed cattle that are sold hanging on the rail? Can this ranch even raise larger calves? To find out, I calculated a cattle inventory for each scenario based on the designated limiting factor of 2.38 million pounds of forage. In every case I assumed the total calf crop would be 90% of the exposed cows. Ten percent of the cows would be replaced each year by retaining replacement heifers. One bull was required for every 25 females, etc.

If I market 600-pound calves, the inventory becomes 143 cows, 14 replacement heifers withheld, 114 calves for sale, and 6 bulls to breed the females. This inventory requires 2.38 million pounds of forage annually. At year-end, 14 cows are sold as culls for added income.

If I market 800-pound calves, the inventory becomes 128 cows, 13 replacement heifers withheld, 102 calves for sale, and 5 bulls to breed the females. This inventory requires 2.38 million pounds of forage annually. At year-end, 13 cows are sold as culls for added income.

If I sell 1,100-pound grass-fed finished cattle, the inventory becomes 106 cows, 11 replacement heifers withheld, 85 calves for sale, and 4 bulls to breed the females. This inventory requires 2.38 million pounds of forage annually. At year-end, 11 cows are sold as culls for added income.

I looked in The Livestock Reporter and at the time I made the study, prices for each class of cattle were $1.38, $1.12, and $1.028, and I’m paying $1.77 per pound hanging on the rail (about $0.9735 per pound live weight) for grass-fed finished cattle. Production in pounds for each class calculated out at 49,920, 68,640, 81,920, and 93,280. That generates calf sale revenues of $68,889.60, $76,876.80, $84,213.76, and $90,808.08, respectively. Cull cow sales at $0.48 per pound flatten out that curve. For each category they are $17,160.48, $15,730.48, $14,080.48, and $11,660.48.

Total revenues for each category are: 400-pound calves, $86,050; 600-pound calves, $92,607; 800-pound calves, $98,294; and 1,100-pound finished grass-fed steers, $102,468.

Raising More Pounds Generates More Revenue

“Well,” and this is where I get to use a quote from Pharo, “I don’t want to insult you, but any 12 year old kid . . . can answer that question.” And the answer to our question is no rancher in his right mind would raise and market 400-pound calves. Of course, there may be weird exceptions, but if you’re in cattle country there are few, if any, exceptions. Therefore, according to old-fashion cowboy economics, the answer is, “You make money when you’re raising pounds of cattle (or beef).” Selling 400-pound calves cuts you out of the beef business, and pasturing cows, replacement heifers, and bulls does not generate any revenue.

But what about that comparison between large-framed cattle versus small-framed cattle? Once again, the smallest advantage occurs when calves were sold at weaning. The greatest advantage ($9,000) with small-framed cattle came from raising 800-pound calves!

Click here for more information on marketing Grass-Fed Beef.

Ted E. Slanker, Jr.

RR 2, Box 175, Powderly, TX 75473-9740

Ofc: 903-732-4653, Fax: 903-732-4151

E-mail: ted@slanker.com