Profit Prediction in Cow/Calf Operations: Part 2, Influence of Major Management Practices

Determining which management practices to focus on to improve profitability is a major challenge in any cow/calf operation. We used CowCost management simulation to evaluate the relative importance the major factors. The software generated 50 000 different management scenarios using values that were generated randomly, but within reasonable ranges of typical western cow/calf operations. Management factors studied by the model included the original cost of the cow, interest rate paid on money borrowed to buy the cow, salvage value of the cow at the end of her production life, percentage of calves the cow might wean, yearly cost per cow of the ranching operation, average weaning weight of the calf, and the average price brought by the calf. The model assumes calves will be sold at weaning and not held as yearlings. The model used these management factors to predict profit or loss, and to gauge the relative importance of the management practice. All scenarios were for one cow with an assumed production of 8 yr. Correlation analysis of the data showed that yearly cost was the most influential in determining profit or loss. The money received per pound of calf was next most influential. Weaning weight was the third most influential and weaning percent is fourth. The original cost of the cow, interest rates, and salvage value of the cow were far less influential on profit loss. While these final items, especially the cost of the cow and interest rate, receive a great deal of attention from most producers, they may not deserve that much attention, especially compared with other management inputs. The ProblemDetermining which management practices to focus on is always a problem in the cow/calf operations. To evaluate the relative importance of a number of factors, CowCost (management simulation software) was used to generate 50 000 different scenarios in ranch management. The model incorporated a variety of management factors into predicting profit or loss, used as the gauge to determine the relative importance of the management practice. These numbers were used to study relative importance of management factors. BackgroundMost producers desire the management scheme that makes the most profit. A number of papers focus on details such as breeds and productivity of breeds. There are a number of broad management factors that should be considered first. Management can influence all of the factors and deciding which to concentrate on can be difficult. When there are many management options, computer modeling can successfully predict outcomes due to management changes. This paper explores the relative importance of these major factors through computer simulation of many different management situations. Study DescriptionTo evaluate the relative importance of a number of management factors, CowCost was used to generate 50 000 different scenarios in ranch management. CowCost is a program that evaluates management practices and the income potential from purchasing cattle. A number of management variables are included in the model effecting eventual profit/loss. The variables are grouped by factors that affect cow purchase, management practices, and income potential. The model calculates profit or loss generated by possible combinations of variables. Randomization provided input numbers for the program, but within reasonable ranges of typical western cow/calf operations. Establishment of limits within reasonable ranges is necessary to avoid generating scenarios that are not realistic. Completion of twenty individual computer runs of 2500 scenarios each generated 50 000 total. The data for each run was stored in a matrix and statistical analyses ran on these matrixes. Applied QuestionsWhat are the most influential factors in profit or loss? Yearly cost is the most influential in determining profit or loss. The money received per pound of calf was next most influential. Weaning weight was the third most influential. Percentage of calves weaned was less influential, but more than cow cost, interest rates, and salvage value. What is the amount of returns for changing major factors? For every percent increase in the number of calves weaned returns about $4 every year. Yearly cost provides nearly a 1:1 rate of return for each dollar decrease. An increase in one lb. of weaning weight increase returns by about $0.60. For every cent increase in the price received, returns increase by $3.68. What is the large picture of cow/calf profits? Seventy percent of the different scenarios are in the loss category. The mean is a loss of $62. This points out the importance of active management in cow/calf operations.