How Knowing Your Break Evens Helps You Market Your Cattle
I’ve got something to say, and it might rub some people the wrong way. But I’ve still got to say it.
If you aren't taking care of the business, nothing else matters. It's a business, not just a lifestyle.
I think this is true in just about any industry, but it’s something we sometimes tend to gloss over in agriculture and ranching. We love this lifestyle. We love being part of the legacy of cattle ranching and raising beef. But that lifestyle can disappear in a hurry if we aren’t also keeping a trained eye on the books and keeping the business afloat. After all, if we aren’t focusing on profitability, we won’t be able to keep the lifestyle.
When we’re talking about buying and selling cattle, there are decisions you can make that will benefit your business, and ones that will be a detriment to it. While we can’t always predict the future or know exactly how circumstances will turn out, we do have some powerful tools we can use to guide us, using numbers that apply directly to our operations.
One of the best tools at your disposal is calculating your break evens. A break even can be used to estimate your profits or losses when finishing cattle, before you even make a purchase.
In it’s simplest form, breakeven can be figured by (initial animal cost + interest on cattle + feed cost + interest on feed + yardage + health + processing + death loss) divided by final weight. But what does that actually look like? Let’s walk through an example.
Break Even Calculation Example
Step 1: Calculate Total Cost per Calf
Purchase Weight: 600 lbs
Multiplied by Purchase & Delivery Cost: $1.55 per lb
Equals Total cost per calf: $930
Step 2: Calculate Weight to be gained for target sale weight
Target finish weight: 1300 lbs
Minus purchase weight: 600 lbs
Equals Weight to be gained: 700 lbs
Step 3: Calculate Cost of Gain
Daily Cost of Gain $0.80 **This is an average calculation. It may increase or decrease depending on your ration cost, days on feed, and yardage costs.
Times weight to be gained: 600 lbs
Equals Cost of Gain per calf: $480
Step 4: Calculate cost to finish the calf
Cost of Gain per calf: $480
Plus purchase cost: $930
Equals Total cost at finish: $1,410
Step 5: Calculate breakeven price
Total cost at finish: $1,410
Divided by total finish weight: 1300 lbs
Equals Breakeven Price: $1.08 per lb
Compare your breakeven price to the boards in the month you expect to sell. If these were June cattle, we see that the June boards price is $1.04. So this calf would have lost $58. To make a profit, the June board needs to be higher than the breakeven cost of $1.08.
Calculating Break Evens
There are plenty of online tools o play with the calculations and determine exact breakeven costs for your own scenarios. Utilizing a breakeven calculator, such as the one available at https://fairleigh.com/calculator or the ones available at CattleFax.com give you a really detailed look at where your expenses are at, how you can impact them, and what your break even would be for a calf, before you even buy it, or for fed cattle before you send them to finish. In addition to helping you know when to buy and when to sell, break even calculations can also help you know if you should retain ownerships of calves and determine profitability in your cow-calf operation.
When we have tools like these that can even do the math for us, there is just no excuse for not knowing your break even numbers. Knowing your price points can open a lot of doors for you. Once you know your break evens, you can start being a more savvy marketer.
Marketing Your Cattle
The other piece of this is knowing the market. Watch the board daily and adjust your break even calculations for different delivery dates so you know when it is a good time for you to buy or sell. You can check the markets in lots of ways. One of my favorites is through CattleFax.
The bottom line is, you need to know exactly what your cattle are worth on any given day. There are no excuses when it comes to knowing your cattle’s worth. An excellent piece of advice was recently shared with me from a cattleman I respect:
Stop spending so much time worrying about production and start thinking about marketing. Be an active marketer.
When you start actively marketing your cattle and utilizing the tools to make educated and informed choices in your purchasing and selling decisions, you will begin to see a difference in your business.
Keep Learning
Continuing to learn and expand my horizons of knowledge in the cattle industry is something I will always be investing in. One way I have been doing this is through our online community, Cattleman U.
Cattleman U provides an educational platform with access to incredible speakers, industry discounts, and other cattlemen who are learning right alongside you. Our most recent segment covered futures and hedging and gave great insight into how to get started. As I write this, we are getting ready to launch our next segment: Balancing the Books, which will feature presentations from Ranching for Profit, Dave Specht -author of The Farm Whisperer, and special presentations and resources on farm records, bookkeeping, insurance and more to help you know the ins and outs of managing your farm and ranch business.
Learn more at CattlemanU.com or sign up below for our waitlist so you always know when the doors are open to join.