Increasing Labor and Equipment Costs are Pressuring Cow-Calf Cost of Production
In working with cow-calf producers and discussing unit cost of production, labor and equipment costs are often the second largest expense category identified after grazed and harvested feed. Expenses related to labor and equipment have increased dramatically over the last several years and especially in the last 18 months. Competition for labor is high and those with the necessary work ethic and skills frequently find industries outside of agriculture offering wages and benefits difficult to compete with and be profitable. New and used equipment costs have skyrocketed along with repair and maintenance costs. Fuel and oil prices have increased dramatically as well, significantly increasing the costs for daily operations of equipment.
These circumstances are challenging many ranch owners and managers to evaluate their production systems. Commercial cow-calf production systems that require significant inputs of labor and equipment per cow are increasingly unprofitable. Either more cows need to be run per unit of labor and equipment or total labor and equipment costs must be reduced for the current number of cows on the ranch. Both scenarios may require a significant shift in the type of production system that is in place.
As you think about your ranch’s current cow-calf production system, if the existing trend for labor and equipment costs should continue, how will your system fair? As equipment needs to be replaced to support the existing system, will you be able to afford it? What changes to the existing cow-calf production system would be required to position the ranch to not only survive, but thrive in an environment where equipment and labor costs are high?
There is not a recipe or prescription for operating a profitable commercial cow-calf operation. Frequently a cow-calf operation’s resources are quite unique along with the goals and skills of the owners and operators. However, there are business principles that apply universally across all ranch operations. Labor and equipment costs per cow unit must be managed and controlled if a cow-calf operation is to be profitable.
Interviews with the authors of BeefWatch newsletter articles become available throughout the month of publication and are accessible at https://go.unl.edu/podcast.