Read the current Progressive Forage digital edition
advertisement

Picking apples off the grazing tree – Part III The stocking rate – hay feeding trade-off

Greg Halich for Progressive Forage Published on 30 October 2017
Cattle grazing in the snow

In the first article of this series (Picking apples off the grazing tree: When grazing isn't profitable), we went over extended-season grazing at a conceptual level to help understand that as we push extended-season grazing further into the winter,

the cost of additional grazing days keep increasing until, at some point, the cost of feeding hay will likely be a cheaper option. In part two (Picking apples off the grazing tree [part II]), we looked at specific examples of pushing the grazing season and evaluating the benefits and costs.

One problem we discovered was: To implement some practices, such as stockpiling forages for winter grazing, we may very well need to reduce our stocking rate in order to do this on a consistent basis.

Until we know how stocking rate affects overall profitability, we cannot determine if something like stockpiling fall pastures will be profitable from an overall farm standpoint. This month, we will evaluate how stocking rate impacts profitability and come up with some general recommendations for most profitable stocking rate given the specifics of a cow-calf farm.

How stocking rate impacts profitability

The main factors related to stocking rate that will affect profitability on a cow-calf operation are the base gross profit per cow over variable costs and the net price of hay. Although there are other factors that will affect profitability, they will be minor compared to these two and will not be discussed in this article.

When evaluating cow profitability relative to stocking rate, we need to consider how profitability will be impacted as we add (or subtract) additional cows to the herd.

This will be different than if we just consider our average profitability or cost structure for the average cow in the herd because many of the costs are “fixed,” that is, they will not change as we change the number of cows on the farm.

A good example of this would be depreciation and interest on equipment and facilities. We could have 40 cows or 50 cows on a 100-acre farm, and these costs would still be the same for the overall farm. Only those costs that would change for the overall farm as we add or subtract cows should be considered when evaluating how stocking rate affects profitability.

The main costs that fall into this second category are feed costs (hay), mineral, veterinarian services and medicine, breeding, marketing and cow depreciation or interest. Labor is an example of a cost that would fall into both categories. If we increased the number of cows on that same farm from 25 to 50, our labor cost would increase, but it would not double.

RanchingDetermining this profit over variable costs on a per-cow basis is the first step in evaluating the trade-off between stocking rate and hay feeding. If this gross profit per cow is high at the current stocking rate, then reducing our stocking rate in order to feed less hay will be costly (less cows x gross profit per cow).

The cost from this reduced stocking rate is likely to outweigh the benefit from the reduced hay cost. Conversely, if gross profit levels per cow are low, then reducing our stocking rate will not have much of a cost. The benefit from the reduced hay cost likely outweighs the lost opportunity cost of having fewer cows.

Obviously, the expected calf market over the cow’s productive life will be a main driver of this base profitability. The higher the calf prices, the more costly destocking would be and vice versa.

The second step in evaluating the trade-off between stocking rate and hay feeding is the net cost of hay, which is the production or purchase cost less the nutrient value of that hay (nutrient value you actually are getting by feeding back on pasture or hay ground).

If this net hay cost is high, then the cost savings from feeding less hay will also be high. In this case, having a lower stocking rate and feeding less hay would likely be more profitable. If this net hay cost is low, then the cost savings from feeding less hay (less hay feeding days per cow due to reduced stocking rate) will be low.

In this case, having a higher stocking rate would likely be more profitable. We would need to account for both the net cost of hay as well as the base gross profit per cow to determine the final impact stocking rate changes have on profitability.

Analysis

Assume we have a 100-acre farm that has all of its land in pasture and either has its hay ground in a separate location or buys hay. The base stocking rate is 57 cows on this farm for a winter feeding period of 150 days. Two stocking rate scenarios are evaluated where hay-feeding days drop 30 days at a time:

1. Stocking rate decreases down to 28.5 cows for zero hay feeding days (50 percent stocking rate compared to the base).

2. Stocking rate decreases to 23.6 cows for zero hay feeding days (41 percent stocking rate compared to the base).

These two stocking rate scenarios are presented so the user can choose which relative stocking rate decrease seems more realistic given their specific situation.

Other important assumptions used in the analysis are an 85 percent combined breeding/weaning rate and $450 variable costs per cow per year (categories noted in the first section). Since calf prices change from year to year, a distribution of prices were used (Table 1 or 2) with the average weighted steer/heifer price of $1.40 per pound for a 525-pound calf.

Tables 1 and 2 show the profit change of the various stocking rates per hay feed days compared to the base stocking rate for 150 hay feeding days. Hay feeding days drop by approximately one month for each stocking rate scenario.

More optimistic stocking rate

Three net hay cost scenarios are also presented: $40 per ton, $60 per ton and $80 per ton, which represents the cost to produce or buy the hay less any nutrient value the user derives from feeding the hay.

Less optimistic stocking rate

As an example, if the actual cost of the hay was $70 per ton, and you estimated the nutrient value at $10 per ton, you would use the $60-per-ton net hay cost.

The numbers in the table are interpreted as the profit change going from 150 hay feeding days to any of the other hay feeding days scenarios. For example, in Table 1 using the $60-per-ton net hay price, the 60 hay feeding day scenario shows a +$1,600 value.

This means lowering the stocking rate from 57 cows to 38.1 cows to reduce hay feeding from 150 to 60 days a year would increase profit on the farm by $1,600 (with the scenario of $60 per ton net hay).

With $40 per ton net hay cost, this result is -$800, which means you would decrease profit on the farm by $800 by moving to the lower stocking rate. The hay feeding days per stocking rate where profitability is highest within a few hundred are shaded in each table.

The net price of hay has a major impact on the most profitable stocking rate. When the net hay price is low, stocking rates that correspond to 90 to 150 days of hay feeding are most profitable. When the net hay price is high, stocking rates that correspond to zero to 90 days of hay feeding are most profitable.

As previously noted, two tables are presented so you can choose which relative stocking rate is more appropriate for your farm.

Use the table, then the net hay price that best represents your situation to determine what stocking rate will be most profitable. If you are unsure which table is best, I would recommend using the average of the two tables. Results for the most profitable hay feeding days using the average of these two tables can be generalized as:

$40 per ton net hay – 90 to 120 hay feeding days

$60 per ton net hay – 60 to 90 hay feeding days

$80 per ton net hay – zero to 60 hay feeding days

Keep in mind, you have flexibility with these stocking rates. When calf prices appear to be higher or lower than average, you have the ability (within a certain extent) to adjust your stocking rate. When profitability appears to be higher than normal, it makes sense to increase your stocking rate and vice versa.

If you make your own hay and are using your own cost estimates, do not include your fixed costs of production for the hay making equipment, since these costs will not change as you make less or more hay needed for a change in stocking rate.

If you do not have good cost estimates, I would recommend around $60 to $70 per ton at current fertilizer and fuel prices. (This includes subtracting out the fixed costs of production). Finally, if you don’t have good estimates for the fertilizer value from feeding hay back onto pasture or hay ground, I would recommend $5 to $15 per ton for most situations.  end mark

PHOTO 1: Until we know how stocking rate affects overall profitability, we cannot determine if something like stockpiling fall pastures will be profitable from an overall farm standpoint.

PHOTO 2: When evaluating cow profitability relative to stocking rate, we need to consider how profitability will be impacted as we add (or subtract) additional cows to the herd. This will be different than if we just consider our average profitability or cost structure for the average cow in the herd ... Photos by Paul Marchant.

Contact the Greg Halich for more details of this analysis.

Greg Halich is an associate extension professor of agricultural economics with the University of Kentucky. Email Greg Halich.

Before commenting on our articles, please note our Terms for Commenting.

LATEST BLOG

LATEST NEWS