Cost of Gain

Posted May 5th, 2008 — Filed in Bud's Musings

This is what it costs to put on a pound of gain, what it costs to produce something like a calf or lamb. It is really important to know your cost. Always add a reasonable profit to the cost. Breakeven may sound good but it is hard to stay in business without a profit. If we know our cost, the price of our product, the price of our replacement or the cost for us to produce it, then it will be simple to be profitable.

Sell-buy marketing is something everybody uses. Yet almost everyone thinks buy-sell. The livestock industry allows or encourages us to think buy-sell. Because animals gain weight and/or reproduce, this allows us to keep them and hope we make a profit in the future. A store can not do this. The sooner they sell their product the better. No matter how long they keep it, it will stay the same size and will not have a small one setting beside it.

The fact that animals gain weight and/or reproduce is a good thing but it has allowed us to develop some bad marketing habits. If we buy something or want to buy something and try to figure out the break-even, at the best this can only be an educated guess. We do not know what the price will be in the future or what the weather will be, but with the weight gain and if the price doesn’t go down too much we can still breakeven. Then there is the year when the price goes up and we make a good profit. This is what has kept us thinking buy-sell. This is also why only a few people are willing to change to sell-buy thinking.

With buy-sell thinking, people try to keep the animal as long as possible, put on as much weight as possible and get really high daily gains. This is good except that almost every year, at some time during the year, animals that gained lots of weight and had high daily gains still lost a lot of money. This has been going on for many years. Because the price of livestock has kept going up (in the 1960s, 300 pound calves sold for less than 20 cents a pound. I bought lots for 17-18 cents), this has allowed people to guess on their breakeven and stay in business.

Now our costs are getting high and higher. At some point we may have to quit guessing what the future will be. Almost everything we read is how to get better gains. That is good but this also usually comes with a higher cost. If our stock gains a lot of weight but we lose money on them, what good did that do? We have ended up with a lot of problems because of “faster and bigger”.

My dad never fed grain to the milk cows. They were only fed what we raised on our place. They gave lots of milk without grain. With grain they would have produced more, but the cost would have taken away all of the gain. Now people want to produce a certain amount and don’t seem to care what it costs. They project out this amount, which may work until the costs go up. Then the breakeven doesn’t help much.

Dad also finished lambs and calves without grain. It would have cost too much to buy the grain and we couldn’t spare the ground to grow it ourselves. Faster or more gain is good but it come at a cost. Be sure the cost is not more than the gain.

Most people do not know what their costs are. They are so focused on production and numbers of animals that any talk of cost gets left out until the cost goes up fast or the price of their product goes down.

Marketing is where the most money is made or lost. This is true with cow-calf to grass finish or grain finish. Know your costs. Know the price of your product. Know the price of the replacement. Use sell-buy marketing. Keep in mind that when you sell, you do buy something. That is when the profit should be made. Make sure you know how to sell, what to sell, when to sell, and why you are selling. Know your cost of gain. Know the price of what you own. Know the price of what you can buy. Then, marketing is easy and profitable.

Think sell-buy then you can Smile and Mean it .