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Profit Maximization for Cattle Producers The Midwest Cattleman · March 10, 2022 · P18

By Derrell Peel, Oklahoma State University

With both revenues and calf. Or it might mean more efforts to store
costs rising, cattle producers attention on cow body condi- and feed hay
must adjust cattle production tion and supplement needs to with minimal
and marketing to maximize ensure good pregnancy rates. waste are more
profits. Economists model Or it might mean culling important now.
this decision mathematically fewer cows or breeding a few Specific cir-
resulting in the rule that prof- more heifers to expand pro- cumstances for
it maximization is the point duction next year. individual cat-
at which marginal revenues Higher cattle prices and tle producers
equal marginal costs. changes in feeder cattle prices will determine
This balance occurs when by weight changes the value whether the
the value of the last unit pro- of forage and may impact net impact of higher revenues run considerations and risks
duced equals the additional producer decisions about pro- and higher costs is a need to to be considered as well. Care
cost of producing that last ducing weaning calves versus cut back slightly on produc- should be taken that short
unit. Of course, cattle pro- using forage to add additional tion, hold steady, or increase term efforts to manage high-
ducers don’t use mathemati- weight to feeder cattle. production. Producers more er costs should not, for exam-
cal models to maximize prof- However, input costs for dependent on some inputs, ple, jeopardize herd health by
its but should use marginal cattle production are high- such as fertilizer, may be more cutting vaccination programs
thinking to adjust to changing er as well. This implies that constrained in response to or skimping on nutrition and
market conditions. Marginal producers should think about higher cattle prices, compared risking decreased future herd
decision-making means that cost adjustments at the mar- to, say, range-based ranches productivity.
production is adjusted at the gin as well. Higher fertilizer that use fewer purchased in- Markets are extremely vol-
margin, i.e., with minor mod- prices may mean that fertiliz- puts. atile now and likely to remain
ifications and tweaks to pro- er use should be concentrated Although the decisions so for the foreseeable future.
duction systems rather than on the best hay meadows and made will vary across differ- Producers should consider the
major changes. pastures and cut back a bit on ent types of cattle production use of risk management to
Higher revenues generally more marginally productive in different regions, all cattle protect revenues and poten-
suggest that producers will areas. Or it might mean ad- producers should engage in tially use forward pricing or
try harder to increase produc- ditional effort to assess nutri- the process of marginal ad- other means to manage input
tion. This might mean, for tional programs and identify justments in production and costs.
example, a bit more time and feed alternatives to optimize cost management.
effort to save an additional feed costs. For example, extra There are short and long-