The Cost of Producing Forage-Finished Cattle in Hawaii
Sabry Shehata1 and Linda J. Cox2
1University of Hawaii at Hilo;
2CTAHR Department of Natural Resource and Environmental Management
The project was funded by the County of Hawaii Department of Research and Development.
Cox and Bredhoff (2003) have examined the current situation and outlook for the Hawaii beef industry and concluded that the local market has some potential for expansion. Forage-finished beef has the largest share of the market and many people feel that this type of beef has a large potential for expansion. However, larger producers appear to have no economic incentive to switch from exporting calves to supplying stockers or forage-finishing stockers. At the same time, the options for feeding cattle in Hawaii are limited. More information on the economics of cow-calf production and on finishing animals on forage is needed in order to determine what economic incentives would encourage producers to market more beef locally. The purpose of this publication is to investigate the costs of cow-calf production, the costs of forage-finishing, and the marketability of forage-finished or natural beef.
The Cost of Production for Cow/Calf Operations
Personal interviews were conducted with ranchers across the State of Hawaii from May 2003 to July 2003 in order to determine the costs associated with producing a beef calf and finishing the animal on forage. The producers participating in the survey were stratified according to size. A large ranch was defined as an operation with more than 500 animals, while a small ranch was defined as an operation with 50 to 500 animals. A small, representative number of ranchers were identified and contacted to determine their willingness to participate. In order to protect the identity of the ranchers, the number of ranchers interviewed in each category is not disclosed.
The majority of the large ranchers interviewed were engaged primarily in the production of cow/calf units, with the calves being exported. A calf is assumed to weigh on average 450 pounds and be 12 months of age. Large ranchers also finish a small number of animals on forage and sell these cattle to the local market. One rancher contracts a feedlot to finish the cattle that will be sold locally. The smaller ranchers generally produce calves that they finish on forage and sell locally, or they may sell their calves to other local producers for finishing.
Among small ranchers participating in the survey, the average ranch size was 454 acres, with an average annual production of 57 finished animals. The stockers are kept in the ranch for 26 months, which is 14 months longer than a calf is kept at a cow/calf operation. The total herd size with the cows, calves and stockers averaged 208 animals.
Table 1 lists the annual costs associated with producing one calf, excluding taxes, license insurance and interest, and the total. The owner’s labor was valued at $10.00 per hour. The other expenses were averaged across the herd size.
Table 1. Estimated Annual Per Calf Cost for a Small Cow/Calf Operation
| Expense Category | Cost/Animal |
|---|---|
| Owner’s labor1 | $143.43 |
| Hired labor | 16.48 |
| Auto and Gas | 17.00 |
| Veterinary services | 8.69 |
| Water Use and system depreciation | 4.37 |
| Minerals and other feed supplements | 13.04 |
| Depreciation on breeding bulls | 14.95 |
| Pasture | 5.15 |
| Fence repairs and depreciation | 1.12 |
| Miscellaneous | 1.41 |
| Total Annual Cost | $225.63 |
1Only direct labor valued at $10.00 per hour is included.
Table 2 contains the expenses and total cost for small operations to finish a calf on forage. On average, the per animal cost of finishing is estimated to be $249.03, assuming 14 months are required to finish the animal. Adding the cost of producing the calf to the cost of finishing brings the total cost of production for a forage-finished animal to an estimated $474.66, on average, for small producers. Assuming the average dressed weight of the animal is 624 pounds, the cost per pound of dressed meat is $0.76.
Table 2. Estimated Average Cost of Forage-finishing A Stocker1On a Small Operation
| Expense Category | Cost/Animal |
|---|---|
| Owner’s labor2 | $167.40 |
| Hired labor | 19.20 |
| Hauling | 3.70 |
| Auto and gas | 19.80 |
| Veterinary services | 10.10 |
| Water use and system depreciation | 5.10 |
| Minerals and other fed supplements | 15.20 |
| Fence repairs and depreciation | 1.30 |
| Pasture | 6.00 |
| Miscellaneous | 1.70 |
| Total Cost | $249.03 |
1The time required for finishing is assumed to be 14 months.
2Only direct labor valued at $10.00 per hour is included.
Among the large ranches that participated in the survey, the average size was 12,000 acres, which produced, on average, 2300 cattle annually with 200 held for forage-finishing. This means that 8.6 percent of the average large operation was concerned with the production of beef for the local market.
Table 3 lists the expenses and total annual cost of producing a calf for a large cow/calf operation. On average, the cost for large ranchers is estimated to be $261.50 per animal.
Table 3. Estimated Annual Per Calf Cost for a Large Cow/Calf Operation
| Expense Category | Cost/Animal |
|---|---|
| Hired labor | $146.00 |
| Owner’s labor1 | 18.30 |
| Auto and gas | 20.00 |
| Veterinary services | 12.50 |
| Water use and system depreciation | 2.70 |
| Mineral and other feed supplements | 16.80 |
| Depreciation on breeding animals | 13.80 |
| Fence repairs and depreciation | 8.00 |
| Other overhead cost | 23.30 |
| Miscellaneous | 23.30 |
| Total Annual Cost | $261.50 |
1Only direct labor valued at $10.00 per hour is included.
Table 4 presents estimates the cost for a large producer to finish a calf on forage. The estimated average cost for the additional 14 months required to finish the animal is $305.80. Adding in the cost of producing the calf brings the total cost of the finished animal to $567.30. Assuming the average dressed weight of 560 pounds, the cost per pound estimate is $1.00 for a large producer.
The $1.00 estimated cost for large producers is greater than the current market of 95 cents per pound that the producers surveyed receive. Therefore, this group has no economic incentive to enter this market and will need at least $0.05 more per pound to make the market cost effective. For this group, vertical integration of the operation needs to be examined in order to produce enough economies of scale to lower costs. Alternatively, product branding may allow them to obtain a premium large enough to cover the total cost of operation (Table 4).
Table 4. Average Cost of Forage-finishing A Stocker1 On a Large Operation
| Expense category | Cost/Animal |
|---|---|
| Owner’s labor1 | $170.80 |
| Hired labor | 21.50 |
| Auto and gas | 23.30 |
| Hauling | 6.10 |
| Veterinary services | 14.70 |
| Water use and system depreciation | 3.10 |
| Mineral and other feed supplements | 19.70 |
| Pasture | 10.50 |
| Fence repairs and depreciation | 9.30 |
| Miscellaneous | 27.30 |
| Total Cost | $305.80 |
1Only direct labor valued at $10.00 per hour is included.
Ranchers could consider purchasing a stocker to be forage-finished, rather than having a cow-calf operation. Therefore, the cost of this option was also examined. The total cost of finishing one animal is estimated to be $513.80 and, assuming that the average dressed weight is 600 pounds, the estimated cost per pound is $0.86.
Table 5. Cost of Forage-finishing a Stocker for a Finishing Operation
| Expense Category | Cost/Animal |
|---|---|
| Stocker1 | $270.00 |
| Owner’s labor2 | 144.00 |
| Auto and gas | 7.60 |
| Hauling | 28.80 |
| Veterinary services | 6.00 |
| Water use and system depreciation | 3.40 |
| Pasture | 23.40 |
| Fence repairs and depreciation | 22.40 |
| Miscellaneous | 5.00 |
| Total Cost | 513.80 |
1The cost is the current market price for a 450 pound animal.
2Only direct labor valued at $10.00 per hour is included.
Table 6 presents the estimated cost of the three alternative methods of forage-finishing presented here. Among those producers who participated in the survey, small producers appear to have a competitive advantage over large producers and those producers engaged in finishing. Except for the cost of the stocker, those producers engaged in finishing alone appear to have costs that are competitive with those of the small operators that produce their own stockers. The $45 difference in stocker price can nearly be accounted for by the difference in cost per animal for the two types of producers.
Table 6. A Comparison of the Estimated Costs of Forage-finishing for Small, Large and Finishing Operations.
| Type of Operation | Cost/Animal | ||
|---|---|---|---|
| Small operation | $474.66 | ||
| Large operation | 567.30 | ||
| Finishing operation | 513.80 | ||
Conclusion
The estimated cost of production for large operators is greater than that of small operators. Some of the cost differential is accounted for by the higher labor costs. The use of the owner’s labor, rather than hired labor makes large producers less competitive. Given, a relatively low value of $10 per hour was placed on the owner’s labor, the result is not surprising. The cost of hired labor, if fringe benefits are included, is likely to be more than $10 an hour, given that the average field/livestock wage rate in Hawaii was $9.25 per hour in 2001 (Hawaii Agricultural Statistics Service).
Small, fully integrated operations clearly have a competitive edge in supplying the local market with forage-finished cattle. However, smaller producers may face challenges in marketing, since the smaller volumes and inconsistent yields may not allow them to achieve the economies of scale in supplying a specific volume consistently. If the beef industry could develop a production strategy that would create efficiencies that would lower the costs of all producers, then large producers could enter and market volume would increase. Alternatively, a marketing strategy that resulted in a higher price would provide large producers the economic incentive to enter the market.
At the same time, local consumers bought forage-finished beef before grain finishing became the norm in Hawaii. This beef was often tough with a strong flavor. The quality consistency remains a challenge. However, some producers currently marketing forage-finished cattle have made progress on this issue by developing rigid quality standards. If the producers could continue with efforts to establish a market identity and a system to ensure quality consistency this challenge can be met.
REFERENCES
Cox, Linda J. and Soot Bredhoff. 2003. The Hawaii Beef Industry: Situation and Outlook Update. College of Tropical Agriculture and Human Resources, Honolulu, HI. 20pp.
Hawaii Agricultural Statistics Service. 2002. Statistics of Hawaii Agriculture 2001. Hawaii Department of Agriculture, Honolulu, HI.