Calculating the Cost of Production for a Cow-Calf Operation

Cost of production is a key piece of information needed to make the best economic decisions when selling animals. When calculated, the cost of produc­ tion helps you to determine the minimum price you need to get for your calves to avoid losing money. If the price the buyer pays is less than your cost of production, you will lose money. The price you receive is determined by how much buyers are willing to pay. If you are the only seller and there are many buyers, you likely have the power to set your price higher than your cost of production. But the market for calves here and on the U.S. mainland gener­ ally has more sellers than buyers. Sellers often must compete with one another, giving buyers more choice in picking which seller’s calves to buy. In this type of market, the price that buyers are willing to pay is likely to be closer to the seller’s cost of production. When a seller can control a market and set the price, it often attracts competition. Sellers with a large share of the market should always expect new sellers to emerge or existing sellers to become more competitive. Unfor­ tunately, such “seller’s market” conditions are not often found in Hawaii’s livestock industry today. Most cow­ calf operations in Hawaii do not get a per-pound price for calves that is significantly higher than the cost of production. In fact, some operations may make little or no profit. To navigate such market conditions and keep your operation going, knowing your cost of production becomes critically important. Long before you have calves to sell, you need to compare the price you are likely to be offered with your cost of production to make sure you can cover your costs. This way, if your costs will not be covered, you will have time to make changes. This publication details the information needed to calculate cost of production for a cow-calf operation. It also presents a calculator that runs on Microsoft Excel and uses information you supply to figure the cost of producing a calf. The information needed by the calcu­ lator is described, and blank worksheets are provided for making notes. You can enter your information into the Excel calculator yourself, after you download it from our website, or you can ask a Cooperative Extension Service agent to assist you in entering the data. If you do not have Excel and do not wish to purchase it, you can use the calculator provided on our website, which does not require Excel. The website address is www.ctahr.hawaii.edu/paniolo, and the site also provides contact information for CES county offices. You can also complete the calculations yourself, using the informa­ tion and formulas on the worksheets.