Cost of cow-calf production significantly influenced by operation size
Opportunity and overhead costs per cow declined with farm size, from $1,129 per cow for farms with 20–49 cows to $108 per cow for farms with 500 or more cows.
Many factors can influence a cow-calf farm’s cost per cow. In fact, a recent analysis by researchers at the U.S. Department of Agriculture Economic Research Service (ERS) has shown that as herd size increases certain costs decline and do so significantly.Using cow-calf data from USDA’s 2018 Agricultural Resource Management Survey, the ERS researchers estimated average costs of production per cow for five cow-calf farm size categories: 20–49 cows, 50–99 cows, 100–249 cows, 250–499 cows, and 500 cows or more. They then divided average costs into three categories:
Operating costs: Including feed costs (purchased, homegrown, and grazed feeds); costs of animals purchased for backgrounding or stocker programs; veterinary services and medicine; bedding and litter; marketing; custom services; fuel; repairs; paid labor; and interest on operating capital. These costs vary in proportion to the level of production.
Ownership costs: Including the costs of capital recovery (similar to depreciation and interest) of buildings, machinery, and equipment; taxes; and insurance.
Opportunity and overhead costs: Overhead costs include expenses such as farm supplies and building maintenance. Opportunity costs are not cash costs, but instead are the costs associated with lost opportunities when resources are devoted to cow-calf production. Two key opportunity costs for farms are land and unpaid labor. The opportunity cost of land is valued as the rental rate of pasture and the opportunity cost of unpaid labor is valued as the wage that could be earned in an off-farm job.
Total economic costs associated with U.S. cow-calf production for 2018 were estimated to range from $910 per cow for operations with 500 or more cows to $2,099 per cow for operations with 20–49 cows.
These results show significant economies of size - advantages farms have because of the size of their operation - with costs per cow declining with increased herd size, the researchers noted. The major drivers of economies of size, they identified are ownership costs and opportunity and overhead costs, particularly the opportunity cost of unpaid labor.
Ownership costs ranged from $218 per cow for farms with 500 or more cows to $407 per cow for farms with 20–49 cows. The primary driver for lower costs on larger farms was found to be the lower per-cow capital recovery cost associated with buildings, machinery, and equipment. Ownership costs were spread out more as farms increased in size, resulting in lower ownership costs per cow.
Opportunity and overhead costs per cow declined with farm size, from $1,129 per cow for farms with 20–49 cows to $108 per cow for farms with 500 or more cows. The primary driver for lower per-cow opportunity and overhead costs on larger farms was the opportunity cost of unpaid labor, which ranged from $1,065 per cow for farms with 20–49 cows to $77 per cow for farms with 500 or more cows. Much of unpaid farm labor typically comes from the operator and the operator’s family. If family sizes are the same for large and small operations, the smaller operation spreads its unpaid labor hours over fewer cows, resulting in a higher unpaid labor cost per cow. These results show clear labor efficiency gains associated with spreading unpaid operator and family labor over larger numbers of cows.
ERS researchers did not find statistically significant differences for total operating costs among the five farm size categories. Total operating costs ranged from $552 per cow for farms with 50–99 cows to $615 per cow for farms with 250–499 cows. For many operating costs, such as feed, the cost per cow would not be expected to vary much by size. A cow generally requires the same amount of feed regardless of whether she is on a large or small operation. ERS researchers noted some differences in several operating cost components, such as higher repair and fuel costs per cow among smaller farms and higher paid labor costs per cow among larger farms.To put all of this into perspective, as of December 31, 2022, USDA’s Census of Agriculture reported 622,162 U.S. farms had at least one beef cow in inventory. Of those farms, 79 percent had fewer than 50 cows and 1 percent had 500 or more cows.
