The sensitivity of net cash farm income to changes in selected production variables, output prices, and input costs varies significantly across representative U.S. beef cattle operations. Larger changes in profitability result from changes in productivity and output prices than from changes in input costs.Livestock Production/Industries,

Outlaw, Joe L.

Richardson, James W.

Sartwelle, James D., III

English

Research Papers in Economics

Financial Impacts of Regional Differences in Beef Cattle Operations 
 
 
James D. Sartwelle, III 
Extension Economist, Risk Management 
Department of Agricultural Economics 
Texas A&M University 
College Station, Texas  77843-2124 
j-sartwelle@tamu.edu 
 
 
Joe L. Outlaw 
Professor and Extension Economist 
Department of Agricultural Economics 
Texas A&M University 
College Station, Texas  77843-2124 
joutlaw@tamu.edu 
 
 
James W. Richardson 
Regents Professor and TAES Senior Faculty Fellow 
Department of Agricultural Economics 
Texas A&M University 
College Station, Texas  77843-2124 
jw-richardson@tamu.edu 
 
 
 
JEL Classifications:  Q12, Q14 
 
 
Abstract:  The sensitivity of net cash farm income to changes in 
selected production variables, output prices, and input costs varies 
significantly across representative U.S. beef cattle operations.  
Larger changes in profitability result from changes in productivity 
and output prices than from changes in input costs. 
 
 
 
 
Selected Paper prepared for presentation at the Southern Agricultural Economics Association 
Annual Meetings, Orlando, Florida, February 5-8, 2006 
 
Copyright 2006 by Sartwelle, Outlaw, and Richardson.  All rights reserved.  Readers may make verbatim copies for 
non-commercial purposes by any means, provided that this copyright notice appears on all such copies. Financial Impacts of Regional Differences in Beef Cattle Operations 
 
Abstract 
  The sensitivity of net cash farm income to changes in selected production variables, 
output prices, and input costs varies significantly across representative U.S. beef cattle 
operations.  Larger changes in profitability result from changes in productivity and output prices 
than from changes in input costs. 
Introduction and Objectives 
  Beef cattle production across the United States is far from a homogeneous enterprise.  On 
the contrary, differences in climate, geography, terrain, and cultural practices yield myriad types 
of operations.  Feed costs, animal health expenses, calving season, weaning weights, 
reproductive efficiency, and access to financing are all influenced by regional differences.  Two 
questions emerge:  do the factors that drive profitability vary by region, and which factors 
influence profitability the most, under risk? 
  The objective of this study is to examine whether the chief factors influencing cow-calf 
profitability vary by region.  This study will identify several of the chief factors influencing 
financial differences and quantify their impacts at the whole-ranch level under risk.  Economic 
activity of eight representative beef cattle ranches in Montana, Colorado, Missouri, New Mexico, 
Nevada, South Dakota, and Texas (figure 1) was evaluated over a seven year horizon (2005-
2011) and the influences of  key production and input cost variables compared among ranches. 
  Sensitivity elasticities (SEs) were used to compare the impacts of selected change 
variables on the profitability of representative beef cattle operations.  Use of SEs improves upon 
previous work of this type that used regression analysis and coefficients of separate MT
WY
CO
NV
NM
FL
MOC
CA
SD
TXS
TXR
Figure 1.  Representative 
Ranches Producing Beef Cattledetermination because actual ranch-level production risk is modeled stochastically up to 100 
iterations per year.  This added to the robustness of the analysis.  SEs are similar to elasticities, 
but they quantify the average percentage change in a selected key output variable to a one 
percent change in an exogenous variable X (Richardson).   
Methods and Data 
  Monte Carlo simulation was used to estimate the effects of changes in key production and 
input expense variables on profitability at the whole-ranch level.  FLIPSIM, a farm-level 
simulation model, has been used for more than two decades to evaluate the likely impacts of 
policy alternatives (Richardson and Nixon).  Using actual ranch-level data for weaning weights 
and calving percentage along with known historical variation in cattle and feed prices, FLIPSIM 
internally estimates parameters for multivariate empirical (MVE) probability distributions, then 
uses those parameters to simulate the MVE distributions.  The program uses a set of standard 
assumptions and analyzes each representative agricultural operation using macro level 
projections of prices, inflation rates, and crop yield growth developed in the December 2005 
FAPRI Baseline.   
  Economic and production data were available for eight representative beef cattle 
operations that have been developed and maintained by faculty of the Agricultural and Food 
Policy Center (AFPC) at Texas A&M University utilizing consensus-building interview 
processes.  The representative ranches range in size from 240 to 700 head of beef cows.  All 
information about the operations was fact-checked with panels of three to six producers before 
being included in any AFPC analysis.  Table 1 presents characteristics of the ranches included in 
this study.   FLIPSIM was used to calculate the impacts of one percent changes in cattle prices, 
weaning weights, calving percentages, fuel expenses, labor expenses, cattle input expenses, and 
interest rates on net cash farm income (NCFI).  NCFI was selected as a proxy for annual 
profitability.   
  Starting values for the change variables are reported in Table 2, along with the 2005 
deterministic NCFI totals for each of the eight ranch firms.  Along with cattle prices (steer, 
heifer, cull cow, cull bull, and replacement cattle), these 2005 numbers were each increased by 
one percent and formed the basis of the seven scenarios that were compared with the base (no 
change) scenario for each ranch.   Economic activity for each scenario was simulated over the 
2005 through 2011 analysis period.  For each iteration of the model, the average NCFI for 2005-
2011 was recorded.  The 6,400 individual NCFI calculations (eight ranches times eight scenarios 
times 100 iterations) were copied from FLIPSIM into Excel to calculate sensitivity elasticities.   
Results 
  Sensitivity elasticities (SE) are reported in Table 3.  All SEs are reported with the lower 
and upper bounds of a 95 percent confidence interval.  A one-percent change in cattle prices 
resulted in a range of increases in average NCFI from a low of 1.69 percent (TXSB250) to a high 
of 8.27 percent (NVB700).  While all operations benefit from higher steer, heifer, and cull 
breeding cattle prices, those operations also suffer more from higher prices for replacement 
cattle.  Some of the ranches with the lower SEs are operations which purchase higher 
percentages of their needed replacement females.  Still, the results reveal greater than a one-for-
one return to incrementally higher cattle prices. 
  The profitability response to a one-percent change in weaning weights ranged from a low 
of 1.45 percent (MTB500) to a high of 7.01 percent (NVB700).  It should be mentioned that weaning weights for all eight ranches were increased by one percent with no accompanying 
changes in input costs.  Accordingly, one would expect no worse than a one-for-one response to 
higher sale weights for calves since all costs were held constant. 
  SEs for calving percentage ranged from 2.22 percent (TXSB250) to 10.73 percent 
(NVB700).  Similar to weaning weights, calving percentages were changed with no 
corresponding increases in any expenses.  Experience dictates that is a most unlikely occurrence.  
For each of the representative ranches studied, the SE for calving percentage was the highest of 
the seven SEs calculated. 
  The SEs associated with cost changes were all negative, as expected, and were all 
significantly smaller in magnitude than the SEs associated with revenue increases.  Fuel expense 
SEs ranged from -1.07 percent (NMB240) to -0.13 percent (TXSB250).  Labor expense SEs 
ranged from -1.26 percent (NVB700) to -0.04 percent (TXSB250).  Cattle input expense SEs 
ranged from -6.29 percent (NMB240) to -0.13 percent (MTB500).  Finally, the percent responses 
in NCFI resulting from a one-percent change in interest rates ranged from -0.89 percent 
(NMB240) to -0.05 percent (TXSB250).   
  Without accounting for risk, one might expect the response in NCFI to changes in returns 
and costs components to be more or less one-for-one.  Accounting for the risk actually faced on 
each ranch presents a different set of results.  The relatively large SEs for cattle prices, weaning 
weights, and calving percentage are associated with ranches that have relatively low base NCFIs 
on an NCFI/cow basis.  For those operations, relatively small increases in NCFI represent 
comparatively large increases in NCFI from the base.    
Conclusions and Implications 
      This research indicates exogenous factors, while not insignificant, are not the primary 
drivers of profit and loss in ranching, industry analysts might be better served examining 
macroeconomic forces to determine economic viability of this sector than by delving into 
regionalized variations in cultural practices.  This implies the relative profitability of beef cattle 
ranches across the United States is dictated less by macroeconomic factors (e.g., rising costs of 
inputs, interest rates) than by regionalized production variability and marketing.  Industry 
practitioners and those who advise them would be better able to develop risk management 
strategies that effectively deal with the true sources of risk for that region. 
 
References 
Richardson, James W.  Simulation for Applied Risk Management with Simetar.  Department of 
Agricultural Economics, Texas A&M University, January 2005. 
 
Richardson, J.W., and C.J. Nixon.  Description of Flipsim V:  A General Firm Level Policy  
Simulation Model.  Texas Agricultural Experiment Station, Bulletin B-1528, 1986.Table 1.  Description of Representative Ranches Included in this Study. 
Ranch 
Name 
 
Location 
 
Description 
MTB500 Custer  County, 
Montana 
500-cow ranch located in eastern Montana.  Ranch runs cows on a 
combination of owned land and land leased from federal, state, and 
private sources.  Federal land satisfies one quarter of total grazing needs.  
The ranch owns 14,000 acres of pasture.  640 acres of hay are produced 
annually on the owned land.  Sales of high-quality replacement females 
comprise a significant portion of receipts for this ranch.  Also, all deeded 
acres are leased for hunting.  Cattle sales represented 98 percent of this 
ranch’s 2005 receipts. 
COB250 Routt  County, 
Colorado 
250-cow ranch located in northwestern Colorado.  Federal land provides 
seven percent of the ranch’s grazing needs.  The ranch owns 2,300 acres 
of rangeland.  450 acres of hay harvested annually.  Ranch retains 
ownership of 75 percent of its steers through the backgrounding stage. 
Land development pressures have reduced grazing capacity.  Cattle sales 
accounted for 76 percent of the ranch’s 2005 total receipts. 
MOCB350 Phelps  County, 
Missouri 
350-cow ranch located in central Missouri.  This farm consists of 1,020 
acres of owned ground and 500 acres of leased ground.  560 acres of hay 
are harvested.  2005 cattle sales represented 91 percent of cash receipts. 
NMB240 Union  County, 
New Mexico 
240-cow ranch located in northeastern New Mexico.  In 2002, this ranch 
liquidated 20 percent of its mature cowherd in response to oppressive 
drought, culling 60 of its 300 cows.  Ranch has opted to fill the gap with 
200 summer stockers.  During 2005, 97 percent of gross receipts were 
derived from cattle sales. 
NVB700 Elko  County, 
Nevada 
700-cow ranch located in northeastern Nevada.  Ranch consists of 1,300 
acres of owned hay meadow and 8,725 acres of owned range, 
supplemented by 4,450 AUMs of federal grazing.  Each year, the ranch 
harvests 1,300 acres of hay. Annually, cattle sales represent all of the 
ranch’s receipts. 
SDB450 Meade  County, 
South Dakota 
450-cow West River beef cattle ranch.  Hay and oats produced on 1,150 
acres of owned cropland, and runs its cows on 6,700 acres of owned 
native range.  Grazing needs are supplemented with 2,100 AUMs leased 
from federal and state sources.  In 2005, calf and culled cow/bull sales 
accounted for 92 percent of gross receipts. 
TXSB250 Gonzales  County, 
Texas 
250-head ranch located in south central Texas (Gonzales County).  
Cows derive most of their forage needs from improved coastal Bermuda 
pasture.  Native pasture serves as fallback pasturage and is host to this 
operation’s fledgling lease hunting program.  Contract broiler 
production is an important source of agricultural revenue for this ranch.  
Cattle sales accounted for 86 percent of 2005 gross receipts. 
TXRB500 King  County, 
Texas 
The western Rolling Plains of Texas (King County) is home to this 500-
head cow-calf operation.  This ranch operates on 20,000 acres (half 
owned, half leased) of native range.  After weaning, calves are placed on 
wheat pasture and then either sold as feeder cattle or retained as 
replacement females.  Eighty-six percent of 2005 receipts came from 
cattle sales. 
 Table 2.  Selected 2005 Deterministic Net Cash Farm Income, Weights, and Expenses for 
Representative Ranches. 
 
   -----Base----- 
Ranch 
Name 
Net Cash 
Farm 
Income 
Heifer 
Weaning 
Weight 
Steer 
Weaning 
Weight 
Calving 
Percent 
Fuel 
Expense
1 
Labor 
Expense
2 
Cattle 
Input 
Expense
3 
Interest 
Expense 
MTB500  $ 155,119  480 lbs.  525 lbs.  91.0%  $ 31,252  $ 15,124  $   12,803  $ 11,200 
COB250  $   80,268  500 lbs.  530 lbs.  92.0%  $ 15,000  $ 15,000  $   12,253  $   7,736 
MOCB350  $   74,452  540 lbs.  627 lbs.  92.0%  $ 17,404  $ 24,113  $   30,593  $   5,218 
NMB240  $   39,934  540 lbs.  560 lbs.  90.0%  $ 14,420  $      944  $   30,114  $ 12,542 
NVB700  $ 106,980  437 lbs.  496 lbs.  89.2%  $ 24,203  $ 36,688  $   55,730  $ 15,904 
SDB450  $ 102,599  479 lbs.  517 lbs.  95.1%  $ 19,424  $ 32,682  $   25,179  $   8,030 
TXSB250  $   85,129  540 lbs.  600 lbs.  88.0%  $   6,918  $   2,038  $   12,382  $   4,456 
TXRB500 $  125,255  750  lbs.
4 800  lbs.
4  89.6%  $ 16,680  $   5,096  $ 100,754  $ 11,451 
 
                                                 
1 Sum of gasoline, diesel, utilities, and hauling expenses. 
2 Sum of full-time and part-time labor expenses. 
3 Sum of veterinary services, veterinary products/supplies, purchased feed, custom services, salt and mineral, and 
backgrounding expenses. 
4 Calves are backgrounded on the ranch post-weaning; therefore, these “weaning weights” reflect the sale weights 
for this ranch and not true off-the-cow weights. Table 3.  Sensitivity Elasticities with Upper and Lower Confidence Intervals. 
   Cattle 
Prices 
Weaning 
Weights 
Calving 
Percentage 
Fuel 
Expense 
Labor 
Expense 
Cattle Input 
Expense 
Interest 
Rates 
MTB500  SE  0.0220  0.0145  0.0294 -0.0035 -0.0016  -0.0013 -0.0007 
  LCI  0.0188  0.0125  0.0243 -0.0051 -0.0025  -0.0019 -0.0011 
  UCI  0.0270  0.0180  0.0416 -0.0026 -0.0012  -0.0010 -0.0005 
COB250  SE  0.0204  0.0174  0.0282 -0.0031 -0.0029  -0.0024 -0.0019 
  LCI  0.0174  0.0147  0.0235 -0.0042 -0.0040  -0.0032 -0.0025 
  UCI  0.0246  0.0211  0.0364 -0.0023 -0.0022  -0.0017 -0.0014 
MOCB350  SE  0.0546  0.0467  0.0711 -0.0067 -0.0086  -0.0108 -0.0018 
  LCI  0.0299  0.0258  0.0390 -0.0127 -0.0164  -0.0206 -0.0041 
  UCI  0.0963  0.0816  0.1273 -0.0030 -0.0039  -0.0048 -0.0005 
NMB240  SE  0.0558  0.0656  0.0926 -0.0107 -0.0006  -0.0629 -0.0089 
  LCI  0.0359  0.0428  0.0580 -0.0215 -0.0013  -0.6448 -0.0182 
  UCI 0.1024 0.1164 0.1669  -0.0060  -0.0004 0.1487  -0.0045 
NVB700  SE  0.0827  0.0701  0.1073 -0.0090 -0.0126  -0.0192 -0.0047 
  LCI  0.0375  0.0313  0.0504 -0.0237 -0.0330  -0.0502 -0.0158 
  UCI  0.1981  0.1687  0.2654 -0.0036 -0.0050  -0.0076 -0.0011 
SDB450  SE  0.0447  0.0401  0.0617 -0.0059 -0.0091  -0.0070 -0.0018 
  LCI  0.0214  0.0190  0.0278 -0.0237 -0.0365  -0.0280 -0.0102 
  UCI  0.1611  0.1449  0.2232 -0.0021 -0.0033  -0.0025 -0.0004 
TXSB250 SE  0.0169  0.0175  0.0222 -0.0013 -0.0004  -0.0022 -0.0005 
  LCI  0.0153  0.0158  0.0197 -0.0018 -0.0005  -0.0030 -0.0007 
  UCI  0.0198  0.0205  0.0281 -0.0010 -0.0003  -0.0017 -0.0004 
TXRB500 SE  0.0258  0.0233  0.0271 -0.0023 -0.0007  -0.0057 -0.0008 
  LCI  0.0220  0.0198  0.0227 -0.0032 -0.0009  -0.0077 -0.0014 
  UCI  0.0322  0.0294  0.0318 -0.0017 -0.0005  -0.0042 -0.0005 
 

County, Missouri 350-cow ranch located in central Missouri. This farm consists of 1,020 acres of owned ground and 500 acres of leased ground. 560 acres of hay are harvested.

Financial Impacts of Regional Differences in Beef Cattle Operations

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