(Laura McKenzie/Texas A&M AgriLife Marketing and Communications)
The key risk management strategies for successfully running a profitable business include setting and measuring production, economic, and financial performance objectives, identifying the unit cost of production, and benchmarking against alternative production systems. As Peter Drucker said, “You can’t manage what you can’t measure.” Therefore, a profitable business needs to establish clear financial and production performance objectives.
Beef-Cattle Standard Performance Analysis
One of the most effective tools for measuring your ranch’s productivity, financial performance, cost of production, and profitability is the Beef-Cattle Standard Performance Analysis (SPA). In 1992, the National Cattlemen’s Association adopted the Standardized Performance Analysis (SPA) system developed by NCBA producers, the National Integrated Resource Management Coordinating Committee, and Texas A&M AgriLife Extension Specialists.
The primary objective of this system is to help producers increase their profitability, reduce production costs, and enhance operational efficiency. There are always opportunities to improve within your beef-cattle operation. The first step with SPA is to determine your current position and identify areas for improvement or areas of weakness.
SPA serves as an analytical tool that helps pinpoint potential areas for enhancement and measures individual progress. This standardized analysis enables comparisons across production years, among producers, within different production regions, and across various production systems. Producers can analyze trends and observe the results of their management changes.
Historical Production Costs
Historically, one of the most significantly correlated factors with ranch profitability has been the production costs per hundredweight (CWT) of weaned animals. The top 25% of ranches with the highest net income are those that maintain lower total economic and financial costs per pound of weaned cattle.
Production costs per CWT weaned per exposed cow have increased at a rate higher than inflation in the U.S. Therefore, maintaining an efficient production system with low costs is crucial for a profitable and sustainable ranch. By using our resources more efficiently, we can work towards these goals. Implementing an efficient grazing system, ensuring that the size of the cow herd is appropriate for the environment, and maintaining an accurate stocking rate will help us reduce costs.
Implementing SPA in your ranch
At Texas A&M AgriLife Extension, we have developed software and worksheets to assist producers of all sizes in utilizing the SPA (Single Point Analysis) in their operations at any time. These tools will help you organize your production, financial, and economic information for a comprehensive analysis of your cow-calf herd. If you have any questions about SPA and how to implement it in your operation, please get in touch with us (Pancho Abello, fjabello@tamu.edu, 940-647-3908). Using SPA is an annual process that enables cattlemen to enhance ranch profitability by analyzing trends and assessing the outcomes of their decisions. It is an excellent tool for accurately evaluating production, financial, and economic performance, allowing you to measure progress and achieve your goals. By integrating long-term management strategies and tools like SPA, ranchers can maintain an efficient production cost, improve performance, and, most importantly, increase profits.