Oklahoma State University Extension  |   November 21, 2011

Efficiency is important to the profitability of an individual cattle operation and to the competitiveness of the industry as a whole.  In times of changing output and input values, it is very important to keep in mind what efficiency is…and what it isn’t.  It is probably most common to think of efficiency in physical or technical terms, which are based on quantity of output relative to quantity of input.  This includes common production values such as feed per pound of gain and pounds of calf weaned per cow.  Such physical measurements often provide the rules of thumb that guide day to day decisions in an operation.

However, most producers recognize that there are limits to the extent that physical measures of efficiency are economical.  What really matters is economic efficiency, which can be thought of as the value of outputs relative to the value of inputs.  This results in the important distinction between maximizing production and optimizing production.  This explains, for example, why we see different types of cattle in different parts of the country.  In more extensive productions environments, a smaller cow and thus a smaller weaning weight is more economical than the bigger cow size that works better in other regions.  Technical efficiency is part of economic efficiency but it is not the whole story.  This leads to the most important point in this discussion: changing input and output values can change the economic efficiency even when the technical efficiency has not changed.  And that can lead to a situation where the optimal decision changes.  Relying on physical production guidelines can lead to less economical results when output and input values change.

One of the most obvious situations could be feedlot production.  For many years, the relative cheapness of feed grains meant that production systems that pushed physical efficiency in terms of average daily gain and feed conversion were consistent with economic efficiency.  However, when concentrate feeds are fundamentally more expensive, the most economically efficient production may be one that accepts slightly lower physical efficiency by utilizing more alternative feeds.  This is not necessarily the case for any or all feedlots at the current time but the point is that the production system must be reevaluated when input costs change.

The same may be true for many decisions made by cattle producers at all levels of the industry.  The most economically efficient production systems today may imply different targets for production parameters such as weaning weights, average daily gain, etc.  The beef industry has a wide range of flexibility to adjust production systems using different inputs, such as relative amounts of grain versus forage.  In today’s changing and volatile input markets, it is critical that, as individual producers and as an industry, we examine the economic efficiency of our production systems and be prepared to modify some of the physical rules of thumb that have guided decisions in the past.

Source: Derrell S. Peel, Oklahoma State University Extension Livestock Marketing Specialist