Black River Farms Case

QUESTION 1-3 What is the appropriate cow size for the herd? 1,100lbs is the best cow size for the heard. Marginal analysis shows that at the current price of $148/cwt, BRF would reduce its expenses (though marginal benefit and marginal cost would still not be equal). Increasing or decreasing size will cause a further loss in marginal net benefits and thus make it less profitable Fixed Other Costs Avg. calf Revenue Revenue Supplement Contribution Total Net Cow DN Cost Variable per cow Total Net Weaning per cow per cow + Mineral Margin (VR- Costs Benefit Weight (VC) Costs with 50 Costs Benefit Weight (VR) (MR) Cost (VC) VC) (MR) (MR) (VC) cows (FC) 585 1000 (58.5%) 865.8 199.29 95.36 304.72 266.43 293.98 893.35 -27.55 611 1100 (55.5%) 904.28 38.48 214.47 104.9 304.72 280.19 293.98 918.07 24.72 -13.79 13.76 617 1200 (51.4%) 913.16 8.88 228.71 114.43 304.72 265.3 293.98 941.84 23.77 -28.68 -14.89 622 1300 (47.8%) 920.56 7.4 242.94 123.97 304.72 248.93 293.98 965.61 23.77 -45.05 -16.37 630 1400 (45%) 932.4 11.84 256.23 133.5 304.72 237.95 293.98 988.43 22.82 -56.03 -10.98 Which approach best measured the appropriate cow size: weaning a calf at 50% the mother’s weight or comparing the value of a calf to the cost of maintaining the cow? Comparing the value of a calf to the cost of maintaining the cow has a more direct correlation to the cost of producing a calf. By calculating the marginal cost of increasing cow weight, we can determine the optimal (most profitable) weight of a cow. Weaning a calf that is 50 percent of the mother’s weight may be less profitable because increases in revenue from calf weight may not outweigh increases in expenses due to the cow's weight. The second approach also allows the owners of the farm to have tighter control over a key driver of expenses (food and nutrition of cow) and thus have more levers to use in maximizing profits.