ICOW convention attendees hear about the changing economics of cattle business
Casper – “These are amazing times,” said Dallas Mount, UW Extension educator. “Things have really changed in the cow business, and the fundamentals of the economic situation have really changed.”
The Independent Cattlemen of Wyoming (ICOW) hosted a wide variety of speakers on Nov. 7-8 for their annual meeting, including Mount, lawyer Tracy Hunt, Montana legislator Krayton Kerns and Bill Bensel of the Powder River Basin Resource Council.
Mount looked at how the cattle business has changed in the past year in light of significant changes in the market.
In looking at a fictitious ranching operation, Mount noted that it is important to segregate each business in the operation to determine which segments are profitable.
“The biggest business is a cow/calf business,” Mount explained. “The only thing that sold for cash is the steer calves. They are also in the hay business.”
The ranch also retains all of their heifers and develops them, so Mount noted that the heifer development business is an additional enterprise of the ranch.
“Anyone who holds back heifer calves is in the heifer development business,” he said.
The final enterprise is the land business that they own.
In looking at the return yielded from each segment of the operation, Mount said, “The land business has income because the cows are making a payment to the land. Just like the hay I grow, I could either sell it or feed it to my cows. The cows have to buy the hay they eat.”
On the same token, the heifer development business purchases the heifers from the cow/calf business each year, and the hay business leases the land from the land business.
While an actual check is not written, Mount noted that those expenses should be accounted for to determine profitability.
Looking at figures from the past several years that Mount believes are typical of Wyoming ranches, he noted that returns were much greater in 2014 than years past.
“This is a game-changer,” Mount said.
The change, he noted, is in the cow/calf business.
Mount used the example of a 100-cow ranch. If 87 percent of cows wean a 500-pound calf that is worth three dollars a pound, each cow produces $1,305 worth of income to sell.
Income is also yielded from selling cull cows. If 14 percent of cows are culled and sold at $1,500, that yields $195 income per cow.
Total income per cow is about $1,500.
On the cost side of the equation, Mount noted that grass, livestock costs and opportunity costs are prominent.
“If we graze nine months of the year at $30 a month, the other three months we are going to feed hay at a cost of $120 a ton. We also are going to supplement. Let’s use $50 for protein and mineral,” he said. “Some ranches can do this cheaper, and for others it will be more expensive.
Total feed and nutrition costs amounted to $500 per cow.
On top of feed, livestock costs, including vet expenses, bulls costs, trucking, supplies and marketing result in around $155 cost per cow.
Because 14 percent of the herd had to be culled, replacement costs for bred heifers run at around $3,000 per bred heifer purchased.
“Split out per cow in the herd, my heifer development cost is going to be about $420,” he said.
One expense that Mount said many producers neglect is opportunity cost.
“What is a running age cow worth?” he asked. “If we say about $2,200, we have to charge ourselves market price for buying the cow from the heifer development business. Is there time value for my money? Yes.”
Because money can be spent other ways, including being invested, Mount noted that opportunity cost must also include the interest that could be charged if the money was borrowed from the bank to purchase the replacements.
“If we multiply the $2,200 by six percent interest, the opportunity cost is $132 per cow,” he said.
Changing the game
“Have we ever heard an egghead say that the biggest cost to owning cows is feed costs?” Mount asked. “That has always been true – until this year.”
“The biggest cost of owning cows is heifer development or cow depreciation and the opportunity costs of money invested in the cows,” he added. “This is a game changer.
With feed costs at only $500 and livestock costs reaching $707, Mount noted that producers are going to have different choices to make this year.
He also emphasized, “Heifer development isn’t the same thing as cow depreciation. When we hold back heifers and develop them, we are keeping the herd static.”
However, if heifers weren’t held back, the value of the herd would decline every year based on the age of the cow.
“Every year, the bunch of cows depreciates a little bit,” Mount said. “That is a real cost.”
“We are in a new economic reality in this business,” Mount commented. “I think we need to strategize as we look forward. Heifers, cow depreciation and opportunity costs on our money are going to be our number one issue going forward.”
The Independent Cattlemen of Wyoming’s (ICOW) annual meeting, held Nov. 7-8 at the Casper Ramkota, drew a crowd of nearly 50 individuals from across the state.
“ICOW was organized to promote and protect the future viability of the Wyoming family livestock and ranching industries,” W. Frank Eathorne, ICOW president, said. “ICOW meets once a year with the goal of educating cattlemen and landowners on the pressing issues our livestock industry faces.”
The convention welcomed speakers on a wide variety of topics, including Newcastle rancher Tracy Hunt on the Global Roundtable for Sustainable Beef, Bill Bensel of the Powder River Basin Resource Council and Bill Bullard, CEO of R-Calf. Montana Representative Krayton Kerns also spoke at the convention.
Topics included cattle markets, property rights and related policy.
Members also discussed the organization’s policies and drafted new resolutions for consideration. Resolutions passed by member ballot became an official ICOW policy.
Resolutions were developed on a wide variety of topics and will be mailed by ballot to all ICOW members to be voted on. Those resolutions include support to abolish the current beef checkoff and opposition to a supplemental checkoff, opposition to special designation of land without due process, opposition to a proposed land exchange of 14,000 acres of state land within the Thunder Basin National Grasslands and opposition to the EPA’s Waters of the U.S. proposed rule, among others.
For more information on ICOW or the actions taken at the meeting, visit icowwy.org or contact Eathorne at 307-359-8055.
Saige Albert is managing editor of the Wyoming Livestock Roundup and can be reached at saige@wylrnet.