Cattle ranchers share ways to maintain business during market downturn
Torrington – With average cow costs exceeding $800 this year, producers are looking for ways to keep their businesses afloat while riding out the downtrend in the cattle market.
University of Wyoming (UW) Extension Educator Dallas Mount held a discussion encouraging producers to evaluate their costs, and explore their options during the Southeastern Wyoming Beef Production Convention in Torrington last week.
“After spending the last few weeks reviewing 20-30 sets of ranch books, I think what producers do over the next few years is going to have a profound impact on their business,” Mount told nearly 30 beef producers.
Cow costs ranged from $220 to $1,200 per cow in 2016. Mount figures $800 average based on $360 pasture, $40 supplement, $150 for cow depreciation and purchasing replacements, $125 for labor, $50 overhead, $50 vaccinations, marketing and trucking, and $50 for bull costs.
Producers also have varying amounts of interest to add into the equation. Based on costs, some producers lost $300 per cow in 2016.
While some operations are still profitable, Mount sees a lot of ranches falling into the red.
“Some producers could suck up this kind of loss and roll it into next year, depending upon how their business is structured,” he said. “It is also dependent on if they were paying rent for land, a cow note and an operating note. Some producers can withstand these kind of losses for a year, maybe two, but probably not three.”
Many ranches made changes in their operations while cattle prices were up in years like 2014. Since then, many are paying more costs per cow due to increasing pasture rent, labor costs and bull costs.
“We spend a lot of time worrying about the markets,” Mount said. “If we would spend more time determining what our costs actually are, we would have a better idea what options we have.”
Producers can start by evaluating what parts of their business are profitable and which ones aren’t.
“Break each enterprise down and look at the numbers,” he encouraged ranchers.
“Most ranchers have something on your ranch that is not working, but until they do the numbers, they won’t be able to figure out what it is. By pinpointing that enterprise, a producer can stop doing it. They may end up working less and making more,” he said.
The Extension Specialist told producers to look for areas with lots of leverage, where they could make some changes.
“We always want to key in on the areas we like and are good at,” he explained. “But, these areas may not have major leverage.”
Reducing labor costs is also key to surviving price downturns. Mount recalled a producer he spoke with recently who brought his son back to the ranch when prices were high in 2014 because he could finally afford to do it. With low cattle prices, the father is now wondering how to fire himself from the operation and how to make up his loss of income.
Mount said a good rule of thumb for labor is $50,000 a hired man, which figures out to $125 per cow. Based on that, a producer would need 400 cows just to pay a hired man.
Some ranches will have tough decisions to make.
“For some, it may come down to choosing between the father and his son or daughter who have just recently come back to the operation,” Mount admitted.
“In my opinion, the labor cost per cow is the number two determination of profitability on the ranch. The key is to run a simple operation. We want to make a ranch really hard to be competitive, overcapitalize on labor. A ranch with $250 per cow in labor costs will find it hard to be profitable in today’s market,” he said.
Some ranches may be looking at making some changes to their cowherd.
“Often times, we think of our cows as the last thing to go on the ranch, even if they are the least profitable,” he said. “To become a profitable ranch in these times, they may end up being the first thing that needs to go.”
During discussion, producers suggested alternatives like changing livestock species, adding sheep to the operation, reducing herd size, selling cows and getting out of the business, culling some of the herd and not retaining replacement heifers.
Others suggested communicating with their lender, finding ways to reduce input costs and improving grazing efficiency.
“If producers want to evaluate their ranch based on one number, it would be the amount of hay fed per cow,” Mount said.
“That is the greatest correlating number with profitability on a ranch than any other number. That doesn’t mean there aren’t some operations that feed a lot of hay and are profitable, but there are a lot more ranches that feed very little hay and are very profitable,” he noted.
Gayle Smith is a correspondent for Wyoming Livestock Roundup and can be reached at firstname.lastname@example.org.