Rancher Rules of Thumb
Over the last several years, I have traveled around Wyoming and many other western states conducting workshops on economic ranch tools for producers. Often during those workshops, ranchers will tell me rules of thumb that they use to make decisions.
I started collecting those rules of thumb and writing them down. I also went out to the Ranch Talk Forum on ranchers.net and solicited rules of thumb from producers all over the U.S. and Canada. I received some good rules, some fun rules and some not-so-good rules.
I decided to utilize some of the tools on the Wyoming Ranch Tools website, uwyoextension.org/ranchtools, to analyze some of the rules of thumb a little more closely.
We will look at two rules in this article associated with cow value and pasture value.
First, I would like to start out with a little perspective.
One of the Rules of Thumb I received was the following – “Take care of the land, and it will take care of you, meaning always do what is best for the land, and cash flow will be there. But, if you put cash flow ahead of the land, you will likely go broke and end up teaching at some university.”
Since I do, in fact, work for University of Wyoming Extension, I guess I fall under this category. So, you can take my advice with a grain of salt.
Now, let’s look at a more serious rule.
A common rule that I have heard over the years from producers is, “Multiply the price of a steer calf times two, and that is the price you can afford to pay for a cow.”
This rule may be okay in the case of an average year, but it would certainly over-value cows during market high years and under-value cows during market low years.
If we look at 2014 and 2016, we can see this. In 2014, two 550-pound steer calves were worth $3,245. In 2016, two 550-pound steer calves were worth $1,815. A better approach to this rule might be to take the five-year average steer calf and multiply by two.
However, this still ignores a key factor in how much an individual can afford to pay for a cow. That key factor is the annual cost to run a cow on a ranch for a year. Annual cow costs can vary greatly from ranch to ranch.
The top table on the right shows the value of a cow if the producer’s annual cow cost is $500. If that cow were to raise five calves under constant market prices she would be valued at $2,367. However, if the annual cow costs of a ranch were $750, that same cow would only be valued at $1,285.
As you can see, cow costs can make a huge difference.
On the lighter side, I received the following rule of thumb about boys, and some say it also applies to dogs. “A boy is a boy; two boys are half a boy; three boys are no boys at all.”
Now let’s get back to a serious rule of thumb. A theory I heard just lately is, “Five months’ worth of rented summer pasture should cost a third of what a steer calf is worth at weaning time. If the calf is worth $900, a third of that would be $300, so $300 divided by five months would be $60 per month.”
Certainly, one of the most common questions I get asked is “What is the going rate for a pasture lease?”
The animal unit month (AUM) value calculator on the Wyoming Ranch Tools website can help answer this question and examine the rule of thumb.
In this example, we look at putting pairs on pasture for five months. The user enters in the calf in weight and current market price of the calf. The calculator calculates the out price based on a $0.09 per hundredweight price slide. Based on these numbers, the lease value would be between $177.91 and $269.57, depending on the quality of pasture and the amount of care provided.
Oftentimes, rules of thumb were developed by a ranch and made sense for that ranch at the time. They do not always transfer to other ranches and do not always stand the test of time. Oftentimes, too many variables change over time that can be dangerous to ignore when following rules of thumb. The calculators on the website are designed to help producers analyze these rules as well as other potential changes on a ranch.
If you have a rule you would like to share, please e-mail me at email@example.com.
Finally, I would like to share my favorite rule so far – “Sign the backs of checks not the fronts.”