Producers should keep efficient cow costs in mind
“The average cow cost in the late 80s and early 90s was about $365 each year,” says Ranch Economics Practitioner with the King Ranch Institute for Ranch Management Stan Bevers during a Jan. 5 University of Nebraska-Lincoln (UNL) Beefwatch podcast, hosted by UNL Beef Extension Educator Aaron Berger. “Today, my clients’ average cow cost is $956 per cow each year. How in the world did annual cow cost get from $365 to $950 in a matter of 30 years?”
Bevers shares major pitfalls of raising cattle are maximum productivity limitations and rising costs. While margins are tightening for cattle producers, typically, managing cow costs can help in the highly capitalized business.
Three major costs
“Typically, the first of the top three costs will be labor and management involved in raising cattle,” Bevers notes.
Second is the depreciation of all assets. Although Bevers says some will argue deprecation is a non-cash cost, he believes it must be included to gain the full picture of ranch finances.
“It takes a lot of dollars and assets in the ranch, and assets depreciate overtime. Assets will run out of efficiency and depreciation overtime and will have to be replaced,” he says.
“The final is always the feed cost – typically purchased or raised feeds,” Bevers continues. “Those three costs typically make up about half of what the total cost per cow is each year.”
Cost effective spending
While there is no one action to streamline effective management of cow costs, Bevers says the best cow cost managers scrutinize every dollar they spend.
“The number one goal of cow/calf operators is to wean a live calf,” he shares. “As producers spend their dollars, they should ask themselves, ‘How does this help me wean a live calf?’”
He continues, “An example is purchasing a new horse or ATV. With this new tool, if the producer can get out to the heifers 15 minutes sooner to get a calf up off the cold ground and get them nursing, the money spent can be justified.”
Bevers explains the mentality is not low-cost production or high-cost production, but rather, efficient production.
“When spending dollars, recognize the dollars spent as expenses to help wean more calves,” he adds. “It sounds silly, but this is how producers need to look at it.”
“Fixed costs of an operation dealing with assets include depreciation, insurance, repairs and maintenance, taxes and interest – something abbreviated as the DIRTI five,” Bevers states.
He shares from his experience, in a ranching operation there is a DIRTI six, adding labor and management as another fixed cost for producers to consider.
“These fixed costs typically make up 63 percent of the operation, so for every dollar of revenue a ranch brings in, regardless of where the money comes from, 63 cents of the dollar pay those six line items,” Bevers explains. “Then, the ranch has 37 cents left to do two things with – pay variable costs like feed purchases and vet bills or keep some of the revenue as net income.”
Bevers adds the easiest way to decrease fixed costs in the short term is to increase the number of units in production, which in the ranching business correlates to running more cows on the same amount of assets.
Importance of efficiency
In the past, Bevers notes, emphasis was placed on the land to make returns on investment. Though by ranching, producers have chosen cattle as a tool to generate return on the land investment.
“The fact producers have chosen cows as the tool to get return on the land, they have to accept there will be a number of fixed costs associated with a cowherd,” he says. “Recognizing the relationship between fixed costs of land and cattle, including stocking rate relative to the fixed costs of maintaining the cowherd is critical.”
“A cow gives ranchers three things in her life – her calves, half of the genetic potential for her calves to gain and eventually her cull value,” says Bevers. “Coupled with the rising cost of inflation, managing for greater efficiency is important because maximizing productivity won’t work. More often than not, in trying to maximize productivity expenses can get away, and the cost of this is greater than the return of increased production.”
Averi Hales is the editor of the Wyoming Livestock Roundup. Send comments on this article to firstname.lastname@example.org.