Category: Depreciation

5 Keys to Quality Cattle

by Dave Pratt

Here are the keys to producing quality (high gross margin) cattle, or any species of livestock for that matter:

  1. Fit the enterprise to the resource. It doesn’t matter how productive your cows are if you shouldn’t have cows. You can cram a square peg in a round hole, but it is expensive, exhausting and unsustainable.
  2. Fit the production schedule to the environment. Why don’t elk in Montana calve in March? It’s because nature’s production cycle is in synch with the seasonal availability of forage and because photoperiod has a big effect on the seasonal fertility of ALL grazing animals. This isn’t to say that everyone should be calving in late May or June. But being able to reduce hay feeding by $200-$300 per cow probably adds more value to most ranches than the extra $100 you might get for the calf weaned by the cow that consumed all that hay.
  3. Find animals that fit the environment. Hot and humid or cold and dry, subtropical or temperate, prairie, mountain or desert, a cow that works in one environment may not be suited to another. That goes for the production schedule too. A cow selected to be productive in a March-April calving program may not be fit for a May-June calving program.
  4. Hit depreciation head on. For most producers the biggest cost of keeping a cow isn’t feed, rent, or labor. It’s depreciation. We rarely even think of depreciation as a cost of keeping a cow, let alone the biggest cost! In a typical herd, depreciation averages $250-$350 per cow per year. That’s $250-$350 ON EVERY COW EVERY YEAR! Many Ranching For Profit grads have drastically reduced depreciation in their herds. Some have even eliminated it. In my mind’s eye, cattle that don’t depreciate are quality cattle.
  5. Come up with a replacement strategy that works. Most cow/calf producers have no idea of the REAL cost of raising their own replacements. The gross margin of a productive cow is almost always at least a couple hundred dollars higher than the gross margin of H1’s or H2’s on the same ranch. There are alternatives to raising your own replacement heifers. You can contract with someone else to raise them, buy them, or buy older, depreciated cows as your replacements. It is a breakthrough for some producers to realize that they don’t need replacement heifers. It’s not heifers they need to replace, it’s cows. That paradigm shift opens the door to several profitable opportunities.

These five principles can help you improve the economic efficiency of any kind of livestock. Please share with me and ProfitTips readers the principles you’ve found essential to producing quality (high gross margin) livestock.

Cow price bell curve shows real depreciation and appreciation

Real cow depreciation is not the straight-line model we’ve been told. Here’s how to profit from it.

Alan Newport | Aug 29, 2018

Building a cow value bell curve shows us what real cow depreciation looks like, and it’s not the straight-line depreciation economists and the IRS use.

Beef Producer first broached this topic at some length in June 2017 online and in the paper magazine in August 2017 with the story Consider the no-depreciation cow-calf operation. The overwhelming evidence is that heifers actually appreciate from weaning until typically 3 years old, then hold steady value until they are about five years old, then begin to depreciate rapidly.

Wally Olson, a livestock producer from Claremore, Oklahoma, teaches this concept in his marketing schools. He says beef producers have the option to sell cows before they begin to depreciate and potentially make huge progress in growing net worth. Olson has done this himself for many years.

A look at the chart labeled “Cow value bell curve” shows this clearly. It is based on heifer and cow prices in the Southern Plains last winter. Note that weaned heifers have roughly the same value at the older cows, a relationship Olson says is typical throughout the cycle of cattle prices. The biggest depreciation on this chart and in real life commonly comes in years 7 through 9 of a cow’s life.

Alan Newport

Notice the weaned heifers on the left side and old cows have roughly the same value.

This should change much about the way we think of cow depreciation and its effects on calf returns. For a visual representation of that relationship, check out the graph “Yearly calf value after cow depreciation.” Note that in the first four productive years of a cow’s life there is no actual cow depreciation to count against the calf, at least from a standpoint of managerial accounting. This says if you could sell cows in the last year or two of their peak value, you would never pay that depreciation and could arguably keep all that calf price to weigh against your cost structure.

Another interesting anomaly of cow depreciation is that very oldest cow. If you could buy these well-depreciated cows and keep them healthy with the right kind of groceries, they could offer you most of the price of a calf as a return on your investment and take little away in depreciation when you sell them.

Olson has been heard to say, “I don’t mind owning old cows. I just don’t want to make them.”

Alan Newport

Here’s a review of an explanation how such a no-depreciation cow operation might work from our previous story:

“The classic model of a cow-calf operation is that of an asset-management business: It holds great gobs of capital in the form of depreciable assets, spends varying amounts on upkeep and some inputs, and tries to overcome depreciation and create profitability by selling a product (calves). It’s that depreciating, non-working capital that creates such a headwind.

“Here’s an alternative to the traditional cow-man’s ranch: Cows are raised at home or can be bought as light heifers and then kept no longer than peak value (appreciation) at 4-5 years old. Then they are sold and younger stock takes their place. This sells a major asset (cows) before depreciation begins to rob profit from the operation. Selling cows younger also increases monetary turnover and therefore can further increase profits.

Most often, heifers are raised or bought at about 450-550 pounds. Commonly they increase in value by $1,000 or more and raise two or three calves before moving on,” Olson says.

In most cases on home-raised heifers you would sell those which don’t breed the first time either as feeder heifers, or you would give them another opportunity to breed and sell them as a later-bred heifer. Either method could offer you profits if your cost structure is low enough.

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Ranching-Why I do things the way I do:

Cow Herd Inventory Management By Wally Olson

The need of inventory management in the cow herd is that not all cows have the same value. What is the market telling me today?

Three-year-old cows 1300# 8 months bred @ $1700 Hi-Quality 4-5-year-old cows 1000-1100# 6 months bred @$1200 Avg-Quality 6-8-year-old cows 1000-1100# 6 months bred @$750 Avg -Quality 1300# 1100# True Value of a Cow- Her Cull Price @ $60 $780 $660 The calf Value 500# @$150 $750 $750 < Carry Costs> $40 per month $320 $400 Base value of a Cow $1210 $1010

What this tells me is the 3-year-old cow will have $920 in depreciation coming in her life. It could be the next preg check or many calves down the road. What the market is telling me that the 4-5-year-old cow could have $450 next year. If calves are selling for $750 the calf that this cow produces has a value of only $300 after paying the loss in the cow value. If it costs $480 to carry a cow you are down $180. The cow that I’m buying is the 6-8 year old cow .If she has made it to six the odds are she will make 10 or 12

She is will only have $90 in depreciation to be covered by 5 calves or $18 She has a base value of $1010 and cost of $750 .Her value to me is $1010 – $750(Her Cost)-$18 (Depreciation)=$260. This is a 32% return on my investment, which I can live with.

The market may be telling you to keep the heifer calf and sell the 3-year-old cow In the 6-8-year-old cow, it is telling me to keep the cow and sell the heifer calf. Look at the relationships of the classes and adjust your inventory. Only deal with today.

Turning common heifer development logic on its head

Most of you, because of “expert” advice, have been over-developing your heifers. Let’s throw out everything you have learned and start fresh to get the most efficient cows in your herd.

Burke Teichert | Nov 28, 2018

From my earliest memories of reading farm magazines and attending cattle management conferences or seminars until now, there have been many ideas and opinions about how to develop and select replacement heifers. I am about to offer a perspective that will differ from most of what you have heard or read during these many years. I have interspersed much of it in these articles during my time as a writer. Now I will try to put it in this one piece.

Heifer development not only can be, but should be much simpler than we typically make it.  Selection and development go hand in hand. They facilitate each other.

Most of you, because of “expert” advice you have received, have been over-developing your heifers. You have selected the biggest and prettiest heifers based on biased and subjective criteria. I want to suggest that you change that approach.

You will need to start where you are with the cattle that you have; so most of you will want to take a few years to get to the point I suggest. Each step will tell you how big the next step may be.

I think nearly every herd has some good cows. My definition of good—those that get pregnant, deliver and raise a good, not necessarily excellent, calf every year without you ever touching them except for routine immunizations. The rest are inferior. In the long run, you want those cows to be the mothers of your replacement heifers; so raise more of them.

How do you do it? You keep nearly all of your heifer calves. You only remove the few that are obviously challenged or inferior.

This will usually be less than 5% (maybe not at first, but keep most of them). You then shorten the heifer breeding season as fast as you dare until your bull and/or AI exposure is not more than 30 days, ideally 24.

If you have calving dates from previous years, you can see what percentage bred in 24, 45 or 65 days and can get an idea of how many days to expose this larger group of heifers. Because you will be keeping some later-born heifers and not developing them to gain as rapidly in addition to shortening the breeding season, you will need to expect a lower conception rate.

Now, instead of trying to get the heifers to 65% of expected mature cow weight, 55% will be enough. You may want to take a couple of years to get to that point. However, many have done it quickly.

I hope you see how this more moderate or “minimal” development plays into heifer selection.  With less input and size, the ones that conceive in a short season are truly the good heifers.  They are more closely adapted to your environment.

Now the arguments start to come:

  • I won’t be breeding the best heifers. You don’t know which ones are the best. Let the bulls and the environment tell you which ones are best. They are the ones that get pregnant. There are very few, if any, people that can look and tell which ones will breed.
  • I don’t want to keep that many heifers. Why not? Yearling operations are usually more profitable than cow-calf operations; and you should winter these calves like stockers going to grass. The only added expense is use of the bulls or AI.Open heifers should be nicely profitable. Many people are hesitant to keep more heifers because of the cost of development. If the cost of development is high, that is a problem; and unless you can change that, you shouldn’t be raising your own replacements.

    Don’t tell me that you need to develop your own heifers because they are better. If they were better, you could get a good breeding rate with less development cost. The added value of yearling heifers should be significantly more than the added cost.

  • I would like to use the genomic tools to evaluate the heifers before breeding them.  Why? Those tools might give you some genetic tendency information, but it won’t tell you which ones will get pregnant in the first 24 days. The bulls will.The average heifer calving in the second cycle cannot live long enough for her lifetime production to catch up with the heifers that calve in the first cycle regardless of other genetic differences.
  • That heifer’s mother isn’t good enough to keep the daughter as a replacement. You are selling the wrong one. Sell the mother. If you are using good maternal bulls, the heifer calf should have a good chance of being better than her mother. If you are not using good maternal bulls, you need to find them or raise them or become a terminal breeder.
  • I might soon have more pregnant heifers than I need. Good. Now you have a marketing opportunity. You may sell the excess bred heifers. Or my recommendation is to keep the bred heifers and sell enough late bred cows to make room for the heifers that are going to calve early.Many areas have buyers for cows bred to calve later than your calving season. Also, as you remove late-bred cows, your calving season will get shorter and the latest born heifer calves will be older and more likely to breed. You can see how the positive effects begin to multiply.
  • I don’t think those “underdeveloped” heifers will make good cows. Research done by Rick Funston at the University of Nebraska and Andy Roberts at the Land and Range Research Station in Miles City, Mont., plus a bunch of personal practical experience says that they will make better cows than the ones I am calling “over-developed.”If you want to help them along a little, do it from the time they are diagnosed pregnant as a yearling until they are checked pregnant as a 2-year old. That is the most difficult 12-month period of her life. You would much rather sell an open yearling than an open 2-year-old.

Now let’s ring up the pluses:

  • When you start putting many heifers into your herd that will all calve early in the calving season, you will soon be able to shorten the cow calving season by removing late bred (less efficient and less adapted) cows. As your calving season gets shorter, the latest born heifer calves will be older and more likely to breed. Weaning weights will also increase.
  • In future years, more and more heifers should be eligible breeders.
  • As more of these heifers come into your herd, you will be able to remove the less desirable cows. Soon you will get by with less supplemental feed and have an increased level of herd health.
  • New marketing opportunities will show up. Remember the ranchers who are terminal crossing or should be. They need your excess cows. Even though the late calving cows are a little inferior for you, they could work very well for the terminal breeders, especially after a few years into your program.

Two more points:  I am convinced that the heritability of fertility, under minimal heifer development and reduced cow herd inputs, is significantly higher than the estimates of low heritability that we usually hear. You need to buy or raise bulls that will not undo what you are trying to accomplish with your heifer development and cow culling.

Teichert, a consultant on strategic planning for ranches, retired in 2010 as vice president and general manager of AgReserves, Inc. He resides in Orem, Utah. Contact him at burketei@comcast.net.