Advice From One Smart Rancher

Much-needed rain over most of the country has greatly increased the demand for cows. This has caused the relationships of the markets to move so much that the cow is now overvalued compared to other classes of animals. With this change in relationship, it may be time to reallocate capital in different classes of animals.

A Handbook for Ranch Managers  Keep reading. There is some really good advise here. — jtl, 419

by Wally Olson viaDave Pratt at Ranching for Profit Blog

Planned Grazing: A Study Guide and Reference ManualWally Olson is a rancher and RFP alumnus from Vinita, Oklahoma. When Wally is talking, I try to tune out the distractions and listen, because he’s always got something to say that’s worth hearing. I’m using this edition of ProfitTips, with Wally’s permission, to share an email he distributed to some colleagues that offers some sage advice to those who are serious about making profit in the cattle business.

The Perfect Storm Is Here In The Cow Business

Environmental & Natural Resource Economics: The Austrian ViewMuch-needed rain over most of the country has greatly increased the demand for cows. This has caused the relationships of the markets to move so much that the cow is now overvalued compared to other classes of animals. With this change in relationship, it may be time to reallocate capital in different classes of animals.

Combat Shooter's HandbookWhat I’m saying here is that it may be time to go out into your pastures and gather up animals that have the most risk of dropping in value in the next year and replacing them with animals that have the greatest potential for appreciation.

Reconnaissance Marine MCI 03.32f: Marine Corps Institute Example: A 6-year-old cow with a calf today has a value of $3,500. The next two or three years the same cow could have the value of $1,210 at cull cow prices. So that cow would have $2,290 of real depreciation. If you carried her for three more years and had three more calves, each calf would The Betrayed: On Warriors, Cowboys and Other Misfitscarry $763 in depreciation costs. When you add the cost to carry ($1.50 per day) and the depreciation costs you now have $1,310 costs in those calves. If a 500-pound calf is worth on average $2.75, and with a 95% calf crop, you now have a calf worth $1,306 that cost you $1,310.

The Essence of Liberty: Volume I: Liberty and History: The Rise and Fall of the Noble Experiment with Constitutionally Limited Government (Liberty and ... Limited Government) (Volume 1)  The Essence of Liberty: Volume II: The Economics of Liberty (Volume 2) The Essence of Liberty: Volume III: A Universal Philosophy of Political Economy (Liberty: A Universal Political Ethic) (Volume 3)Cost to carry is the real costs you incur in such things as pasture, medicine and feed.

The 3-, 4- and 5 year-olds in your herd have a different set of costs. Their cost would only be the cost to carry ($547.50). So now you have a calf that is worth $1306 and a cost of $547.50. So with these animals, instead of losing $4 you will be making $758.50.

Depreciation is the most misunderstood part of the cow business. It is not straight-line the way you would count it on your taxes.

Instead, that depreciation has to be placed on the calves, where the depreciation actually takes place. And those are the calves from 6-, 7-, 8- and 9 year-old cows. Eventually, when a cow depreciates until she reaches cull price and you can keep raising calves with her, there is no depreciation — only the cost to carry her. So all the money is now being made on the young cows and the old cows. The ones in the middle cost a lot of money. However, you cannot make old cows. You have to buy them to make this work.

As we look at these high cattle prices and look at all other commodities, there has been a 50% rollback or more in corn and oil. So when we project a possible rollback of 50% in cattle prices, this $3,500 cow now is really scary. If you roll the cull cow price back by 50% we are in the $60-per-hundredweight range. So then an 1,100-pound cull cow is worth $660. So if the market would roll back by 50%, we are now talking about $2,840 depreciation.

No matter what we do, our inventory value is going to drop as the market moves lower. But to mitigate the effects of the drop in the market we need inventory turnover and to build cash. Your cattle are your inventory.

Example: Suppose we were to sell some of the older pairs (by older I mean 6-year-old cows) and keep a heifer calf this fall. By doing this we’ve sold a $3,500 cow and calf and replaced her with a $1,375 heifer calf this fall. So now this fall we have a weaned heifer calf and $2,125 cash. But now we have to bring that heifer calf up equal to the cow and calf we’ve sold. It will be 600 days from the day she is weaned until she has her first calf. If it costs $1.25 per day to carry a heifer until she calves, she’ll cost a total of $750. So what did we give up and what did we get from our trade? We gave up a 6 year old cow, replaced her with a two year old cow and put $1,375 cash in our pocket.

We do not know what the market will do. What we do know are the relationships between the different classes of cattle we have in inventory. As these relationships change we need to sell what is overvalued and keep what is undervalued, all the time building cash, feed inventory and time when the market turns.

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Planned Grazing: A Study Guide and Reference ManualPlanned Grazing: A Study Guide and Reference Manual. This is the ideal squeal to A Handbook for Ranch Managers.  Although the ecological principles remain the same, what was originally known as “The Savory Grazing Method” now answers to a multitude of different names: ranching for profit, holistic management, managed grazing, mob grazing, management intensive grazing, etc. Land & Livestock International, Inc. uses “Restoration Grazing” under its “Managing the Ranch as a Business” program.” No mater what you call it, this summary and synopsis will guide you step by step through the process and teach you how to use it as it was originally intended. No more excuses for failing to complete your grazing plans.

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About Land & Livestock Interntional, Inc.

Land and Livestock International, Inc. is a leading agribusiness management firm providing a complete line of services to the range livestock industry. We believe that private property is the foundation of America. Private property and free markets go hand in hand—without property there is no freedom. We also believe that free markets, not government intervention, hold the key to natural resource conservation and environmental preservation. No government bureaucrat can (or will) understand and treat the land with as much respect as its owner. The bureaucrat simply does not have the same motives as does the owner of a capital interest in the property. Our specialty is the working livestock ranch simply because there are so many very good reasons for owning such a property. We provide educational, management and consulting services with a focus on ecologically and financially sustainable land management that will enhance natural processes (water and mineral cycles, energy flow and community dynamics) while enhancing profits and steadily building wealth.
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