Timely spring rains and an improvement in pasture conditions will be vital for some cow-calf producers to stay in business this year. After all, record-high calf and feeder cattle prices can’t save an operation if it can’t feed or water its animals.
My friend Howard was among the industry’s top 20 largest cow-calf operators in the late 1980s, but drought and other factors have whittled down his cow numbers over the last 25 years. His operation has been fortunate to escape the ravages of the drought of the last three years, but Howard has had no desire to expand his cowherd. Why?
His answers are a microcosm of why the U.S. cattle population continues to shrink and why expansion still seems years away. Howard is in his 70s and wants to retire. He has no family members interested in taking over the business, so he’s aggressively culling his older cows in preparation for selling a cowherd that has no cows over five years old.
Second, Howard has seen his operating costs skyrocket; they’ve doubled in the past six years. While calf and feeder prices increased to record levels in 2012, and will likely do the same this year, Howard doesn’t see the kind of returns that would encourage him to stay in the business much longer.
Howard still has a large spread by industry averages. I won’t disclose his acreage, as he doesn’t want to be identified, but his ranches include 400 miles of road and 300 miles of pipeline. You can imagine the annual maintenance cost for these items.
His diesel costs last year totaled $164,000, while his gasoline costs totaled $72,000. The combined total was 32% higher than in 2011.
Truck tires last year cost him $17,000 vs. $13,000 in 2011, while big equipment tires cost him $23,270 vs. $10,000 in 2010 (2011 comparisons weren’t available). Howard also forked out $3,600 last year for welding rods, up $1,000 from the year before.
Running his operation involves 29 permanent employees, all but eight of whom are salaried. Howard pays and treats his staff as well as anyone I know. He won’t tell me how much he pays them, but he spent $66,000 on grocery allowances for them last year, up from $47,000 in 2010.
Another Perspective: A Pitch For Operational Simplicity
He also provides them with free meat products. Food costs for the cowboy wagon totaled $11,000 last year vs. $6,300 in 2010. Howard’s 2011 costs also included more than $50,000 in medical insurance, $39,000 in workers’ compensation and $2,000 for an employee safety program.
The bottom line is that Howard’s operating costs in 2012 totaled $2.3 million spread over 6,000 cows. That compares with $1.4 million in costs six years ago when he had 8,000 cows. Howard’s calves last year each cost $600 to raise, compared to $300 six years ago.
Howard feels blessed that his ranches largely escaped the drought. He has friends in Kansas and other states who have spent tens of thousands of dollars on additional feed supplies, and on hauling water after ponds dried up. Many cow-calf producers in several states are still doing this. One reason they’re still in business is they invested the positive returns they’d had in prior years, knowing full well they’d need them for a rainy(less) day.
Timely spring rains and an improvement in pasture conditions will be vital for some cow-calf producers to stay in business this year. After all, record-high calf and feeder cattle prices can’t save an operation if it can’t feed or water its animals. Yet those who remain in business will all face escalating operating costs. This will continue to cause producers to think hard about the cost of retaining heifers for herd expansion, even if this cost appears to be a sensible investment in the future.
There’s no easy way to help cow-calf producers expand. Maybe lenders could give producers interest-free loans to keep heifers until they’ve calved, allowing the lenders to recoup their investment. The best hope appears to be improved pastures and producers’ natural inclination to return their ranches to optimal stocking rates.
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