I had dinner this week with a good friend who has been active – and, by all definitions, pretty darn successful – in the cow business. He confessed that he was down to 30 head of cows after shifting his operation increasingly toward stockers. I suspect he’ll always have a few cows but this man is pretty good with a pencil and the stocker phase has simply been more profitable for him over time.
I probably wouldn’t have thought much about it, but that meeting was followed up with a conversation shortly afterward with another longtime rancher. This rancher told me: “It sounds crazy with record prices and such a good outlook for the next few years, but my wife and I have been looking to not work quite so hard, and this hunting and fishing thing has been pretty good to us. I think we're going to sell the cows, focus on recreation and yearlings, and enjoy not feeding and calving after this year.”
Another farmer I know who used to run quite a few cows also has determined that farming is a better deal economically; he's reducing numbers, too.
I still think expansion in cow numbers will come, but the recent rise in cattle prices doesn’t seem to be triggering the type of all-out expansion one would expect. Whether it’s a matter of demographics or economics, some people are investing in land and opting to simply wait for the land to appreciate, without running cows on it in the meantime. I don’t have any scientific data to back this up, but my sense is that the cow-calf industry is going to take longer to expand than people think, and that expansion will be smaller than in the past.
The fixed overhead costs per cow unit are only increasing. In our area not that many years ago, one could figure about $3,500/cow unit. Most people would say it's closer to $10,000 today. That means that if it used to take $50/head profit to trigger expansion, it will require $150/head or more to do it now.
Certainly, if your operation has excess capacity, then ramping up may make sense. But it certainly appears that the rates of return are going to have to be significantly higher than in the past to trigger expansion in the wider industry.
-- Troy Marshall