Factor in depreciation costs in business plans

Beef producers should evaluate management practices and determine ways to become more efficient without sacrificing production.

With years of all-time high cattle prices in the recent past, it is logical to assume high profitability in the cow-calf sector, says Patrick Gunn, Iowa State University (ISU) Extension cow-calf specialist and Denise Schwab, ISU Extension beef program specialist.

But remember, profit per cow is "return per cow over cash costs.”

Because many operations have reinvested in infrastructure and herd expansion in the past couple of years, fixed costs and in particular depreciation should not be overlooked. These costs include depreciation on machinery, equipment, housing and fences for the cattle operation, as well as interest, insurance and depreciation on the cattle themselves.

ISU Ag Decision Maker estimates that total fixed costs in 2014 were likely upwards of $180 per cow. Standardized Performance Analysis (SPA) in Iowa suggests depreciation alone was upwards of $65 per cow.

To read more about calculating depreciation costs, click here.

 

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