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Asset Depreciation, Input Costs Affect Profitability

“The number-one cost to keep a cow is not feed,” says Stan Bevers. “It’s depreciation.”

That means, says the Texas AgriLife Extension economist based in Vernon, TX, that cow-calf producers are asset managers. “The number one thing that indicates you make money is return on assets,” he says. “And if I have assets, what I have is depreciation of those assets. Your land will appreciate. Everything else – fences, machinery, cows – will depreciate.”

Bevers bases his statements on the Standardized Performance Analysis (SPA) data he collects on 55 operations in Texas, Oklahoma and New Mexico totaling nearly 22,000 females. Analyzing data from 2005 to 2009, he says the average cost to carry a cow is $571/year. However, that ranges from $466 for the top 25% of operations to $720 for the bottom 25%.

Using averages, the data show that depreciation accounts for $16.3% of the total average annual cost/cow. Feed is 15.6% and labor and management accounts for 14.3%. “Of those top three, the only one you really can change is depreciation,” he says.

Bevers suggests for operations in the Southwest that the total cost per cow should be between $450 and $550. “The top three expenses should account for at least 45% of your total expenses. That’s $200-$250/female.” That leaves $250-$300 for everything else – rent, repair and maintenance, interest, vet costs and other costs, such as utilities, insurance and taxes.

Nonetheless, there’s the balancing act between controlling costs and optimizing income. “Are your cows weaning an appropriately-weighted calf for your resources?” he asks. “Are you stocked right for your land resources?”

Those questions are important because the answers can affect reproduction, weaning weights and feed costs. “Remember, if she doesn’t get bred, nothing else matters. Everything else that follows is an expense with no income to offset it.”

For the Southwest, he suggests these parameters:

  • Pregnancy rate greater than 90.5%. This includes all females, even the first and second calf heifers.
  • Calving rate greater than 88%.
  • Weaning percentage greater than 85%.
  • Average weaning weight of all calves – 540 lbs. “While your management determines this to an extent, Mother Nature can always trump you. If it doesn’t rain, they won’t gain.”
  • Combine the average weaning weight with an 85% weaning rate, and the pounds produced per female should be a minimum of 460 lbs.

Bevers says your management will determine these levels. “Any less, you need to figure out why. Where is the loss occurring? Any more than these may cost too much.”

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