Last week’s Industry At A Glance zeroed in on historical cow-calf returns. Ignoring the anomalies of 2013-2015, the average annual return since 1990 is approximately $30 per head. The Livestock Marketing Information Center (LMIC) in Denver, Colo., is currently estimating an average of about $15 per cow over the course of 2018.
And as noted last week, there’s huge variation across operations. Nevertheless, the underlying premise is that large returns are hard to come by in the cow-calf business. In other words, cash flow is often tight for many cow-calf enterprises.
That said, for many operations the primary source of wealth (not cash flow) is the general rise of land values over time. That fact underscores the importance of the inheritance tax – another issue for another day.
With all that in mind, this week’s illustration provides an overview of recent land values (per USDA) and operating cow costs (per LMIC). The data are reflective of the post ethanol era mandate.
There are many potential interpretations around the data. However, it’s important to remember that land values do play an important role in the overall economic assessment of an operation.
But interestingly enough, cow costs have increased about $260 per cow since 2007. Simultaneously, land values have increased $320 per acre. That’s roughly a $1-to-$1 run over time. Conversely, cow costs represented about 53% of pasture value in 2007; that’s since jumped to 60%.
How do you perceive the data? Is land value keeping up with cow costs? Or are cow costs outrunning land values? Do you keep a watch on general land values when it comes to assessing how you manage your costs year over year? Leave your thoughts in the comments section below.
Speer serves as an industry consultant and is based in Bowling Green, Ky. Contact him at [email protected]