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Never before have so few fed so many

Grazing cattle

Never before in history have so few fed so many and fed them so luxuriously as U.S. agricultural producers do today.

That observation is unoriginal, though the reality is often taken for granted — even by producers.

“Since World War II, we have been the beneficiaries of the decreasing cost of food to where we spend less than 10% of our annual disposable income for food. One could argue that our entire consumer economy depends on having inexpensive food,” explained Dr. Laura Kahn at last fall’s annual convention of the Texas Cattle Feeders Association. “Agriculture and the food security it provides is really the foundation of civilization itself.”

Kahn is a physician and research scholar with Princeton University’s program on science and global security at the Woodrow Wilson School of Public and International Affairs. She’s also a co-founder of the One Health Initiative.

Sustainably producing such largesse is borne by a combination of things, of course: old and new, innovation built upon experience and attention to details in both genetics and management.

Consider things as mundane as grazing and weaning.

Kris Ringwall, a beef specialist at North Dakota State University, points out in his BeefTalk newsletter that weaning calves early can save 25% of available forage. That’s based on research at the Dickinson Research Extension Center, weaning calves in mid-August versus early November.

This concept isn’t new; dry cows have fewer nutritional requirements than lactating ones. Early weaning is often considered amid dry conditions like those currently faced by some producers in the Dakotas and parts of the Southeast.

Producers are just as familiar with the need to tally the net economic trade-off of the management tool. The benefit side of the ledger in this case includes forage savings, increased cow body condition, a potential boost in reproduction and a more favorable marketing window for cull cows. The cost side includes things like lighter calves at weaning and potentially squandered feed resources.

The point is, effective beef cattle managers make these kinds of decisions every day about how to get the most from the least.

Now consider something as new as genomic testing and tools.

At the recent Beef Improvement Federations (BIF) annual meeting, Thomas Lawlor, director of research at Holstein Association USA, described the evolution of genotyping and genomic-enhanced selection in the Holstein breed.

Rather than find the next must-have, curve-bending bull, Lawlor says the top Holstein breeders today are more interested in how increasingly dependable genetics can increase production and decrease cost.

“The real driver behind the pursuit for faster genetic gain are the improved genetics they bring into their herd,” Lawlor says. “The real money is made from milking those elite genetics. This is the true success of the genomic era.”

It’s more than genomics. The type of breeders mentioned by Lawlor harness the potential by using advanced reproductive tools like in vitro fertilization (IVF).

“Seedstock breeders are putting in vitro fertilization facilities on their farm, negotiating their own contracts with AI companies, consulting with geneticists, studying consumer and economic trends, and trying to predict where our industry is headed,” Lawlor explains.

You can find similar examples among beef seedstock and commercial producers.

“Farmers are more convinced than ever of the importance of good genetics in their herds,” Lawlor says. “Many are investing heavily in it and are convinced that their herd will be more profitable due to their genomic breeding program.”

What's the most profitable heifer replacement strategy?

Keeping up with your heifers

I routinely estimate the costs of replacement heifers as we go through the current cattle cycle. Figure 1 presents my estimated cost of raising replacement heifers from 2011 through 2017. Clearly, the highest-cost replacement heifers over this seven-year period were those preg-checked heifers entering the herd in fall 2015.

As pointed out in my last Market Adviser column, there are two components in the cost of a preg-checked replacement heifer. First, there is the market value — opportunity cost — determined by the market value of the weaned heifer calf that could have been sold at weaning. Second, there is the on-ranch cost, or the cost of developing, the heifer calf into a preg-checked heifer. 

The biggest changing cost factor from one year to next is the market value of the weaned replacement heifer entering the development phase. The most expensive heifers put into a herd in recent years were those 2014-born heifer calves that became preg-checked heifers entering the breeding herd in fall 2015.

Cattle cycles

The biggest factor impacting heifer costs turns out to be the cattle cycle and its resulting price cycle. So, let’s do a brief review of historical cattle cycles and calf price so you understand where I am coming from.

Note we had a cattle cycle in the 1930s, another cattle cycle in the 1940s and one in the 1950s. We sort of had a cattle cycle in the 1960s, and we had another cattle cycle in the 1970s. Each cattle cycle peaked at a level above the previous one.

In the 1980s, something changed. We had a small cycle in the 1980s, and then cattle numbers continued downward. We had a small cattle cycle in the 1990s and again, cattle numbers continued downward.

A drought occurred in cattle country in 2002, BSE in 2003, drought again in 2006 and ethanol expansion in 2006-07. The cattle cycle was now broken, and cattle numbers continued downward; however, there is some indication that the cattle cycle may now be alive and well again. But, I do not see the cattle cycle peaking above the previous cycle, as in the last century.

Figure 2 presents FAPRI’s (University of Missouri Food And Agricultural Policy Institute) 2016 cattle cycle projections out to 2025. Again, we see a projected return to the more traditional nine- to 11-year cattle cycle, but cattle cycles are not peaking above the previous cycle.

Beef price cycles

We know that cattle cycles cause beef price cycles. Figure 3 presents historical 400- to 500-pound calf prices for North Dakota through 2007, and projections at that time through 2015. You can clearly see the cyclical nature of calf prices during the 1960-2015 time period. As cattle numbers peak in the cattle cycle, calf prices tend to bottom out.

As I summarized in last month’s Market Adviser, the main variable cost in raising replacement heifers is the opportunity cost of not selling the weaned heifer. You can see the year-to-year variability in weaned calf prices in Figure 3.

Heifer calves held back in years of low prices tend to be lower-cost replacements when placed into the cow herd as preg-checked heifers. Heifers held back during years of high calf prices tend to be high-cost replacements.

The accumulated value of the last seven years of replacement heifers is a good estimate of the capital invested in the current beef cow herd. In my eastern Wyoming-western Nebraska study herd, that number currently is $1,953 per cow.

Generally, the higher the total investment cost in any given cow herd, the higher the economic cost of producing a hundredweight of calf. The goal here is to increase long-run herd profits by reducing the total capital investment in the cow herd.

Adjust to the cycle

Figure 4 presents 2008 through 2016 eastern Wyoming/western Nebraska calf prices overlaid on U.S. All Cattle numbers with projections out to 2023. This work was done two years ago, suggesting cattle numbers went down in 2013, 2014 and 2015, and that cattle numbers were projected to rebuild in 2016, 2017 and 2018.

If you apply my cattle cycle strategy suggested above, you would sell the maximum number of calves born during years 2014 and 2015, and hold back the maximum number of heifers possible in 2016 and 2017.

Yes, beef cow numbers would change year to year, but accumulated profits over the price cycle should also be higher. Remember, one probably cannot be profitable each and every year, but one needs to be profitable over the complete price cycle.

I am suggesting that heifer calves born during the low phase of the price cycle produce calves during the high phase of the price cycle. In turn, heifer calves born during the high price phase of the price cycle produce calves during the low phase of the price cycle. Finally, some of the profits generated from the peak cattle price years are to be carried forward to pay expenses during the low price/rebuilding years.       

In summary, the timing strategy of your replacement heifers goes a long way in determining the long-run capital investment in the mature beef cow herd, and goes a long way toward determining the long-run beef cow profits from your beef cow herd. During a complete price cycle, the least profitable heifer replacement strategy may well be keeping a fixed number of replacement heifers each year — a very common practice.

Hughes is a North Dakota State University professor emeritus. He lives in Kuna, Idaho. Reach him at 701-238-9607 or [email protected]

How antibiotic overuse in human medicine impacts beef producers

Antibiotic use by humans
As this map shows, every resident of some states receives the equivalent of more than one prescription of antibiotics each year. Yet, according to the Centers for Disease Control and Prevention, at least 30% of antibiotics prescribed in the outpatient setting are unnecessary. Total inappropriate antibiotic use, inclusive of unnecessary use and inappropriate selection, dosing and duration, may approach 50% of all outpatient antibiotic use.

“If we don’t address the problem of antibiotic resistance, we may lose quick and reliable treatment of infections that have been a manageable problem in the United States since the 1940s. Drug choices for the treatment of common infections will become increasingly limited, and in some cases, nonexistent.”

That’s a statement from the U.S. Centers for Disease Control and Prevention (CDC) in 1999. Dr. Kurt Stevenson shared it at last year’s Antibiotics Symposium hosted by the National Institute for Animal Agriculture (NIAA). He is an infectious disease physician in the division of infectious diseases at Ohio State University’s Wexner Medical Center.

“I can say very clearly that we’re at that point,” Stevenson explained. “We have patients now who have drug-resistant pathogens for which there is either one drug — or no drug — available to treat them.”

“We see this on a fairly regular basis in our medical center,” he said. “We have a number of patients who have very limited choices, and as a consequence, we have to use very expensive drugs and drugs that tend to have higher toxicity.”

Ever since Alexander Fleming rediscovered penicillin in 1928, followed by wide-scale production in the 1940s, health care providers worldwide have continued to grow increasingly dependent on nature’s wonder drugs to combat bacterial infection. Doctors in the U.S. are no exception.

Health care providers in the U.S. prescribed 266.1 million antibiotic prescriptions in 2014 — equivalent to 835 antibiotic prescriptions per 1,000 people, according to CDC. That’s equivalent to five prescriptions written for every six people each year.

Today, the United States is the third-largest consumer of antibiotics in human medicine in the world, according to Dr. Laura Kahn, a physician and research scholar with Princeton University’s program on science and global security at the Woodrow Wilson School of Public and International Affairs. Only India and China consume more.

“That’s total use,” Kahn emphasized. “The countries with the highest per capita use of antibiotics, for whatever reason, are Australia and New Zealand.”

One Health Initiative

Kahn is also co-founder of the One Health Initiative.

“One Health is very simply the concept that human, animal and environmental health are linked,” Kahn told participants at last year’s annual convention of the Texas Cattle Feeders Association (TCFA). “And because they are linked, complex subjects such as antimicrobial resistance must be examined in an interdisciplinary way.”

Kahn put that concept to work in research highlighted in her book, “One Health and the Politics of Antimicrobial Resistance.” You’ll hear more about Kahn’s research in a future article in this series.

Suffice it to say, her research dismantles the assumptions European regulators made about the presumed link between antibiotic use in livestock and antibiotic resistance in humans, an assumption that continues to drive antibiotic policy there.

More in our antibiotic series:

“There are a lot of similarities between the evolution of medicine and agriculture over the course of the 20th century,” Kahn explained at the TCFA session. “Both became increasingly specialized, technologically driven and dependent on antibiotics. “

In the case of medical care, the price of care increased dramatically. In the case of agriculture, the price of food decreased, particularly in the United States. “Since World War II, we have been the beneficiaries of the decreasing cost of food, to where we spend less than 10% of our annual disposable income for food. One could argue that our entire consumer economy depends on having inexpensive food,” Kahn said.

Human health

All of that is why antibiotic stewardship — preserving the use of antibiotics for their intended purpose —is gaining urgency in both livestock and human medicine.

“I tell our staff and physicians that antibiotics are unlike any other drug. They’re societal drugs,” Stevenson explained. “If I use an antibiotic in one patient today, it may influence the ability of that drug to effectively treat another patient tomorrow. That’s a point we have to continue to bring home to clinicians.”

Reality paints a less conservative picture of dispensing discretion.

“Estimates are that 30% to 50% of antibiotics prescribed in hospitals are unnecessary or inappropriate; over 50% of antibiotic prescriptions in outpatient clinics are unnecessary,” said Dr. Nate Smith, sharing CDC estimates at the NIAA meeting. He is a physician as well as director and state health officer for the Arkansas Department of Health.

That doesn’t mean unnecessary or inappropriate antibiotic prescriptions are made without thought or care.

“When I talk to physician colleagues, I don’t find any who say, ‘About half of the prescriptions I write for antibiotics are unnecessary,’ ” Smith said. Instead, the ubiquitous nature of such prescriptions has to do with everything from regional culture and relative wealth, to patient expectations, to time.

“Many times, our physicians are working under pressure,” Smith explained. “They need to make decisions quickly, and sometimes with levels of uncertainty.”

For instance, a patient might come in with an upper respiratory tract infection, typically caused by viruses, which are unaffected by antibiotics. But a viral infection can lead to a secondary bacterial infection. Especially if it would be difficult for the patient to make another trip to the office, the physician might go ahead and prescribe an antibiotic.

Unfortunately, this better-safe-than-sorry approach — inappropriate and unnecessary use of antibiotics — can accelerate antibiotic resistance.

Every resident in some states receives the equivalent of more than one prescription of antibiotics each year (see map). The fewest antibiotic prescriptions per 1,000 people occur in Alaska, at 501 (2014 CDC data) and the most are in West Virginia, at 1,285.

According to CDC, at least 2 million people in the U.S. each year become infected with bacteria that are resistant to antibiotics. At least 23,000 people die each year as a direct result of these infections.

Choosing wisely

“Antimicrobial stewardship includes not only limiting inappropriate use, but also optimizing antimicrobial selection, dosing, route and duration of therapy to maximize clinical cure or prevention of infection — while limiting the unintended consequences, such as the emergence of resistance, adverse drug events and cost,” Stevenson explained.

These elements are central to the multifold antibiotic stewardship programs under way in human medicine at state and national levels.

For instance, the White House released The National Action Plan for Combating Antibiotic-resistant Bacteria (CARB) two years ago, developed by an interagency task force of the same name. Its goals include: slow the emergence of resistant bacteria and prevent the spread of resistant infections; strengthen national One Health surveillance efforts to combat resistance; and accelerate basic and applied research and development for new antibiotics, other therapeutics and vaccines.

Internationally, there are a number of programs. Last year, the United Nation’s General Assembly embraced the World Health Organization’s Global Action Plan on Antimicrobial Resistance. That plan also supports the multi-sector One Health approach to addressing antibiotic resistance.

Keep in mind that the One Health initiative focuses on more than antibiotic resistance. According to its mission statement, One Health seeks to promote, improve, and defend the health and well-being of all species by enhancing cooperation and collaboration between physicians, veterinarians, other scientific health and environmental professionals.

As mentioned previously in this exclusive BEEF magazine series, livestock producers in general, and cattle producers in particular, began addressing antibiotic stewardship years ago. Most recently, the veterinary feed directive implemented Jan. 1 is a governmental effort to regulate stewardship.

“Antibiotics really are the foundation of modern medicine,” Kahn explained. “Without antibiotics, we’re dead in the water when it comes to elective surgeries, cancer chemotherapies and immunosuppressive therapies.

“All of the treatments that we take for granted with modern medicine, we cannot do without antibiotics because the risk of infection is too high … We need to make sure we get this right, because we may not have a second chance.”

Next month: Looking for the antibiotic link between livestock and humans

JBS will sell Five Rivers feedyards

2014 cattle price outlook

The big news this week in the cattle industry was the announcement that JBS is divesting itself of its Five Rivers feedyards. The $1.8 billion divestiture includes major holdings in other food companies, as well. In fact, Five Rivers is a small portion of the total.

The Five Rivers feedyards have a one-time capacity of just under a million head in the U.S. with interests in Canada as well. JBS has invested heavily in the yards over the last few years, turning them into state-of-the-art facilities from an animal welfare and environmental quality standpoint. In addition, the management team at Five Rivers is regarded as one of the best in the industry as well.

It is expected that the Five Rivers yards will also come with special marketing arrangements or guarantees and understandably will be some of the most sought-after feedyards in the industry. Obviously, some of its inherent advantages come from its ability to take advantage of its size and geographic diversity, but it’s difficult to imagine there’s a player in the cattle feeding industry large enough to purchase Five Rivers in its entirety.

The initial reaction in the feeder cattle market was, as expected, quite negative, given that the impact of losing Five Rivers in the feeder cattle market would be devastating to prices. But the market quickly rebounded as it became clear that Five Rivers would remain in the market and operate at normal capacity until sold. The sale of the feedyards, whether in whole or separately, is expected to happen relatively quickly—measured in months, not years.

Of course, the record leniency fine rendered against JBS in the Brazilian bribery scandal has rocked the world’s largest protein producer with a lot of speculation about whether or not it would affect its packer operations in the U.S. The good news is that doesn’t appear to be the case. Instead, JBS appears to be refocusing on its core competencies as the company shores up its cash positions and strives to overcome the fines levied as a result of the scandal in Brazil.

The positive in this situation is that it serves as a wakeup call to the industry on just how much we depend on the packing industry. The mandatory country of origin labeling fiasco cost the industry millions of dollars last fall as the effects of decreased packing capacity became obvious. Losing a major packer, even for a few days or weeks, would be devastating to the markets and the industry. 

I’m not one to shed a lot of tears for the stocker, feeder, packing, wholesale or retail segments of our industry, but I truly do appreciate what they do for us. The reality is that the packers are the one segment of our business where there isn’t a waiting line of prospective suitors to take over if someone sells out. The labor situation, burdensome regulations and a myriad of other major concerns make the packing business one of the toughest in the industry.

Always, when we confront the reality of how fragile and how dependent we are upon the packing segment and how much inefficiency and additional transactions occur in the beef business compared to our competitors in the protein business, it sends shockwaves throughout the industry. We are not gaining in terms of efficiency but rather losing ground. 

What saves us is simply our product. Almost anyone who can afford it prefers it. It simply tastes better. 

The reality is that the industry is unlikely to be able to replicate the efficiency gains of our competitors, so our hope continues to rest on one key factor – maintaining and growing beef demand.

Despite that simple and irrefutable fact—that demand is the key to profitability, sustainability, and survivability of our industry—there remains a commodity mindset that justifies not putting the customer as the top priority, and the industry has been unable to overcome its segmented and silo mentality to adequately fund its demand-building needs. 

Perhaps the situation at JBS will remind us that our future, while bright, has to be fought for and protected.

The opinions of Troy Marshall are not necessarily those of and the Penton Agriculture Group.

Here’s how special elections and the cattle markets are similar

Karen Handel, House of Representatives
ATLANTA, GA - JUNE 20: Georgia's 6th Congressional district Republican candidate Karen Handel gives a victory speech to supporters gathered at the Hyatt Regency at Villa Christina on June 20, 2017 in Atlanta, Georgia. Republican Karen Handel becomes the 6th Congressional district congress woman to replace Secretary of Health and Human Services Tom Price. Handel defeated Democrat Jon Ossoff in the special election. (Photo by Jessica McGowan/Getty Images)

If you were watching cable television Tuesday night, the big story was the special election in Georgia. It was heralded as a referendum on the Trump administration, a harbinger for the 2018 election cycle and/or the final straw for the Trump agenda, among other things. It was the most expensive House election in history, totaling over $50 million. Money flowed to the 6th District in Georgia from everywhere. 

This election took on huge significance in the minds of the political class because it was believed that the Democrat would win. The district had been solidly Republican, but Trump barely carried it in 2016 and his approval rating among Republicans in the district was well below the national average. The Republican candidate was not seen as overly charismatic and the young Democratic challenger was seen as a charismatic rising star who was running on a moderate to conservative fiscal agenda. 

In the end, we are learning that money doesn’t guarantee victories like it used to, and that while the Trump scandals over obstruction and Russian collusion may be the talk of the Beltway and may have slowed the Trump agenda from moving forward, it isn’t the talk of the people in the country. They are still are concerned about jobs, the economy, taxes, health care, the deficit, education and the like.

Yes, this was the prototypical district—suburban, trending democratic with major shifts in population. Yes, Trump is unpopular in certain circles and mired in controversy, but that doesn’t change the fact that the rage felt by the Far Left in the Democratic Party and their agenda is not an easy sell either. 

This was a district that should have been winnable by the Democrats in this environment, but the demographic shift is not as pronounced as thought and in the end it was much hoopla about nothing. 

The fact that the Democratic and Republican establishments and the media were surprised by the result only tells us that they remain so woefully out of touch with mainstream America that they still can’t figure out how to poll it accurately. In the end, it was just one election with a somewhat predictable result with a margin of victory that turned out to be quite a bit larger than expected.

There was another race, this one in South Carolina, which was considered to be a foregone conclusion as well and, as a result, received little consideration from either side. Voter turnout was dismal and the margin of victory was much smaller. While the Republican candidate narrowly won, it, too, means very little.

We do the same thing with the cattle markets. Instead of a whole bunch of anomalies that, when combined, become an aggregate, we try to divine special meaning from every big move up or down, and back-engineer explanations that give credence to minutia.

Both the Republicans and Democrats have every right to be scared. The Republicans will have to figure out how to govern and move things forward in an environment where bipartisanship is dead and the administration is under constant attack with high disapproval ratings. How they let a special counsel be appointed who is a best friend with the individual conspiring to bring down the president is a classic example of their ineptitude.

Consider this: In eight years, with IRS, Benghazi, Fast and Furious, Iranian payments, email scandals, etc… not a single prosecutor was appointed. In three months, with no proof of wrongdoing, the Republicans have allowed a special prosecutor to be named. Democrats can celebrate every political victory and the advancement of their agenda while not holding either chamber or the presidency, but the harsh reality is that the American people are sick of the political games. The Democrats may be succeeding in destroying the Trump administration, but that does not necessarily translate to electoral success for their party going forward.

When it comes to politics and the cattle markets, there is a tendency to avoid the obvious because the obvious problems require real effort to fix. It is easier to focus on the minutia and the little battles, but in the end the consumers of both tend to be pretty good arbitrators, and if we ignore them too long, they will find another solution.

Feeder prices drift lower, slaughter cows higher

Feeder cattle prices continued to drift lower but not as big of a drop as last week and with some improvement on Wednesday with the CME Feeder cattle turnaround. Receipts continue their normal seasonal decline this time of the year.

When it comes to slaughter cows, we are seeing the typical summer situation with lower slaughter cow numbers after beef cows are turned out on pastures and higher cow meat prices almost every week. Prices were $1-3 higher with the biggest increases on dairy cows.


Tropical Storm Cindy will shove heavy rains into Tennessee and Kentucky. 

Flint, Michigan, airport attack yesterday is being investigated as terrorist attack. 

It will be months before federal judge rules on Dakota Access suit filed by Dakota people.

Our pork exports out of U.S. are being described as just fantastic. Shipments to Mexico account for most of gain. China has been absent from U.S. pork market for most of this year.

Zookeepers at Kansas City Zoo are mourning loss of one of their chimps, which fell to its death yesterday. He was 31 years ago. Chimps in captivity can live to be 60.

Meat Market Update | Formula sales up, daily cutout declines

The daily Choice spot cutout was $1.37 lower on Friday compared to the previous week, but the weekly average Choice cutout was $3.30 higher for the week, supported by higher formula sale prices. Many of the formula sales are based off of the previous week’s spot prices and that daily Choice cutout the previous week was almost $6 higher than the prior week, which helped push formula prices higher. However, the daily Choice cutout continued to decline, losing over $4 by Wednesday, June 2,1 following a normal seasonal drop after Father’s Day sales are over.


It was the third time in two weeks that the president visited our part of the country - Wisconsin, Ohio and Iowa - as he spoke, crowd estimated at 6,000 listened. Also visited Kirkwood Community College. Branstad was beside him. Trump told Branstad to have a good time in China. Trump talked about need for improved broadband in rural America. Cedar Rapids Gazette reports that more than a third of rural Iowa residents lacked broadband.

Ag ministers of Canada, Mexico and U.S. agreed that NAFTA has served all three nations well. Relatively few differences on ag trade between the NAFTA nations.

We reported on closing of very last Lum's restaurants in Illinois last week, out of 400 that once served customers. 

Consider the no-depreciation cow-calf operation

Alan Newport Heifers on pasture
Heifers should appreciate in value until 3 to 5 years old, then start depreciating.

There's a more profitable way to run a cow operation than the "normal" model.

Specifically, you can eliminate cow depreciation, capture heifer appreciation, and create asset turnover to increase profits.

In a traditionally managed cow-calf operation, cows are kept until death, or a non-production event. Through the years, depreciation robs the owner of a considerable dose of equity, and the cow must pay her keep with profitable calves at the same time her declining value is robbing the rancher of asset value.

Further, the classic model of a cow-calf operation is that of an asset-management business: It holds great gobs of capital in the form of depreciable assets, spends varying amounts on upkeep and some inputs, and tries to overcome depreciation and create profitability by selling a product (calves). It's that depreciating, non-working capital that creates such a headwind.

Here's an alternative to the traditional cow-man's ranch: Cows are raised at home or can be bought as light heifers and then kept no longer than peak value (appreciation) at 4-5 years old. Then they are sold and younger stock takes their place. This sells a major asset (cows) before depreciation begins to rob profit from the operation. Selling cows younger also increases monetary turnover and therefore can further increase profits.

Most often, heifers are raised or bought at about 450-550 pounds. Commonly they increase in value by $1,000 or more and raise two or three calves before moving on, says Wally Olson, an Oklahoma rancher who turned this idea into a working model and now teaches it as part of his marketing schools.

Appreciate, not depreciate

The whole idea of appreciation goes over the heads of most people, Olson says.

"Most people just will not, or cannot, hear the word appreciation," he says."But a heifer usually appreciates from a weaned calf going forward to about four or five years, if she becomes a producing cow."

Take a look at any market report to see this, or better yet combine market reports with real prices from the country. However, remember that from May through August the replacement cow markets are pretty dead, Olson warns.

With that in mind, in the June 7 Ag Marketing Service report from Oklahoma National Stockyards, medium- to large-frame heifers in the 450-pound range sold for $157 to $162 per cwt. therefore $707-$729. Bred cows listed as 2 to 4 years old were bringing 1,210-1,360. (Remember, this is not country prices and it is in the poor pricing season for cows.) Bred cows listed as 7 to 8 years old were bringing $985-1,075.

Notice in the chart labeled "Recent example of real cow values in Oklahoma" that peak value is reached at 3 to 5 years old. This is typical year in and year out.

A key practice to make this no-depreciation cow herd produce is you keep pretty much all your heifers every year, Olson says. Also, don't spend a bunch of money on heifer development. Just put a bull with them. The ones that get bred will be cows. They will also be the easy keepers. The others will be sold as feeder heifers.

"This is the ultimate selection, because you're only selecting for the heifers with high reproductivity," Olson adds.

If your cost to carry livestock (cost of gain) is kept low enough, you should still have a profit in the feeder heifers. Those sold will be replaced with more light heifers and the process starts over again.

"I tell people run the ranch on steer calves and build wealth on your heifers," Olson says. He says heifers are an ideal asset because they will appreciate much more than a steer can appreciate by gain alone.


Wally Olson

This chart helps explain how keeping a large bunch of heifers and exposing all to the bulls can potentially produce a handsome profit.

Budget the possibilities

If you look at the small chart with this story, you'll see a significant difference in expected value from the two types of heifers based on prices just a few weeks ago.

The original purchase price at a 450-pound weight suggests a $675 value. Keeping them to 1,000 pounds for 550 pounds of gain cost about $1 per day or 75 cents per pound of gain. Olson always calculates a per-day cost to keep animals because he can better apply it to cows as well as gaining cattle such as steers or heifers and because the amount of gain will vary.

Note in his budget the 1,000-pound bred heifers were worth about $1.50 per pound, or $1,500, and returned almost 38% over their cost of $1,087.50. The 1,000-pound open heifers were worth about $1.22 per pound, or $1,220, and returned 12% over their total cost. Olson used a 50% conception rate because that's been a fair average for his system.

This budget suggests a 25% gain on the whole lot. Cash in hand will depend on what you decide to sell or keep.

Further, if you re-run these calculations with prices from the first week of June you'll see a the higher purchase price of the heifers, had they been purchased at about $1.65 per hundredweight rather than raised, would potentially eat up most of the profit for them. That should emphasize another of Olson's admonitions to keep daily updates on your total livestock inventory and look for opportunities to profit from them.


Wally Olson

This graphic uses fairly recent data from Oklahoma sale barns and country sales to show how heifers appreciate as they become cows, then depreciate as they become old cows.

Here are some keys to make this method work

Besides understanding the truth about depreciation and appreciation of cows, there are a few other paradigms you might want to change.

  • If you buy cows, do it in the off season when prices are lower, when everybody is baling hay.
  • Must know your cost to keep livestock, preferably on a daily basis. You really don't know rate of gain, therefore the cost of gain. Knowing cost to keep gives you a better measuring stick across livestock classes.
  • Know the tax consequences (an expense) of your actions. For example, profits from selling market animals are ordinary income. Under the right conditions, selling breeding stock may result in capital gains only, which is at a lower rate.
  • Be flexible. If you are willing to change your processes at times and to run things as much as possible contrary to everyone else you can make more money.
  • Keeping your cost structure low is a huge part of this equation. Olson says, "I think you should be able to run a heifer for $1 per day."
  • You need to know your inventory and value at all times so you can make decisions when opportunities present themselves.

Here's how younger cows generate higher income

Here's a simplified example how changing from a traditionally managed herd with the oldest cows about 10 years old generates less income versus a no-depreciation cow herd as Wally Olson suggests and has operated.

In this case, we'll suppose a 1,000-cow herd and for simplicity we will include no culling or death loss. We're also making calculations with a 100% weaned calf crop and 100% conception, also for simplicity. We will say we're selling all cows by 5 years of age and so will need a 20% replacement rate.

We will use the cow and heifer prices from the chart labeled "Recent examples of real cow values in Oklahoma." That would include bred heifers at $1,400, 500-pound heifer calves at $690, 5-year-old cows at $1,500, and 10-year-old cows at $605.

Remember we're just looking at values rather than accurate budgets, and especially at appreciation versus depreciation.

The first choice the two ranches would make is keeping heifers to breed them or selling them as calves. Keeping 200 heifers and breeding them, once bred, would yield a value of $280,000. Selling those heifers at 500 pounds would gross $138,000. The difference in value, therefore the appreciation you could capture, would be $142,000.

The second choice we need to examine is whether to sell older, depreciated cows, or 5-year-old cows in their prime. Again, for simplicity, we're going to compare things as similarly as possible, so we'll measure the value of selling 200 cull cows against the value of selling 200 prime-aged cows.

Using our values above, the 200 5-year-old cows would bring roughly $300,000. The 200 10-year-old cows would bring $121,000. That's a difference in value, technically a loss to depreciation, of $179,000.

In reality, you would sell fewer cull cows each year for less income, when compared with the 200 prime-aged cows. You would also have fewer bred heifers because not all will get pregnant, yet you still would add young, bred cows of higher appreciated value to your herd, then have the option to capture than appreciation along the way by selling before they drop in value (depreciate).

Also, for anyone really picking apart these ideas, we note in this example you would actually have a smaller calf crop to sell each year by roughly 10% or more, because you're increasing the percentage of non-breeding females in your herd. On the flip side of that equation, the older cows are logging real depreciation that deflates the value of their calves every year they stay on the ranch.

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