BUYING COW-CALF PAIRS MAKES MORE SENSE THAN CUSTOM FEEDING

Originally published on September 5, 2002

 

A rancher called recently to ask whether he should consider custom feeding rather than buying more cow-calf pairs. He had found additional green feed, which will cost more than he's ever paid once he gets it home. He wanted to know the best way to put this and other resources to work.

I called Tim Highmoor at the Western Beef Development Centre, who collects cow herd cost-of-production information from Saskatchewan farmers and ranchers. The information is intended to provide benchmarks that the cow-calf industry can use to compare itself against.

While it is guesswork to speculate on the 2002-03 variable costs, we have done just that in table 1. In this example, a rancher buys a cow-calf pair for $1,400 on Nov. 1, 2002. The calf weighs 450 pounds and has an estimated value of $128 per hundredweight, and the six-year-old medium-quality cow is valued at $824.

    

We assume the calf is sold one month later, weighing 500 lb. and is worth $125 per cwt. We also assume that we will sell a 440 lb. calf from this cow on Nov. 1, 2003, for $135 per cwt.

Also in table 1, we've presented the variable cost of custom feeding and calving bred cows from Nov. 1, 2002, to May 31, 2003.

 

 

You'll see that the winter feed cost is lower in our custom-feeding alternative. This is because we do not have to feed a cow with a sucking calf at side for an additional month. Our revenue from custom feeding is based on a $2.50 per day wintering charge and a $55 calving fee per cow.

In table 2, we've compared custom feeding with buying a cow-calf pair. After deducting the respective variable costs per cow, we are further ahead if we buy the medium quality cow-calf pair on Nov. 1, 2002. This is based on the medium-quality cow being bought for $824 (calf value $576) and valued a year later at $1,100. This increase in cow value assumes an optimistic bred cow market in the fall of 2003.

According to the Western Beef Development Centre, a rancher's fixed costs are typically between $55 and $75 per cow.

These fixed costs are attributable to the cow herd alone and do not include costs associated with forage and pasture production. Highmoor pointed out that a labour component has not been included in the calculations.

There's one last thing to remember. While our numbers justify the cow-calf purchase, if it doesn't rain next summer, it is questionable whether there will be many $1,100 bred cows by next November.

 

Allyn Tastad, certified general accountant, is a partner in the accounting firm of Hounjet Tastad Harpham in Saskatoon at 306-653-5100, e-mail at allyn@hth-accountants.ca or website www.hth-accountants.ca. He is also involved in the family farm near Loreburn, Saskatchewan.  The opinions expressed in this column are for information only.