collect on it, which is a good thing because I would much rather have rain anyway.” The policy did pay off in 2014, when drought
struck the fi rst half of year. Bevers says, “It let me keep my cows for a while, and buy some hay and feed for them. No insurance is a savior. It’s not in- tended to do that. It’s intended to help you through the hard times.” Unlike all of the other components of the beef
industry, Bevers says, cow-calf producers are in the asset management business. Everybody else — the stocker, the feeder, the packer, the wholesaler and the retailer — operates on a margin. “The feedlot is buying and
selling cattle. The only dif- ference is my cost of gain be- tween 750 pounds and 1,350 pounds,” he says. “The packer is the same way — I’m buying cattle, I’m selling beef.” All of these people up and
down the chain can lock in returns. The cow-calf opera- tor is focused on rate of return on assets like land, machinery and the breeding herd. “A lot of times, when we
less, Bevers warns about exceeding what he calls a ranch’s “comfort zone,” where expenses are mini- mized, production is maximized and resources are protected and maintained and/or improving. For example, he describes labor costs. “If I have
$100 of labor per cow, and to pay that I need to be running 500 cows, either side of that I’m OK. If I have to destock down to 450, my costs go up a little bit per cow, but I’m still paying that $50,000 in total labor costs. “If I decide this isn’t working and I need to get
bigger, I might go to 1,000 cows, but all of the sud- den I have to fi nd more labor.” In addition, he says, if a
The cow-calf operator is
focused on rate of return on
assets like land, machinery and
hear ‘experts’ talking about what cow-calf guys need to be, you need to ask what their motivation is,” Bevers says. “Are these guys more focused on the feedyard? If they are, it’s not that they don’t have my best interests in mind, but they are talking from a totally different business model.” Those rates of return are increasingly challenged.
The rancher doesn’t know what the next year’s rain- fall is going to be, and has to remain conservatively stocked, expensed and invested. However, Bevers says margins are much thinner than they were years ago. “If you look at market value for a ranch,” he says, “you are going to look at about $12,000 to $13,000 per cow in investment and co-investment in land, machinery, breeding stock — the whole ball of wax. Using that number, you see an average return of about 2 to 3 percent on your investment. That’s the nature of this beast.” The solution, for many segments of agriculture
over the years, has been to get bigger. That keeps the net rising even as the margins shrink. Neverthe-
tscra.org the breeding herd.
rancher has a child who wants to come back to the operation, the operation has to get big- ger to accommodate the cost of the new labor. The number of beef cows
in the U.S. has fallen from 45 million 40 years ago to 29.6 million, a one-third reduction. Slaughter cattle have grad-
ually been raised to heavier weights, which offsets the de- cline in numbers. The down- stream entities in the beef in- dustry are working with just as much product. However, the asset managers down on
the ranch have to keep adjusting. Bevers notes, “A cow gives you three things: at
the end of her life, she gives you her cull value; she gives you a calf, it is hoped, although she doesn’t always do that — the average weaning percentage right now is 85 percent; and she gives you the genet- ics for that calf to gain and get big. “That weaning weight is greatly infl uenced by
weather. You have a biological model that now is maximized, depending on much rainfall you get. You couple that with the continual march of costs getting higher and that’s what we call a cost-price squeeze. “If that’s the dilemma, how do we address it? You
stay maximized on your production. Your best pro- duction starts with reproductivity. Make sure your cows and bulls get together and breed a calf. Two, keep an eye on your fi xed costs — what it actually costs to run this operation. Then, pray that you have a few years with exceptionally high calf prices.”
January 2016 The Cattleman 67
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