Cow-calf producers face tough decision: Buy hay or sell cows
By CAROL RYAN DUMAS
This year's widespread drought, which took a heavy toll on pasture and grazing land and exacerbated high feed costs, is causing many cattlemen to question whether they're better off buying hay or selling cows.
The decision to buy supplemental feed, cull the herd or sell everything is a tough one, said Jeff Tranel, ag and business management economist with Colorado State University Extension.
"Each option has dramatic production, financial, tax and even emotional impacts to that producer and that family," he said.
To help producers with those difficult decisions, Tranel and fellow CSU ag economist Stephen Koontz developed an online tool to help producers analyze their situation. Producers can enter their information and get results regarding their financial picture for 2012 and the next four years.
Information needed includes the number of cows on the operation, conception and weaning rates, cost per cow, non-feed cost per cow and the annual percent change in non-feed costs.
The tool also requires estimated futures prices on steers and alfalfa hay, the market value of the cows, the number of days on hay and the quantity of hay fed.
The calculator will give producers a financial picture of their operation for a five-year period, 2012 to 2016, estimating revenue, expenses, pre-tax profits, annual speculative profits, salvage value of the cow sold, value of the cow kept in the herd, the accumulated speculative profit, and the value of selling the cow and calf each year.
If the value of retaining the cow is more than the cow's market value, it would suggest she is worth more to keep than to sell, Tranel said.
Using the tool in a southeast Colorado scenario shows that keeping cows this fall and selling them cows next fall is unprofitable. The only way for producers there to overcome the effects of this year's drought is to keep the cows much longer, he said.
"The critical conclusion is that a decision to keep cows this fall is really a long-term decision," he said.
Whatever the decision, there'll be income tax and capital gains impacts. The decision may even alter someone's ability to borrow money, he said.
"I can't suggest strongly enough to people that they seek appropriate counsel before making the decision to buy or sell cows," he said.
Other things to consider include whether owners of rented pasture will be open to grazing next year and whether not running cows on public or even private land will jeopardize grazing there in the future, he said.
"So you really need to talk to all of the people involved, including your spouse and family," he said.
The decision aid is designed to help cow-calf producers determine whether it's better to sell or keep cows, but it is only a guide. It's more about the trend and potential to realize profits than it is specific prices, he said.
The tool can be found at: www.farmmangement.org. Click "farm management wiki," then click "contents" in the menu on the left, then click "buy hay or sell cows" in the main menu.
More information and other decision tools can be found at: www.coopext.colostates.edu/tranel/ .
Tax information can be found at: www.ruraltax.org .