Suckler cow depreciation: Why it matters
© MAG/Michael Priestley Suckler producers looking to improve profitability should consider calculating cow depreciation and creating strategies to manage value loss in their herd.
This is the advice of rancher and consultant Dallas Mount, of US-based consultancy group Ranching For Profit, who says depreciation can be a herd’s biggest cost.
See also: How a suckler and sheep unit aims for 10% return after rent
“It can be bigger than feed costs to some businesses. While you don’t write a cheque for cow depreciation, the cost is real,” he says.
Cow depreciation matters because there is an opportunity cost of not selling the in-calf heifer for £2,000, says Dallas.
“If you see a herd like a calf-producing factory, every year cows are culled, and a bit of the factory is lost. You can’t rebuild the factory for free.”
What is cow depreciation?
Cow depreciation tracks the change in value of a breeding female over the course of a financial year, based on the value tied up in her and the cost of maintaining her.
“This differs from depreciation on a pick-up, which loses value rapidly at first before value loss slows into the second-hand market.
“It’s also different to an accountant’s depreciation for tax purposes,” explains Dallas.
“A cow appreciates as she grows as a calf and heifer, then peaks in value – possibly when pregnant with her second calf. She then depreciates, flatlining at cull value.”
Dallas Mount © MAG/Michael Priestley
How does it change?
The amount of depreciation depends on a calculation of three things:
- Purchase price: An in-calf heifer might be hypothetically valued at £2,000 coming into the herd
- Salvage value: For example, £1,100 for a cull cow
- Years of service: On average, four productive years on the farm.
The depreciation in this example is (£2,000 – £1,100) ÷ 4 = £225/year.
Dallas says that a replacement rate of 20% is common in US herds with tight calving periods and no second chances, equating to an average cow longevity of four years.
The table (see below) shows the income of two identical farms. One farm calculates gross output with cow depreciation, and one does not.
Cow depreciation and impact – two farms compared |
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Herd performance |
Economics |
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Two farms put 100 cows to the bull. Both wean 93 calves |
93 calves make £1,000 at the market after haulage and commission = £93,000 |
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Both farmers see one cow die (pay disposal cost) and cull 16 faulty/empty cows |
16 culls average £1,100 after all stoppages = £17,600 |
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Both farms require 17 in-calf heifers to enter the herd |
17 x £2,000 for an in-calf heifer = £34,000 for opportunity cost of home- bred replacements |
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Herd gross product (GP) for both farms (calf cheque plus cull cow cheque) |
£93,000 + £17,600 = £110,600 |
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Farmer A takes GP, divides it by the 100 cows on their farm |
£110,600 ÷ 100 = £1,106 gross product a cow for farmer A |
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But farmer B removes the replacement cost of the incoming heifers before calculating GP |
£110,600 – £34,000 = £76,600 ÷ 100 = £766 a cow for farmer B |
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Farmer A = £1,106 a cow GP Farmer B = £766 a cow GP |
The difference between the two farmers’ GP a cow is £340 a cow
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Source: Dallas Mount |
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How can you manage it?
Every business will have a different answer, depending on the competitive advantage (the favourable circumstance) of the business, says Dallas.
He recommends treating each cow year group as a separate enterprise on paper to find where the competitive advantage might be. Dallas says strategies should either:
- Reduce replacement cost: For example, buying in third calvers for a lower price (though this might present biosecurity issues) or rearing home-bred heifers more cheaply
- Increase years of service: Breeding for fertility and health traits could help this at the expense of carcass and growth. Getting a cow in-calf again may need extra feed or care, but extra costs must be tracked
- Add value: Older cull cows could be graded up on feed or turned into charcuterie or burgers through an added value business. Second or third calvers could be sold as breeding stock.
Dallas Mount was coaching farmers at the AHDB Roots to Resilience training course near Shipley, West Yorkshire (18-21 November).
© Adobe Stock
How Nebraska ranch appreciates cows four years out of 10
Actively managing cow depreciation has saved money on a US ranch, helping herd numbers quadruple since 2006.
Based in arid north-west Nebraska, Terrell Ranch uses a late-calving block and rotational grazing to take advantage of the cull cow price cycle (see Terrell Ranch cow depreciation strategy).
Rotational grazing means the ranch has ample grass, and therefore cheap feed, when it buys replacement cows cheaply during the autumn – when other businesses are forced to sell during drought.
A flying herd system bulls everything to a Charolais terminal sire. “We buy whatever cow is undervalued,” says Brock Terrell.
“We used to calve 600 cows in a self-replacing system in March, so we have changed a lot.
“We have shown we can run a net appreciation on the breeding females we sell in four years out of 10.”
Investing in hundreds of water troughs and increasing paddocks to 160 in total (up to 400ha in size) means up to 1,500 cows can now graze in one mob.
Paddocks are grazed for three days and rested for about 200.
“This means we might have grass when others often don’t,” he adds.
Cow depreciation strategy
- Buy late calvers In-calf cows that have slipped out of a typical ranch’s March calving block are bought to go into the Terrells’ June block the next year.
- Buy cheap cows Current prices are £1,850-£1,950. Replacements are bought in autumn for low prices when there are lots of cows on the market.
- Short lactation Calving from 1 June and weaning in September results in cows only milking for 100 days, meaning there is less stress on them, so they keep condition and rebreed. Calves only weigh 130-140kg at weaning, but arable forage provides a cost-effective ration that can be fed to outwintered weaned calves to gain weight at 1.3kg a day
- Supplementation A biuret (non-nitrogen additive converted to protein by rumen microbes) protein and mineral supplement is given to help cows use pasture from the start of the breeding season (August) through to spring grass appearing. This costs £1,350/t and at 0.11kg a cow a day, costs about £35 a cow a year. Brock says this has added a year to cow lifespan on average
- Cheap winter Cows are not pregnancy checked, but are wintered cheaply so they can be turned to grass to gain 90-130kg in the spring. These better-fed cows are then sold in July when most ranches have their cows at grass and when the cull cow market peaks, which can add £150-£300 to each cull cow cheque.
Farm facts: Terrell Ranch
- Calving about 2,000 Angus-cross and Black Baldy cows in 12 weeks
- Contract grazing 3,000-4,000 yearlings
- 16,000ha of grassland
- 300-380mm/year rainfall
- 900ha irrigated arable ground, growing wheat and maize