Beef Market Advisor

Friday, December 03, 2004

The Hidden Costs Of Drought May Even Exceed The Visible Costs Of Drought

My recent study of 3064 ranch years of Northern Plains beef cow costs of production suggests that total costs per cow is trending upward $12/cow per year. Total production costs per cow is averaging somewhere $397 per cow for 2004. Total costs per cow are projected to reach $500 by the end of the current decade.

This $12 annual increase in costs per cow probably is a conservative estimate - at least for the Western half of the U.S. As ranchers progressed through the 1999-2004 droughts, many depopulated their beef cow herds - a lot at 20% and some even up to 40 percent. Many sold all heifer calves born for at least one or two years.

Depopulating a herd clearly drives fixed costs per cow upward for the remaining cows in the herd. In turn, increase winter feed cost for the remaining cows during a drought drives up operating costs per the remaining cows. When drought-induced increased fixed costs and drought-induced increased operating costs are combined, drought send costs of production dramatically upward.

I hypothesis that the increased drought-induced depopulation costs are not even as high as the missed profit opportunity costs of not have future calves to sell when calf prices are very high - like now. When these increased drought-induced depopulation costs are combine with the missed profit opportunity costs, the "total" costs of drought depopulation may well far exceed the cost of a "buy feed drought strategy' designed to foster a whole herd's drought survival..

The negative costs associated with a drought-induced depopulation, coupled with a re-population phase, goes on in a herd for a whole decade! That is not true for a "buy feed drought strategy."

The missed profit opportunity from a drought depopulation is typically huge.

posted by Dr. Harlan Hughes 10:58 AM [edit]

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