Cow depreciation is frequently the second- or third-largest expense to the cow-calf enterprise.
Depreciation for a cow is calculated as follows: purchase price or replacement cost minus salvage value equals productive years in the herd.
Purchase price is the dollar value of the bred heifer or cow when she is bought and enters the herd.
For producers raising their own replacement heifers, replacement cost should include all costs starting with the value of the weaned heifer calf until the time she enters the herd as a bred female.
To demonstrate how significant this expense can be, see an example of bred replacement heifer prices against today's cull cow values.
The average number of productive years for most cows in a herd is from three to five years, assuming a 10% to 20% cow herd replacement rate. Using five years, depreciation is $180 a head per year. At four years, it is $250 a head per year, and at three years, it is $300 a head.
If you add in death loss at 2% on an average cow herd value of $1,200, then depreciation expense jumps to $204 a head for five years, $274 for four years and a $324 for three years. Cow depreciation is a significant expense.
Depreciation can be reduced one of three ways:
1. Reduce replacement heifer development costs or the purchase price for bred heifers or cows.
2. Increase the salvage value of cows that are leaving the herd.
3. Increase the number of years a cow is productive in the herd.
Evaluating each segment can give insight into where opportunities exist to reduce cow depreciation.
Purchase price or replacement cost
Cow-calf producers who buy bred replacement females need to evaluate the cost of those females against expected productivity and revenue that will be generated from them. When most cow-calf producers think of buying bred replacements, they probably are thinking of buying bred heifers. However, buying a different age group of cows could be more profitable and provide greater management flexibility.
Cow-calf producers who raise and develop their replacement heifers should track all costs to know what it takes to develop a bred heifer. Separating replacement heifer development costs from cow herd expenses allows the producer to clearly track all the costs involved. Keeping track of all expenses, including a heifer's market value at weaning, is vital to be able to identify opportunities to optimize development costs.
For information on developing replacement heifers, see the University of Nebraska-Lincoln NebGuide, Reducing Replacement Heifer Development Costs Using a Systems Approach.
In the depreciation equation, increasing the salvage value of cows leaving the herd often provides the greatest opportunity to reduce depreciation. Frequently, cow-calf producers pregnancy-test spring calving cows and cull nonpregnant cows in the fall of the year. This time of the year also is historically when annual cull cow values tend to be the lowest for the year.
The following are two examples of ways value can be added to cows leaving the herd, increasing their worth and thus reducing depreciation expense.
• Have a long breeding season and a short calving season. The use of pregnancy-diagnosis tools such as palpation and ultrasound can identify how far along a cow is in her pregnancy. Cows that will calve later than the desired time period can be sold as bred cows. Bred cows often bring a premium to nonpregnant cows.
• Capture additional value from nonpregnant cows by adding weight and selling into a historically better market than the fall. The value of weight gain today for a cull cow can be significant. This is especially true if you can move a cow from a "lean" classification into a "boning utility” or “breaker" classification in a market where prices are increasing.
Productive years in herd
The first reason cows usually are removed from the herd is because they are not pregnant. Young cows, especially those that are 2 or 3 years old, often are the most vulnerable. Older cows toward the end of their productive life can be vulnerable, as well.
Several tools such as hybrid vigor, genetics that fit resources, health programs, development systems and strategic feeding or supplementation can be used to cost-effectively reduce cow herd turnover.
Cow depreciation is a significant expense. Cow-calf producers who aggressively manage to reduce this expense will see an increase in profit.
Berger is a beef systems Extension educator at the University of Nebraska-Lincoln.