Economic Performance of Converting From a

Cow/Calf/Yearling System to a Stocker/Yearling Operation as a

Response to Brucellosis

Shane RuffGraduate Student

Department of Agricultural and Applied EconomicsUniversity of Wyoming

400 cow/calf pair 280 yearlings All calves are retained in operation All 180 steers in yearling operation 100 heifers in yearling, 80 in cow/calf as

replacements

Ranch Assumptions

Calves are received in yearling operation in fall, 550 lbs. for steers and 500 lbs. for heifers

Sold the following September at 977 lbs. for steers and 927 lbs. for heifers

Deeded land, BLM and Forest land are used for grazing

Ranch Assumptions Cont.

I assume in the ranch model that the cow/calf/yearling enterprise produces enough hay to feed all animals

As the enterprise transitions, and there are less cows, there is extra hay to sell

Pure stocker steer budget sells all hay

Ranch Assumptions Cont.

3 ranch models Cow/Calf/Long-Yearling Enterprise

◦ Base model to transition from◦ 400 cow/calf pair and 280 yearlings

Transition to:◦ long-yearling enterprise

Nov. 1 to Sep.1◦ pure stocker steer enterprise (2 types)

May 1 to Sep. 1

Ranch Models

Yearlings run Nov. 1 to Sep. 1 Cull 15% of the cows each year Translate that 15% back into yearling

operation (Total AU’s) 7 year transition period Heifers in yearling operation are spayed End with 841 yearlings All hay for feeding is produced by enterprise

Transition Model #1Long-Yearling Enterprise

All cattle are sold up front Revenue from cattle sales accounted for in

year one of transition Pure stocker steer operation Purchased in spring, sold following fall (Sep) Steers are purchased at 600/700lbs in spring Sold at 846/946 lbs. in fall (Sep) End with 919/833 stocker steers All hay from hay enterprise is sold

Transition Model #2Stocker Steer Enterprise

All models are estimated out to 7 years Culling 15% of cow/calf herd each year

takes 7 years to fully transition This way they can be compared accurately

over the long-run

Ranch Models

Historical calf prices and native hay prices◦ Calf Prices 99-10◦ Hay Prices 83-12

@Risk simulation◦ Simulates likelihood of these historical prices

occurring◦ Shows a range of expected profit

Price Ranges

No ownership costs are factored in◦ Paying yourself (owner labor)◦ Depreciation◦ Operating Loan (interest)◦ Taxes

All enterprises include haying operation No risk of contracting brucellosis in herd

Return over Variable costs

Cow/Calf/Yearling Enterprise

Enterprise has low chance of losing money.

Yearling Enterprise

Enterprise has a low chance of losing money (3%). Wider range of profit and lower average compared to base herd (cow/calf/yearling)

Stocker Steer Enterprise 600-846 lbs. Years 2-7

Potential for higher profits, also larger loses. Lower average than base. Enterprise loses money 22% of the time (2 out of 10 years). Producer has to plan for years where there is a loss.

Stocker Steer Enterprise 700-946 lbs. Years 2-7

Higher profit potential, higher loss potential. Lower average than base herd.

Net Present Value

Enterprise NPVCow/Calf/Yearling $756,104.48Yearling $640,965.54600-846 lb. Steers $378,104.14700-946 lb. Steers $607,126.95

Stocker Steer enterprise has potential to earn larger profit but also larger loss

May have to survive one or more years of negative profit

Depends on risk attitude of producer◦ How much risk are you willing to take?

High risk of brucellosis vs. low risk of brucellosis infection

Preliminary results have shown early years of transition are most profitable

Conclusions

Tax implications◦ Raised breeding livestock

Taxed as ordinary income Has potential to raise tax bracket

◦ Purchased livestock Capital gains taxes apply

Conclusions

Tax implications of whole herd liquidation vs. culling 15% of herd each year

Completed Thesis Excel document allowing producers to enter

their own values in comparison to mine Extension Bulletin

For the future

Questions?