End of the year finances seem to be on everyone's mind these days, and people in agriculture are no different.
I often receive comments from people outside the ag-industry saying I must be very rich, because I have a ranch. A lot of people assume if you have a ranch, or cattle, you must be wealthy, in a monetary sense.
This is not the case, not even close.
Yes, we receive $500+ dollars per calf, or $1,000+ plus dollars per yearling. When you multiply that out by 200, 300, or 600 head, it's a big number.
But the other side of the coin are all the expenses that go into raising a $500 calf, or $1,000 yearling.
First there's the land you're running them on. Most ranchers pay for their land with their livestock. When you look at land prices, especially today, you will quickly see where a big chunk of the money goes.
For example, if you're paying $250 an acre for land, and it takes 30 acres to run one cow and her calf for a year, you just invested $7,500 into enough land for one cow. Now, multiply that by the 200, 300 or 600 cows you're running, and that's also a big number.
There are those that have their ranches paid off, and don't have that expense, but often times those producers expand, and incur another land payment.
Then there are the actual cattle. They aren't free either, and you have to pay for them. Some people inherit their cattle, and some have to buy into the family business. Others have to start from scratch, and cattle cost money for us too.
You're going to be buying heifers or cows, and today that means laying down around $1,000 a head for a young cow. Heifers will be more, and short-term cows less, but that's an idea of what it costs to buy into the cow business.
Then don't forget you have to buy bulls, or add an AI program, and bulls are typically over $2,000 in this part of the world. It takes one bull per 25 cows on average, and a bull will last four years, tops. So if you have 300 cows, you will be spending $24,000 in bulls every four years, minimum.
Then there are what we call "operating costs." These are the costs ranchers have for a year of production. They include everything from feed, vet expenses, transportation, labor, etc...
These aren't cheap expenses. Corn has almost tripled in the past five years due to competition with ethanol demand. Transportation costs are rising for us just like everyone else. Vaccines, and other medicines are also expensive. I just bought a bottle of pour-on to treat some calves for grubs, worms and other parasites. A bottle that will treat 50 head cost $240.00.
We add all these costs up, and divide them by the number of calves, or yearlings we're selling, and that's how much each animal needs to make us to break even.
People in ag know all about breaking even, and not breaking even, and usually know within a few cents what their break even is on a given year.
Cows makes us money through her calves. As I've mentioned previously, it takes about 7 years for a cow to pay off all the expenses she will generate in her lifetime. The average cow lasts about 10 years where I'm from, so that means she is making you money for 3 of her productive years, and the first seven you essentially owe money on her.
Then there's fact that some of your cows, and some of your calves will die. This is listed as deathloss, and included in the calculations. Some cows don't breed back either, and if she is under 7, you probably lost money on her.
Add everything up, do a little division, addition, subtraction, and other basic mathematics until your head is swimming, and the average return on investment in agriculture is 3%. The average return on investment in everything else is closer to 6%.
We take half the average to raise livestock, and live the lifestyle we do.
I am in no way complaining, just showing the way things are.
I wouldn't change to something I could make a 6% percent return on if I was given the chance.
But this is why seemingly large-scale ranchers usually aren't rich, in a dollars and cents way. It takes a lot of cows, or sheep, or hogs to make 3% a large enough number to live off of, let alone expand, or put a kid through college...
Another aspect is we get paid once, or twice a year, and have to budget and make that money last an entire year, regardless of any unexpected expenses. There is no 2 week paycheck in ag. You get a check when you sell your calves, yearlings, or other commodities.
A lot of producers diversify their operations and find ways to market different products at different times of the year to increase the number of times they have income.
But we're still talking about four or five checks a year, and that money has to last through whatever might happen until you sell your livestock the following year.
So, the answer is no, I am not rich because I have a ranch in my family. But, if you get past the money part, then the answer is yes, I am rich to have a ranch. It's really all in how you look at it.