1. Cow Herd Decisions: Keep and Feed vs Sell – Buy Back
Rodney Jones
OSU NW Area Extension Economist, Enid OK

2. Economic Decision Thought Process
“Classic” example of a partial budgeting application
Compare the “net costs” vs the “net benefits” between the two alternatives
You could bring in a lot of factors that make the decision very complex; however, there are so many uncertainties that I would recommend reducing the decision down to a few simple factors to consider

3. Factors To Consider
Cost per day if I keep the cow (costs that will not be incurred if I sell the cow)
Current sale value of the cow
How long will the difficult environmental conditions last
Cost of replacement in the future
Time value of money
Tax issues

4. Cost Per Day If I Keep The Cow
Mostly feed, but if you sell there are some other costs that stop occurring (vet, labor, repairs, etc.)
Feed costs (could be $2.00 to $3.00 per day)
The other costs probably amount to 20 to 40 cents per day
For most folks you would not consider “fixed or overhead” costs because you probably will not sell your machinery or facilities

5. Current Sale Value Of The Cow
Varies from one situation to the next
Certainly lower than they would be if not in a drought
On the other hand, held up somewhat by the overall high price levels in the general cattle market
Use a number that represents your situation ($1,000 - $1,200)

6. How Long Will Drought Last
Do you think you will be able to establish winter forage (cheapen cow costs) or are we looking longer term?
My assumption is longer term based on current forecasts

7. Cost Of Replacement In Future
Really, the driving factor is the spread between value now, and cost to replace in future.
To be most accurate, you may need to consider a bred cow now, vs a pair in the spring

8. Cost Of Replacement In Future
Will depend on many factors, including how large of a geographic area is trying to rebuild at the same time
Will you be lucky at the expense of others?
My assumption is very high valued replacements when conditions improve (a very high spread)

9. Time Value Of Money Interest rate
If you sell the cows you will have some money to either
Stop the interest on some borrowed money
Invest
Same applies to the operating and feed cost dollars
Probably a minor consideration compared to the other factors

10. Break-Even Sell-Repurchase Margin Examples
Variable Cost per Day to Maintain Cow
Days till repurchase
$2.50
$3.00
$3.50
First of year
150
$395
$470
$544
May 1
270
$716
$851
$987
Year from now
370
$985
$1170
$1355
Assumes 5% Time Value of Money
Example: Your cost per day is $3.00, and you think May 1
is a reasonable target date. If you think the sell – buyback
spread will be less than $851, you should sell and buyback.

11. Other considerations ???
Thank You