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Looking at Ranch Returns

Written by Bridger Feuz

Ranch profitability is influenced by many factors.  Oftentimes, on Wyoming ranches, there are enterprises other than livestock that may account for significant sources of income.  However, the primary source of income on most Wyoming ranches is livestock production.

A majority of Wyoming ranches can be characterized as cow/calf operations.  A smaller number could be characterized as sheep operations. There are also a few ranches that utilize both cattle and sheep for livestock production.

The Livestock Marketing Information Center (LMIC) estimates returns for cow/calf producers in the U.S.  The estimates are returns over cash costs plus pasture rent. LMIC has consistently ratcheted-down estimated cow/calf returns this year, as forecasted cattle prices for the fourth quarter were lowered.  As of late September’s revisions, LMIC’s 2016 estimate was a return over cash costs plus pasture rent of about $15 per cow, which is the lowest since 2009. That is a huge one-year decline of about $285 per cow – 2015 was about $300 per cow – and was even more disappointing when compared to 2014’s record high level, about $550 per cow.  

Returns this year will not cover the total economic costs for most cow/calf operations.  While estimated costs of production have decreased slightly in 2016, based on cheaper fuel, feed and slight drops in pasture cost, it has not been enough to offset declining calf prices.

An LMIC working group also recently developed and published a “U.S. Baseline Lamb Cost of Production Model.”  Best estimate industry parameters were used to generate regionally representative budgets.  These budgets were then aggregated into a national model.  I shared the Western Region budget in a Wyoming Livestock Roundup article a couple of months ago. 

Utilizing the aggregated national model, I calculated an estimate for lamb returns as cash costs plus pasture rent for 2010-15.  The high was $71 per ewe in 2011 with the low being $8.20 per ewe in 2013.

It is important to note that in both cattle and sheep, these calculated returns do not include all economic costs of production. They are used in market analysis and estimated cash costs plus pasture rent.  Of course, every operation has different resources and costs.  Year-over-year changes in calculated returns are more insightful than the specific numeric levels. 

With that said, I was interested in comparing cow/calf returns with sheep production returns from 2010-15. At first glance, it seems like cattle is the clear winner.  The low return for cow/calf in the 2010-15 timeframe was $30 per cow while the high was $530 per cow. Clearly on a per-cow versus per-ewe basis, cattle is king.

However, this is not an accurate comparison based on resource use.  Ranchers are generally able to run five ewes on the same set of resources as one cow. Therefore I adjusted the sheep returns to reflect this relationship.

While the specific numeric levels are not as important as the trend, it is very instructive that the six-year average for adjusted sheep production is nearly identical to the cow/calf average.  It is also interesting to note that over the last six years, while the average was nearly identical, the timing and magnitude of the returns have been different. Certainly over the last six years, those few ranches in Wyoming that have a mix of sheep and cattle have had a more consistent return than those that relied on one or the other species.

Not all ranches have resources that can be utilized efficiently by both sheep and cattle, and not all ranches are structured with appropriate personnel and management skill sets to run both species.  However, for those ranches that are able to run multiple species, a combination approach may serve to mitigate fluctuations in returns.