Appreciating your cattle’s depreciation in the BSE Reality

It’s been said that, “Realism is the last refuge of optimists”. These days, it can be tough to be optimistic - but we owe it to ourselves to be realistic. This includes how we view our older cattle. Most of us wouldn’t compare these creatures to our old tractor, but if you stop to think about it, the two have a lot more in common than you might expect.

Over time, your tractor depreciates in value until it is fully depreciated. At that point, cost of ownership becomes only costs associated with operating the unit. Typically, these costs increase as the tractor ages. An older cow represents a similar challenge – especially in today’s BSE Reality.

The older a cow grows, the more time and money you end up spending on vet bills to keep the animal healthy. You will also find your cow is beginning to give you fewer calves that are often less vigorous. Despite these diminishing returns, you will still have to purchase feed for your cow on an ongoing basis. These costs add up over time while the benefits diminish.

When you take the emotion out of it, the BSE Reality compels us to re-examine how we evaluate our livestock. Applying the same financial analyses on your animals as you would your tractor may not be pleasant, but it can be the rational perspective you need to cope with the “new norm” we must all deal with.

Ask yourself these key questions: At what point does your cow become fully “depreciated”? When do your costs become sunk costs, and the operational costs of feeding your cow no longer make sense?

Some may argue they won’t sell their cow for less than a certain amount because it “deserves more,” or that they will keep their cow as long as it gives them a live calf.

Bear in mind, however, that unlike a tractor, you will still have to feed your cow, regardless of its age. This sparks another question: What does your cow really owe you after years of calving and payback? What is it worth - especially when you could be taking that same money and spending it on feed for a younger, more efficient cow?

Obviously, no definitive rules exist for deciding when a cow has become “obsolete”; it depends on the animal, your unique circumstances and your perspective. But it is worth noting that, “A crisis is a terrible thing to waste.” The BSE Reality has led to hardships for everyone involved in the cattle industry, and is forcing us to innovate and make hard choices. Those choices include looking objectively at cattle assets in a new light.

Many of us have experienced sleepless nights in the BSE Reality.

The next time you are trying to get some shut-eye and you hear the munching sound of your old cattle eating valuable feed that could nurture younger animals, it may be time to think about costs, benefits and the value of your older cattle that may be fully depreciated. While you may not get back to sleep, you could gain a different perspective that can help you deal with BSE’s brutal wake-up call.

By Andrew Raphael, Director Agri-Food. For more information, please contact your local MNP advisor or Andrew at 1.877.500.0779.

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