HerefordSire wrote:Douglas wrote:Hereford your calculations are fine by me. Much better that the first analysis that included your cost basis. I agree that cows that have been profitable in the past are more likely to be profitable in the future, but you have to ignore the original purchase price you had in your first example to make the calculations. The only missing item is your opportunity cost.
The cull or not cull decision is fairly complicated and it is a question as to what is the most profitable course of action. Keeping a cow can be profitable, as well as selling a cull and buying another cow can be profitable. Selling a cull and needing less hay can be profitable. Selling and putting the money in a saving account, or renting your land can be profitable. You have to pick the best alternative based on your best estimates of the future. The scenario that produced the highest net present value is the best economic choice. These alternatives represent the opportunity cost of keeping a particular cow. Cows with an expected productive life of 10 more years for example are going to have a significantly higher present value than one with 5 more years of expected production if they have similar annual profitability.
Let me give you my personal example. I have 30 cows including 10 replacement heifers. I have 20 calves to market this fall. I have done a lot of financial projections and I have determined that my operation will be more profitable (or less of a loss) by culling 10 cows. This would allow me to keep my calves over the winter on my stockpiled fescue at a much lower cost than cows. This would also allow me to market my calves in the spring when prices are normally better. So my decision is not if to cull but which to cull. I believe my decision will improve my profitability, but of course I could be wrong, it all depends on the accuracy of my projections on prices and costs. In my estimation selling a profitable cow could result in more overall profits for my operation. In my scenario you look at past performance but you also have to look at age, foot problems, etc. in deciding which cows to cull. An older cow is more likely to drop dead, become lame, sick, or need vet care and return much less than in the past.
If prices dropped and all your cows became unprofitable you would not necessarily sell them all. You would decide what you expected the future to hold as to profits and decide accordingly whether to sell or keep. This is why I suggest that you look more toward the future and less toward the past. I think we have beaten this dead horse enough.
Since you previously brought up stock as in securities....ride a winner and sell a loser....then before the end of the year breakeven by pairing up losses and gains.
I was hoping you would bring up capitalization cost of a younger problem-free cow and point out that the main difference is the cap cost...and between these types of cows is one hasn't earned her keep but you expect her to make more money.
If that old cow's calf is still a winner each year, she can hang. There's not much delta between SS and a cutter/canner. The year the calf tapers, it is time to make hard decisions. If you can't make sound decisions, you don't need to be in business.
Your evaluation of that cow years back is what you are accountable for. You need to fix all bad judgements asap in everything.
If that old gal is marginal, a hard winter or a summer drought can take its toll in a hurry.
