The excitement surrounding the cattle markets is undeniable. The cow-calf producer is set to benefit greatly under these conditions. Yet, being curious by nature, I can’t help but wonder how these record-breaking calves will work through the supply chain for the next 18 months from a business point of view. Cheap abundant feed could land calves in the feedyard this fall, but many will end up in the countryside until spring. These record level calf prices will impact two cost categories specifically as we budget wintering calves in 2025/26. Interest expense and the cost of death loss go hand in hand with the value of the cattle.
First, interest expense will increase meaningfully. This is a function of the sizable rise in calf value and a rate environment that has changed in recent years. The value of a 450lb. steer has increased roughly 60% from last fall. This purchase price increase combined with a flat or slightly improved interest rate environment will hike our interest expense per head significantly. Even if these are your own ranch raised calves not purchased on a line of credit, the interest is important. This is the potential interest that could be earned by selling calves this fall and investing the proceeds elsewhere. No matter what side of the interest coin you fall on, the sheer dollar value of the cattle makes this significant. This example calculates interest expense at $89.30/head.
Death loss expense is also rising as a function of the increasing cattle value. While death loss percentages vary by year, having a solid understanding of the death loss percentage on your operation is important. In this example, 2% death loss is used. It is assumed to have occurred day one before feed and other inputs are invested in the calf for the sake of simplicity. At a minimum, the remaining 98% of calves will have to pay the tab for the 2% mortality. Just recovering the lost funds from the purchase price of those calves pencils out to $44.10/head in this example, yours will vary.
Even with the historic cattle prices, keep the pencil out and keep it sharp. A good plan is a great place to start our decision-making process.
