Balancing Dry Pastures Against Selling a Herd by Using Partial Budgeting

With the dry conditions, many ranchers are facing the dilemma of either selling their cattle or purchasing hay to feed them through the summer and winter. Which is financially more feasible? Jeff Tranel, Colorado State University Cooperative Extension agricultural and business management economist, can offer some advice.

"Many ranchers are facing a tough decision," said Tranel. "As dry conditions continue, livestock producers must make some critical decisions. If their pastures are almost gone because of dry conditions, is it more financially feasible to buy hay for 120 cows or to sell them? Should they move their cattle to available pasture? Should they buy hay or more feed? If they sell cows this year, will they be able to find pairs to buy next year?"

Unfortunately, there is no single answer for any of these questions. Tranel advises each manager to evaluate his or her individual situation and make the best guess they can about how they’ll be impacted by rain in the fall, a lack of rain in the fall, the price of calves in the fall.

Tranel said that one way to compare the financial feasibility of alternatives is by using partial budgeting. Partial budgeting is based on the principle that business changes will have one or more of the following effects:

  • reduce costs,
  • increase income,
  • increase costs,
  • and reduce income.

The net effect is the sum of positive financial impacts, like reduced costs and increased income, minus the sum of the negative economic effects like increased costs and reduced income.

In addition to answering financial questions, a rancher must think about the genetics of the cow herd — are they irreplaceable or would this be a good time to really upgrade the quality of cattle in the herd? Will there be cow-calf pairs available at a reasonable price next spring? Could the rancher use a break from feeding cows all winter?

The following is an example of how partial budgeting can be used to help a livestock producer make the most informed decision. Assume that a rancher is running out of grass because of dry conditions, but has feed stored to keep the calves until the normal selling time. The rancher wants to look at two options, although there are several others to consider.

"Because each livestock producer must answer all the questions given his or her individual circumstances, partial budgeting can be an excellent tool for evaluating the financial impacts of alternative management strategies," said Tranel.

For more information contact the local Colorado State Cooperative Extension office, usually listed in the county government section of the local phone book, or go to the Colorado State Web site