For six nights in early 2025, Aaron Berger, beef extension educator at University of Nebraska-Lincoln talked to a group of cattlemen about the one thing that’s king in every business: money. More specifically, the process of calculating annual cow costs to create a profitable business. Equipped with a thick black sharpie and an easel pad, Berger shared economic wisdom and left attendees thinking in a new light. This series walks through each of the six sessions and shares some of the concepts Berger explained. 

Session Three: Cow Depreciation and Replacement 

In this session, Berger tackles one of the most overlooked costs in the cow-calf business: cow depreciation and replacement expense. Unlike feed or labor, you don’t typically get a bill for this cost, but it’s real and significant. Berger explains why ignoring depreciation can provide a distorted view of profitability and walks through practical ways to manage it. 

Five Key Takeaways

1. Cow depreciation is a real cost. Producers often overlook depreciation because it doesn’t show up as a monthly expense on their balance sheet. But every cow loses value over time, and that loss does impact profitability. Berger says to recognize depreciation, measure it and include it in your cost of production.
   
   “You don’t get a bill in the mail that says you had $50,000 this year in cow depreciation or replacement expenses,” he says, “but from an economic standpoint, this is a real cost.” 
   
   
2. Keeping is the same as buying. Each year, ranchers have to make decisions on what females to cull, and which ones to keep back as replacements. Berger reminds webinar attendees that home-grown cows aren’t ‘free.’  
   
   He says, “The fact that I choose to keep her and not turn her into cash was the same as buying her.”
   
   Not only is the choice to keep a female a choice not to sell her, it’s an investment into developing her for years to come. That adds costs like vaccines, feed and labor. Before deciding to keep or cull, Berger recommends doing a cost-benefit analysis.
   
   
3. Depreciation accelerates after peak value. Cows appreciate in value early on, often peaking around ages three to five. But what happens after is a sharp decline in value as depreciation takes over. Berger says holding cows too far past their peak can cost an operation a lot in lost value. He suggests tracking to see where depreciation outpaces the value of the calf she produces, and adjusting strategy accordingly.
   
   “Look what happened from age five to nine,” Berger says, pointing to a graph he drew outlining the depreciation curve. “That’s about $1,200 of depreciation. That’s a pretty big amount of money.
   
   
4. There are only three ways to reduce depreciation. 
   
   Berger lists them, saying, “I get her into the herd at less cost, I capture more value when she leaves or I get more calves out of her.”
   
   Every strategy falls into one of these three buckets, but the tactical methods look difference for everyone. Whether it’s developing heifers economically, selling cows just after peak value, or improving longevity, Berger encourages producers to focus on these levers to manage depreciation effectively.
   
   
5. Taxes can tip the scale. The strategy behind selling cows at peak value isn’t just about price — it’s about after-tax dollars. Why? A yearling is taxed as ordinary income, but a two-year-old is taxed at a capital gains rate. The difference? The capital gains tax rate for all income from $0 to $96,700, is 0%, whereas ordinary income tax is much higher. Berger advises working with an accountant to factor this into a marketing plan.
   
   “This is something that I don’t hardly ever hear get talked about,” Berger says. “In my mind, it’s not how much money you make, it’s how much you keep.”

Want to learn more about session four, the cost of labor and equipment? Click here to see more!