Nearly a decade ago, my brother, Phil, told me to buy gold. “Tom,” he said in his naturally confident demeanor, “you need to own gold right now. It’s going to go a lot higher.” Boy, do wish I had listened. Gold prices have skyrocketed. Anyone with gold in their investment portfolio has enjoyed outstanding returns. Gold prices have increased more than 400 percent since 2005. The run-up may not be over either. Gold is considered a “safe haven” investment, because it has both intrinsic value and a global demand base. Worried about inflation? Buy gold. Concerned that the U.S. Government has too much debt and keeps printing money too fast? Buying gold could be the solution. China appears committed to this thought process. The Chinese government has been actively buying and accumulating physical gold at an aggressive pace for several years now. While their appetite for owning more U.S. debt wanes, their demand for gold is on the rise.
I believe there is a better investment that will easily outpace gold during the next several years: Beef cows.”
Those female bovines out foraging in your pasture could well be one of the hottest investments on the face of planet earth. Why? Two reasons:
1. They produce exceedingly valuable calves.
2. Their own asset value has yet to appreciate very much.
Note in the accompanying chart a comparison between the indexed-value of gold and the same for beef cows (average January-February indexed prices are shown for each year). Starting in 2005, gold has seen steady appreciation, rising almost every year. The past several years in particular have seen rapid price gains. Gold prices have literally doubled since 2009.
In contrast, beef cow values have increased only 23 percent since 2005. So you can buy gold at more than four times the price it sold for 7 years ago, or you could buy cows at a much lower relative value. Interestingly, the average price of a 550-lb. steer calf rose 44 percent during this same time period, which amounted to an increase of more than $250 per head. Drought in the South Central Plains and higher feed costs virtually everywhere in the country have undoubtedly held bred cow values back. But calf prices are now high enough to offer excellent profit opportunities, even with higher cow-carrying costs.
In my opinion, efficient cow-calf producers will see returns over cash costs of $300 to $500 per cow during the next several years. Some are already experiencing returns of that magnitude. Selling calves for around $1,000 per head will put significant profit in producer pockets, and that will make the factory (beef cows) a more valuable asset, which sooner or later, will become fully factored in the price of bred cows.