I need for you to work this Saturday. We are behind schedule and the whole crew will be there. This is how your boss treats you. You have always been a loyal and dependable employee and he knows he can count on you. The time and a half, at $45 per hour, for the eight hour day comes out to $360. The extra money is always appreciated.
However, you can’t work for him this Saturday. You cut your hayfield after work Wednesday and rain is scheduled for Sunday. You have to get that field baled on Saturday. This winter your cows are going to need that hay.
If your boss insist you go to work for him on Saturday, you will lose a hay crop worth $5,000. That means you will have to buy that amount of hay this winter. However, if you don’t work for him Saturday, that will cost you $360. To complicate things more, it might cost your $6,000 a month job.
So what are your opportunity cost? In this case, opportunity cost would be the amount of money you forfeited. Could be the $360, $5,000 or $6,000. If you chose to bale hay, your immediate opportunity cost would be $360 and possibly another $6,000 for every month you were unemployed. If you chose to work the overtime, your eventual opportunity cost would be the $5,000 to purchase replacement hay.
Those of us who ranch for a living don’t like to look at opportunity cost. Ranching is a lifestyle that a person chooses. Often times that choice is not available to everyone. Ranching requires a sizable investment. When a person chooses to ranch for a living, they have to jump in with both feet. Ranching, on a large enough scale to make a living, involves proper management, time, and work.
The prerequisite for my wife and I for ranching was having high paying careers. No one left us land and cattle. We had to save our money and buy in. It was a big investment with no guarantee of significant return. We felt it was a safe investment because the land was not going anywhere and we could physically see our stock. As we all know, land does not depreciate. Cattle does depreciate, but cattle also offers a significant return.
Some would say our opportunity cost were high. Granted, our immediate opportunity cost were high, but long term is hard to say. Two long term careers and 401K’s would have been worth a lot, but our ranch investment should also be worth a lot. Oil and gas are big in Texas right now. Mineral revenue must be considered. Land prices are on the rise. We will never cash in on high land values, but it is nice to know we are leaving a valuable asset to our family.
Opportunity cost does not always involve money. Ranching is physically difficult work. Our opportunity cost there was the soft office jobs we left behind. Also, when you work for yourself, you have to pay all of the expenses yourself. Kind of nice to work for someone else because they have to pay all of the bills.
On the other hand, the opportunity cost for working for someone else is great. At the end of the day, they own everything. You will eventually walk away with only money. All of your efforts to build a successful company will be for them. Your will not be able to leave your life’s work to your family. That is ok for some because money is all that matters. To ranchers, money is only a tool. The family and ranch is what matters the most.
Brett Bickham, Clifton, TX 10/17/2018