Cow-Calf Production Budgets Dr. Walt Prevatt Agricultural Economist Auburn University Florida Cattlemen’s Institute and Allied Trade Show January 26, 2012 Thank You For Inviting Me! My goal today is to speak the “economic truth” about cow-calf production budgets. Dr. Walt Prevatt Agricultural Economist Auburn University Florida Cattlemen’s Institute and Allied Trade Show January 26, 2012 Cow-Calf Production Budgets Cow-Calf Production Budgets What are they? What are they good for? Cow-Calf Production Budgets Pointers on Measuring Cow-Calf Costs & Returns Measuring Cow-Calf Costs & Returns Budgets Returns Over Cash Expenses (ROCE) = (Gross Revenue – Cash Expenses) Measuring Cow-Calf Costs & Returns Budgets Returns Over Cash Expenses (ROCE) = (Gross Revenue – Cash Expenses) Net Farm Income (NFI) = (ROCE – Depreciation +/- Inventory Adj.) Measuring Cow-Calf Costs & Returns Budgets Returns Over Cash Expenses (ROCE) = (Gross Revenue – Cash Expenses) Net Farm Income (NFI) = (ROCE – Depreciation +/- Inventory Adj.) Net Income (NI) = (NFI – Opport. Costs of Labor/Mgt. & Owned Assets) Cow-Calf Production Budgets “Net Farm Income” From The Cow-Calf Enterprise (AFBAA) Cow-Calf Costs & Returns Budgets A Closer Look At “Net Farm Income” For 21 Alabama Cow-Calf Operations Paper: http://www.aces.edu/timelyinfo/Ag&NatResEcon/20 04/November/TI_A_Closer_Look_At_Net_Farm_Inco mce_10_29_04.pdf [Alabama Farm Business Analysis Association] Cow-Calf Costs & Returns Budgets Cow-Calf Production Budgets IRS Form 1040, Schedule F (Costs & Returns Budget?) Cow-Calf Costs & Returns Budgets IRS Form 1040 - Schedule F is an example of a costs and returns budget. Cow-Calf Costs & Returns Budgets IRS Form 1040 - Schedule F is an example of a costs and returns budget. How many of you will have a positive number at the bottom of your 2011 Schedule F (line 36)? Cow-Calf Costs & Returns Budgets IRS Form 1040 - Schedule F is an example of a costs and returns budget. How many of you will have a positive number at the bottom of your 2011 Schedule F (line 36)? What does this mean? Cow-Calf Costs & Returns Budgets IRS Form 1040 - Schedule F is an example of a costs and returns budget. How many years out of the last ten years have you had a positive number at the bottom of your Schedule F ? What does this mean? Cow-Calf Production Budgets Computer Spreadsheet Generated Cow-Calf Costs & Returns Budget Cow-Calf Costs & Returns Budgets Beef Cow-Calf Enterprise Budget DAERS 11-1, February 2011 Paper: http://www.aces.edu/timelyinfo/Ag&NatResEcon/2011/Febru ary/feb_22_2011.pdf Spreadsheet: http://www.ag.auburn.edu/agec/pubs/budgets/ Cow-Calf Costs & Returns Budgets Beef Cow-Calf Enterprise Budget DAERS 11-1, February 2011 1) 2) 3) 4) 5) 6) 7) 8) 9) Breeding information Performance information Market price information Pasture information Purchased feed information Machinery & equipment information Animal health information Farm buildings/improvements information Miscellaneous farm information Beef Cow Enterprise Budget Grass Valley Cattle Farm Cow-Calf Enterprise Sensitivity Budget, A Returns Per Cow Per Year A 1 Weaning percent A 2 Average calf weight, lbs./calf A 3 Total calf weight, lbs A 4 Average calf weight, lbs./cow-unit A 5 Averge calf price, $/lb. A 6 Total cull cow weight, lbs. A 7 Average cull cow weight, lbs./cow A 8 Average cull cow weight, lbs./cow-unit A 9 Average cull cow price, $/lb. A 10 Gross returns, total $ A 11 Average calf return, $/cow-unit A 12 Average cull cow return, $/cow-unit A 13 Gross returns, $ per cow-unit 70% 460 22,540 322 $1.40 10,780 1,100 154 $0.65 $38,563 $450.80 $100.10 $550.90 70% 575 28,175 403 $1.28 10,780 1,100 154 $0.65 $42,930 $513.19 $100.10 $613.29 Fall Calving, Alabama, 70% 690 33,810 483 $1.19 10,780 1,100 154 $0.65 $47,072 $572.36 $100.10 $672.46 80% 460 25,760 368 $1.40 10,780 1,100 154 $0.65 $43,071 $515.20 $100.10 $615.30 80% 575 32,200 460 $1.28 10,780 1,100 154 $0.65 $48,062 $586.50 $100.10 $686.60 80% 690 38,640 552 $1.19 10,780 1,100 154 $0.65 $52,795 $654.12 $100.10 $754.22 2011 90% 460 28,980 414 $1.40 10,780 1,100 154 $0.65 $47,579 $579.60 $100.10 $679.70 90% 575 36,225 518 $1.28 10,780 1,100 154 $0.65 $53,194 $659.81 $100.10 $759.91 90% 690 43,470 621 $1.19 10,780 1,100 154 $0.65 $58,519 $735.89 $100.10 $835.99 Beef Cow Enterprise Budget A Returns Per Cow Per Year A 1 Weaning percent A 2 Average calf weight, lbs./calf A 3 Total calf weight, lbs A 4 Average calf weight, lbs./cow-unit A 5 Averge calf price, $/lb. A 6 Total cull cow weight, lbs. A 7 Average cull cow weight, lbs./cow A 8 Average cull cow weight, lbs./cow-unit A 9 Average cull cow price, $/lb. A 10 Gross returns, total $ A 11 Average calf return, $/cow-unit A 12 Average cull cow return, $/cow-unit A 13 Gross returns, $ per cow-unit 90% 460 28,980 414 $1.40 10,780 1,100 154 $0.65 $47,579 $579.60 $100.10 $679.70 90% 575 36,225 518 $1.28 10,780 1,100 154 $0.65 $53,194 $659.81 $100.10 $759.91 90% 690 43,470 621 $1.19 10,780 1,100 154 $0.65 $58,519 $735.89 $100.10 $835.99 Beef Cow Enterprise Budget B Costs Per Cow Per Year B 1 Pasture B 2 Purchased feed B 3 Machinery & equipment B 4 Animal health B 5 Buildings/Improvements/Facilities-DIRT B 6 Buildings/Improvements/Facilities-Interest B 7 Management B 8 Labor B 9 Custom hire B 10 Farm records B 11 Professional fees B 12 Utilities B 13 Marketing fees B 14 Supplies B 15 Replacement heifer capital cost B 16 Annual bull cost depreciation B 17 Interest on breeding stock capital B 18 Insurance & Tax on breeding stock B 19 Interest on operating cost1 B 20 Cost per cow per year $77.14 $146.15 $71.93 $40.47 $18.75 $10.71 $8.57 $21.43 $5.14 $3.86 $5.71 $5.21 $27.19 $0.00 $210.00 $15.00 $37.95 $3.16 $77.14 $146.15 $71.93 $40.47 $18.75 $10.71 $8.57 $21.43 $5.14 $3.86 $5.71 $5.21 $30.40 $0.00 $210.00 $15.00 $37.95 $3.16 $77.14 $146.15 $71.93 $40.47 $18.75 $10.71 $8.57 $21.43 $5.14 $3.86 $5.71 $5.21 $33.44 $0.00 $210.00 $15.00 $37.95 $3.16 $19.48 $727.87 $19.57 $731.16 $19.65 $734.29 Beef Cow Enterprise Budget C Returns Over Total Costs Per Cow Per Year -$48.17 $28.75 $101.70 D Average Feeder Calf Price Needed Per Cwt. D 1 To Cover Feed Costs, $/cwt. D 2 To Cover Total Costs, $/cwt. $53.93 $151.63 $43.15 $121.94 $35.96 $102.12 E Asset Turnover Ratio (A/Investment)2 44% 49% 54% F Net Return on Investment 1.3% 6.3% 11.0% ((C + B17 + B28+ B30)/Investment)3 Cow-Calf Production Budgets Computer Spreadsheet Breakeven Price and Profit Calculator Cow-Calf Costs & Returns Budgets How Not To Go Broke In The Cow-Calf Business: Lower Your Unit Cost of Production (UCOP) DAERS 12-1, January 2012 Paper: http://www.aces.edu/timelyinfo/#AgEcon Unit Cost of Production - UCOP (Cost Per Pound of Calf Production) Total Production Expenses – Cull Cow/Bull Revenue UCOP ($/Lb.) = ----------------------------------------------------Total Pounds of Calf Production Table 1. Breakeven feeder calf prices for various weaning weights, weaning percentages, and production costs.* Weaning Weaning Calf Prod. -------------------------- Production Costs Per Brood Cow* ----------------------------- 2012 Projected Weight Percent /Brd. Cow $400 $500 $600 $700 $800 $900 $1,000 Average Price Lbs. % Lbs./Cow --------------------------- Breakeven Feeder Calf Price, $/Lb. -------------------------- $/Lb. 450 500 550 600 75% 75% 75% 75% 338 375 413 450 $1.19 $1.07 $0.97 $0.89 $1.48 $1.33 $1.21 $1.11 $1.78 $1.60 $1.45 $1.33 $2.07 $1.87 $1.70 $1.56 $2.37 $2.13 $1.94 $1.78 $2.67 $2.40 $2.18 $2.00 $2.96 $2.67 $2.42 $2.22 $1.55 $1.46 $1.40 $1.35 450 500 550 600 80% 80% 80% 80% 360 400 440 480 $1.11 $1.00 $0.91 $0.83 $1.39 $1.25 $1.14 $1.04 $1.67 $1.50 $1.36 $1.25 $1.94 $1.75 $1.59 $1.46 $2.22 $2.00 $1.82 $1.67 $2.50 $2.25 $2.05 $1.88 $2.78 $2.50 $2.27 $2.08 $1.55 $1.46 $1.40 $1.35 450 500 550 600 85% 85% 85% 85% 383 425 468 510 $1.05 $0.94 $0.86 $0.78 $1.31 $1.18 $1.07 $0.98 $1.57 $1.41 $1.28 $1.18 $1.83 $1.65 $1.50 $1.37 $2.09 $1.88 $1.71 $1.57 $2.35 $2.12 $1.93 $1.76 $2.61 $2.35 $2.14 $1.96 $1.55 $1.46 $1.40 $1.35 450 500 550 600 90% 90% 90% 90% 405 450 495 540 $0.99 $0.89 $0.81 $0.74 $1.23 $1.11 $1.01 $0.93 $1.48 $1.33 $1.21 $1.11 $1.73 $1.56 $1.41 $1.30 $1.98 $1.78 $1.62 $1.48 $2.22 $2.00 $1.82 $1.67 $2.47 $2.22 $2.02 $1.85 $1.55 $1.46 $1.40 $1.35 Table 1. Breakeven feeder calf prices for various weaning weights, weaning percentages, and production costs.* Weaning Weaning Calf Prod. -------------------------- Production Costs Per Brood Cow* ----------------------------- 2012 Projected Weight Percent /Brd. Cow $400 $500 $600 $700 $800 $900 $1,000 Average Price Lbs. % Lbs./Cow --------------------------- Breakeven Feeder Calf Price, $/Lb. -------------------------- $/Lb. 450 500 550 600 75% 75% 75% 75% 338 375 413 450 $1.19 $1.07 $0.97 $0.89 $1.48 $1.33 $1.21 $1.11 $1.78 $1.60 $1.45 $1.33 $2.07 $1.87 $1.70 $1.56 $2.37 $2.13 $1.94 $1.78 $2.67 $2.40 $2.18 $2.00 $2.96 $2.67 $2.42 $2.22 $1.55 $1.46 $1.40 $1.35 450 500 550 600 80% 80% 80% 80% 360 400 440 480 $1.11 $1.00 $0.91 $0.83 $1.39 $1.25 $1.14 $1.04 $1.67 $1.50 $1.36 $1.25 $1.94 $1.75 $1.59 $1.46 $2.22 $2.00 $1.82 $1.67 $2.50 $2.25 $2.05 $1.88 $2.78 $2.50 $2.27 $2.08 $1.55 $1.46 $1.40 $1.35 450 500 550 600 85% 85% 85% 85% 383 425 468 510 $1.05 $0.94 $0.86 $0.78 $1.31 $1.18 $1.07 $0.98 $1.57 $1.41 $1.28 $1.18 $1.83 $1.65 $1.50 $1.37 $2.09 $1.88 $1.71 $1.57 $2.35 $2.12 $1.93 $1.76 $2.61 $2.35 $2.14 $1.96 $1.55 $1.46 $1.40 $1.35 450 500 550 600 90% 90% 90% 90% 405 450 495 540 $0.99 $0.89 $0.81 $0.74 $1.23 $1.11 $1.01 $0.93 $1.48 $1.33 $1.21 $1.11 $1.73 $1.56 $1.41 $1.30 $1.98 $1.78 $1.62 $1.48 $2.22 $2.00 $1.82 $1.67 $2.47 $2.22 $2.02 $1.85 $1.55 $1.46 $1.40 $1.35 Table 1. Breakeven feeder calf prices for various weaning weights, weaning percentages, and production costs.* Weaning Weaning Calf Prod. -------------------------- Production Costs Per Brood Cow* ----------------------------- 2012 Projected Weight Percent /Brd. Cow $400 $500 $600 $700 $800 $900 $1,000 Average Price Lbs. % Lbs./Cow --------------------------- Breakeven Feeder Calf Price, $/Lb. -------------------------- $/Lb. 450 500 550 600 75% 75% 75% 75% 338 375 413 450 $1.19 $1.07 $0.97 $0.89 $1.48 $1.33 $1.21 $1.11 $1.78 $1.60 $1.45 $1.33 $2.07 $1.87 $1.70 $1.56 $2.37 $2.13 $1.94 $1.78 $2.67 $2.40 $2.18 $2.00 $2.96 $2.67 $2.42 $2.22 $1.55 $1.46 $1.40 $1.35 450 500 550 600 80% 80% 80% 80% 360 400 440 480 $1.11 $1.00 $0.91 $0.83 $1.39 $1.25 $1.14 $1.04 $1.67 $1.50 $1.36 $1.25 $1.94 $1.75 $1.59 $1.46 $2.22 $2.00 $1.82 $1.67 $2.50 $2.25 $2.05 $1.88 $2.78 $2.50 $2.27 $2.08 $1.55 $1.46 $1.40 $1.35 450 500 550 600 85% 85% 85% 85% 383 425 468 510 $1.05 $0.94 $0.86 $0.78 $1.31 $1.18 $1.07 $0.98 $1.57 $1.41 $1.28 $1.18 $1.83 $1.65 $1.50 $1.37 $2.09 $1.88 $1.71 $1.57 $2.35 $2.12 $1.93 $1.76 $2.61 $2.35 $2.14 $1.96 $1.55 $1.46 $1.40 $1.35 450 500 550 600 90% 90% 90% 90% 405 450 495 540 $0.99 $0.89 $0.81 $0.74 $1.23 $1.11 $1.01 $0.93 $1.48 $1.33 $1.21 $1.11 $1.73 $1.56 $1.41 $1.30 $1.98 $1.78 $1.62 $1.48 $2.22 $2.00 $1.82 $1.67 $2.47 $2.22 $2.02 $1.85 $1.55 $1.46 $1.40 $1.35 Table 1. Breakeven feeder calf prices for various weaning weights, weaning percentages, and production costs.* Weaning Weaning Calf Prod. -------------------------- Production Costs Per Brood Cow* ----------------------------- 2012 Projected Weight Percent /Brd. Cow $400 $500 $600 $700 $800 $900 $1,000 Average Price Lbs. % Lbs./Cow --------------------------- Breakeven Feeder Calf Price, $/Lb. -------------------------- $/Lb. 450 500 550 600 75% 75% 75% 75% 338 375 413 450 $1.19 $1.07 $0.97 $0.89 $1.48 $1.33 $1.21 $1.11 $1.78 $1.60 $1.45 $1.33 $2.07 $1.87 $1.70 $1.56 $2.37 $2.13 $1.94 $1.78 $2.67 $2.40 $2.18 $2.00 $2.96 $2.67 $2.42 $2.22 $1.55 $1.46 $1.40 $1.35 450 500 550 600 80% 80% 80% 80% 360 400 440 480 $1.11 $1.00 $0.91 $0.83 $1.39 $1.25 $1.14 $1.04 $1.67 $1.50 $1.36 $1.25 $1.94 $1.75 $1.59 $1.46 $2.22 $2.00 $1.82 $1.67 $2.50 $2.25 $2.05 $1.88 $2.78 $2.50 $2.27 $2.08 $1.55 $1.46 $1.40 $1.35 450 500 550 600 85% 85% 85% 85% 383 425 468 510 $1.05 $0.94 $0.86 $0.78 $1.31 $1.18 $1.07 $0.98 $1.57 $1.41 $1.28 $1.18 $1.83 $1.65 $1.50 $1.37 $2.09 $1.88 $1.71 $1.57 $2.35 $2.12 $1.93 $1.76 $2.61 $2.35 $2.14 $1.96 $1.55 $1.46 $1.40 $1.35 450 500 550 600 90% 90% 90% 90% 405 450 495 540 $0.99 $0.89 $0.81 $0.74 $1.23 $1.11 $1.01 $0.93 $1.48 $1.33 $1.21 $1.11 $1.73 $1.56 $1.41 $1.30 $1.98 $1.78 $1.62 $1.48 $2.22 $2.00 $1.82 $1.67 $2.47 $2.22 $2.02 $1.85 $1.55 $1.46 $1.40 $1.35 Table 2. Estimated profit per cow for various weaning weights, weaning percentages, and production costs.* Weaning Weaning Calf Prod. -------------------------- Production Costs Per Brood Cow* ----------------------------- 2012 Projected Weight Percent /Brd. Cow $400 $500 $600 $700 $800 $900 $1,000 Average Price Lbs. % Lbs./Cow --------------------------- Estimated Profit Per Cow, $/Hd. -------------------------- $/Lb. 450 500 550 600 75% 75% 75% 75% 338 375 413 450 $123 $148 $178 $208 $23 $48 $78 $108 ($77) ($53) ($23) $8 ($177) ($153) ($123) ($93) ($277) ($253) ($223) ($193) ($377) ($353) ($323) ($293) ($477) ($453) ($423) ($393) $1.55 $1.46 $1.40 $1.35 450 500 550 600 80% 80% 80% 80% 360 400 440 480 $158 $184 $216 $248 $58 $84 $116 $148 ($42) ($16) $16 $48 ($142) ($116) ($84) ($52) ($242) ($216) ($184) ($152) ($342) ($316) ($284) ($252) ($442) ($416) ($384) ($352) $1.55 $1.46 $1.40 $1.35 450 500 550 600 85% 85% 85% 85% 383 425 468 510 $193 $221 $255 $289 $93 $121 $155 $189 ($7) $21 $55 $89 ($107) ($79) ($45) ($11) ($207) ($180) ($146) ($112) ($307) ($280) ($246) ($212) ($407) ($380) ($346) ($312) $1.55 $1.46 $1.40 $1.35 450 500 550 600 90% 90% 90% 90% 405 450 495 540 $228 $257 $293 $329 $128 $157 $193 $229 $28 $57 $93 $129 ($72) ($43) ($7) $29 ($172) ($143) ($107) ($71) ($272) ($243) ($207) ($171) ($372) ($343) ($307) ($271) $1.55 $1.46 $1.40 $1.35 Figure 3. Expected Cash Price for August 2012, 725# Steers, Med. & Lg., #1 & #2, Alabama, Based on August 2012 Feeder Cattle Futures Prices1 Breakeven Price² $150 $145 Dollars Per Cwt. $140 $135 $130 $125 $120 Price Objective³ Expected Cash Price⁴ Cow-Calf Production Budgets Seasonal Price Trends of Inputs U. S. DAP Prices By Month, 2007 - 2011 Dollars Per Metric Ton 5-Year Avg. 2010 2011 $700 $650 $600 $550 $500 $450 $400 $350 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Weekly Retail Diesel Prices, U.S. Gulf Coast 5-Yr. Avg. 2010 2011 $4.25 $4.00 $/Gallon $3.75 $3.50 $3.25 $3.00 $2.75 $2.50 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Figure 2. Weekly Soybean Hull Prices, $/Ton, FOB, Memphis 5-Yr. Avg. 2010 2011 $265 $250 $235 Dollars Per Ton $220 $205 $190 $175 $160 $145 $130 $115 $100 $85 $70 Jan Feb Mar Apr May Jun Jul Week Aug Sep Oct Nov Dec Figure 1. Southeast Hay Prices, Bermuda, Small Roll (4x5), Good Quality 5-Yr. Avg. 2010 2011 $140 $120 Dollars Per Ton $100 $80 $60 $40 $20 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Cow-Calf Production Budgets Have you bought a ticket to be in the cow-calf business? Walt’s Top 21 Cow-Calf Profitability Axioms 1. Determine profitability goals and objectives of your cow-calf operation. 2. Assess whether your profitability goals and objectives are realistic. 3. Be a business manager – measure costs, cattle and forage production, profits, time, and taxes. 4. Get the grazing system right – maximize the number of grazing days. 5. Get the calving season right – make the best use of grass to produce a quality animal for an acceptable market. 6. Get the size of cow right – 7. Get hybrid vigor from animal selection – 8. Get the nutrition program and body condition of cows right 9. Constantly seek out ways to increase your grazing days and grass quality. 10. Implement a rotational grazing program (one electric hi-tensil wire). 11. Sparingly use the 4 Fs (feed, fertilizer, fuel, & folks) unless they are free. 12. Minimize capital investments. Walt’s Top 21 Cow-Calf Profitability Axioms 13. Implement a herd health program. 14. Add value to feeder calves (castrate, dehorn, deworm, implant, etc.). 15. Market feeder calves in economic packages, 50,000 lbs. (cooperate with others if needed). 16. Be prepared to retain ownership after weaning the calf to benefit from profit opportunities. 17. Market cull animals to receive price premiums. 18. Monitor market prices daily and use market price protection when warranted. 19. Diversity cow-calf operation with other enterprises (broilers, crops, hunting, timber, off-farm job, etc.) to reduce risk. 20. Share labor, equipment, and knowledge with your friends. 21. Have an “Exit Plan” that describes how and when to exit the cow-calf business. (Do your family a favor!) 3 out of 4 times you will make the wrong decision (bible?) Production budgets - What are they??? Production budgets - schedule f (cost of production and net farm income) How many of you will have a positive number on the line xx of your 2011 schedule F? Don't raise your hands, but how many of you have had a positive net farm income in one of the last ten years? In two of the last ten years? In five of the last ten years??? How do you measure cow-calf profit? AL TI on Net Farm Income Jwp Cow-calf Budget What does hay really cost you Seasonal Price trends for by-product feed stuffs AL State Dept of Revenue - Audits denying tax deductions Exchange Rate (affects fuel, fertilizer, imports and beef exports) Weather - major effect on production costs 3 out of 4 times you will make the wrong decisio n (bible? ) Produc tion budget s What are they?? ? Produc tion budget sschedu le f (cost of produc tion and net farm income ) How many of you will have a positiv e numbe r on the line xx of your 2011 schedu le F? Thank You For Your Attention! Don't raise your hands, but how many of you have had a positiv e net farm income in one of the last ten years? In two of the last ten years? In five of the last ten years? ?? How do you measu re cowcalf profit? AL TI on Net Farm Income Jwp Cowcalf Budget What does hay really cost you Season al Price trends for byproduc t feed stuffs AL State Dept of Revenu eAudits denyin g tax deducti ons Do You Have Any Questions? Exchan ge Rate (affect s fuel, fertiliz er, import s and beef exports ) Weath er major effect on produc tion costs Cow-Calf Production Budgets Dr. Walt Prevatt Agricultural Economist Auburn University Florida Cattlemen’s Institute and Allied Trade Show January 26, 2012 Cow-Calf Production Budgets Pops said, “When you are self-employed, you get paid what you are worth!”