Damona Doye, Extension Economist damona.doye@okstate.edu Cow Calf Costs of Production + Tools to Help Producers Fine Tune Their Operations Damona Doye, Extension Economist damona.doye@okstate.edu In agriculture, there are many things that you can’t control. But there are many that you can! As cattle prices have dropped off record highs in 2014, cow-calf producers’ profits are being hard hit, leading to a need to cut costs and increase revenues. Careful management through cost control and adoption of recommended practices becomes more critical. I’m Damona Doye In this video- I want to highlight a toolkit of methods proven to improve profitability regardless of herd size. The various practices that will be highlighted have been subjects of research by our beef team at OSU. Our goal is to equip extension educators, producers, ag lenders with the information needed for cow-calf producers to minimize costs and identify readily available profit-making opportunities. These management tools do not require investment in capital-intensive handling facilities although some minimal infrastructure, e.g., head chute, may be necessary for some practices. .

Farm Sector Income and Asset Values Surged from 2009-13 Source: USDA-ERS and Choices Magazine

Share of Farm Businesses with High Leverage, 1996-2016F Source: USDA-ERS and Choices Magazine

Source: Kansas City Federal Reserve Bank Ag Credit Survey, August 2016

Source: Kansas City Federal Reserve Bank Ag Credit Survey, August 2016

No magic bullet, By identifying the problem, you zero in on the appropriate strategy for fixing the problem. Don’t want to only treat the symptoms. Assets to sell may include Machinery and equipment Land Livestock What order? May depend on the amount of debt associated with an asset http://www.agmanager.info/KFMA/

Cow/Calf Returns from Kansas Farm Management Association Data Data from the Kansas Farm Management Association (KFMA) show that Kansas cow-calf producers on average earned positive returns over variable costs in all but 11 of the last 39 years (Pendell, Kim, & Herbel, 2015). Or another way to look at it is that in roughly ¼ of the years, producers did not earn positive cash returns. In 5 years, cash returns were less than $50 per cow and in 9 years they were more than $150 per cow. About half the time the cow generated between $50 and $150 to pay loans, contribute to replacement of machinery, equipment, bulls, and pay unpaid labor and management. When you factor in those fixed costs, these same producers earned positive returns above all costs in only six of those 39 years. Averages mask a lot of variability across producers however….  Source: Pendell, Kim and Herbel (2015).

Cow/Calf Cost of Production ($), 2015  Costs of production vary widely among producers with a nearly $250 difference in operating costs between low and high profit producers (KFMA, 2015), with the largest determinant in the difference being feed expense. The least profitable group of producers spent more on purchased feed (and less on grazing) than producers with the highest profits. Effective forage management requires matching herd size, cow mature weights, and milk production potential to available resources. Overgrazed pastures result in lower weaning weights and more purchased feed inputs. A forage management plan that includes fall-winter grazing and only 60-90 days of fed hay will likely result in higher profits. A comparison of other costs to benchmarks like KFMA by individual producers may point out other opportunities for improvement through cost control. Profitability Group Excludes depreciation, operator labor, interest on investment. Source: Kansas Farm Management Association, 2015

Profitability Group

Source: Pendell, Kim and Herbel (2015).

Source: Pendell, Kim and Herbel (2015).

Source: Pendell, Kim and Herbel (2015).

Source: Pendell, Kim and Herbel (2015).

Source: Pendell, Kim and Herbel (2015).

Identify potential causes Evaluate options for change 4 step tune-up Diagnose the problem Short run or long run Internal or external Identify potential causes Evaluate options for change Change production/financial management as needed

Record-Keeping Tools Cow-calf record keeping tools Financial records CR-3279 Cow-Calf Production Records Software in www.osufacts.okstate.edu www.beefextension.com Financial records CR-324, Quicken for Farm and Ranch Financial Records AGEC-266 Quicken or QuickBooks: What’s the Best Choice for Agricultural Producers? www.agecon.okstate.edu/quicken

agecon.okstate.edu/budgets

RanchCalc on beefextension.com under Cow/calf Calculators

Six workshops focused on farm and family financial management Financial Risk – women and money, basic financial documentation, interpreting financial statements, enterprise analysis, USDA programs, and record keeping systems Human Resource Risk – communication and management styles, insurance needs, and succession planning Legal Risk – estate planning, farmland leasing, and employee management Market Risk – access to market information and grain or livestock marketing Production Risk – Natural Resources Conservation Service, web soil survey, and crop insurance http://agecon.okstate.edu/annie/ http://www.anniesproject.org/

agecon.okstate.edu/ifmaps Individual farm financial planning assistance Now fee-based: $500 for base case less than 15 hours $200 up front $50 per hour beyond 15 hours 1-800-522-3755 agecon.okstate.edu/ifmaps

Fact Sheets AGEC-237, Farm and Ranch Stress Test AGEC-208, Evaluating Options for Change AGEC-238, Farm and Ranch Financial Trends Worksheet AGEC-194, Taking Charge in Stressful Times AGEC-198, Negotiation Strategies AGEC-197, Coping with the Restructuring or Sale of the Farm Financial Statement Fact Sheet Series: AGEC-751, Developing a Cash Flow Statement AGEC-752, Developing a Balance Sheet AGEC-753, Developing an Income Statement AGEC-790, Evaluating Financial Performance and Position http://pods.dasnr.okstate.edu/docushare/dsweb/HomePage

agecon.okstate.edu/cattleman beefextension.com

Summary and Conclusions Financial stress is increasing Benchmark data are available Research documents the importance of controlling costs Every farm/ranch is unique Informed decisions start with records

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