Management Issues Faced by Beef Producers

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Management Issues Faced by Beef Producers
BEEF UNIVERSITY La Junta, CO 27 July 2006

• Jeffrey E. Tranel
• Agricultural Business Management Economist
• Cooperative Extension
• Dept. of Agricultural Resource Economics

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Where Do You Want To Go? (Goals)
How Are You Going To Get There? (Objectives,
Plans)
Where Are You Now? (Inventory)
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Where Do You Want To Go?

• What are your goals?
• What are your
• Dreams?
• Desires?
• Ambitions?

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Goals?
Raise Family on Ranch
Stay Away From Cities
Survive Drought With _____________
Work With Spouse
Build Equity
Live Close to Nature
??????
Own Cows
Keep Ranch
Vacations
Active Church Life
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Where Are You Now?

• Financial Inventory
• Net worth.
• Tax situation.
• Cashflows.
• Credit worthiness.
• Cost of Production.

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Where Are You Now?

• Land Inventory
• Grass crop production
• Quantity historical, during droughts
• Timing
• Natural animal protection
• Wildlife
• Vistas
• Location
• Distance to places (airport, population centers,
  schools, churches, entertainment)
• Roads
• Weather

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Where Are You Now?

• Machinery, Equipment, Vehicles Inventory
• Livestock
• Crop production
• Vehicles (business, personal)
• Buildings Inventory
• Houses
• Barns and shops
• Storage (specific and general)
• Other

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Where Are You Now?

• Animal Inventory
• Number
• Type
• Production
• Timing
• Calving
• Weaning
• Branding
• Critical and non-critical times

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Where Are You Now?

• Labor Inventory (family, others)
• Current
• Salaries
• Benefits (including housing and vehicles)
• Availability
• Expected changes
• Costs
• Skills
• Needs

• Livestock
• Crops
• Equipment
• Marketing
• Management
• Finances
• Other

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Where Are You Now?

• Family Inventory
• People
• involved
• not involved but interested
• not involved and out of the picture
• History
• Desires and interests
• Skills and aptitudes

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How Will You Get Where You Want To Go?

• Now ranching
• Do existing animals help move towards goals?
• Do existing animals match land resources?
• Management strategies?
• Production schemes?
• Marketing strategies?

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What Are Your Cows Worth?

• It depends on your annual cow costs
• Colorado Average 410 (2005)
• General Rule of Thumb
• 65 to 70 percent of estimated receipts
• For example 500 estimated receipts
• 325 - 350 per cow

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Cow/Calf Enterprise Budget 2005 (Per Cow)

• Revenues
• Calves 429.13
• Culls 81.97
• Total Revenues 511.10
• Expenses
• Animal Expense 241.92
• Machinery Equipment 30.70
• Labor 8.60
• Land 48.31
• Finance 89.57
• Total Cash Expenses 419.10
• Net Receipts Per Cow 92.00

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Traits of Low Cost Producers

• They Have Lower Winter Feed Costs
• They Have Lower Supplemental Feed Costs
• They Have Lower Interest Expenses
• They Have Higher Bull Costs
• They Have Higher Herd Health Maintenance Costs

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Management TipsAnnual Cow Costs

• Business Management Producer Attitude
• Develop a Plan and Execute It
• Goals (Where Do You Want To Go?)
• Develop Budgets and Monitor Progress
• Pay Attention to Details
• Keep Records That Measure Details
• Stay Focused
• Get Advice

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Management TipsAnnual Cow Costs

• Minimize Investment in Depreciable Assets
• Vehicles
• Machinery
• Horses
• Leasing versus Buying Analysis
• Analyze Purchase versus Raising Replacements
• Dont Make Investment Decisions to Reduce Taxes
• Dont Spend a Dollar to Save 30 cents.

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What Are Your Cows Worth?

• It depends the number of calves sold
• Conception Rates
• Weaning Percentage
• Reproduction Is The Number One Production Factor
  Cow/Calf Producers Must Pay Attention To

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Management TipsWeaning Return on Assets
Southwest Cow/Calf SPA Summary
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What Are Your Cows Worth?

• It depends on total receipts
• Calf Market Prices
• Weaning Weights
• Cull Sales

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Management TipsTotal Receipts

• Market Prices
• Marketing Plans
• Risk Management
• Understand Forward Pricing Tools
• Weaning Weights
• Be Careful!!
• No Relationship Between Weaning Weights and
  Profitability
• Identify Ways of Adding Weight That Does Not
  Involve A Lot of Additional Costs

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What Are Your Cows Worth?

• It depends on the productive life of the cow
• More calves produced allows higher value of cow.

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How Much Can You Afford To Pay ??
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What To Do During Drought?

• Increase herd size
• Decrease herd size
• Truck to pasture
• Buy feed
• Sell calves
• Sell pairs
• Sell cows, buy stockers

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Maintaining the Cow Herd

• Reasons for not liquidating
• Irreplaceable genetics
• Climatic acclamation (e.g. high altitude)
• Sufficient feed resources
• Financial considerations
• Lack of debt repayment capabilities
• Insufficient equity resources
• Personal

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Maintaining the Cow Herd- Trucking Animals to
Grass -

• Availability of pasture?
• Transportation costs?
• Pasture lease rates?
• Length of time?
• Death loss and other health problems?
• Trust of leased pasture manager?

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Maintaining the Cow Herd- Purchasing Feed -

• Availability of feed?
• Cost of feed?
• Cost of transporting feed?
• Availability cost for feeding?
• Considerations
• Make every effort to reduce costs.
• Get the most mileage from available feeds.
• Supplement low-quality feeds correctly.
• Balance rations for animal needs.
• Account for feed cost, nutrient value,
  palatability.

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Tax Implications

• Revenue Code Sections
• 1033(e)
• 1033(h)
• 451(e)

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Special Tax Code Provisions

• IRS Code Sections 1033(e) and 451(e).
• Requirements of Taxpayer.
• Qualified farmer.
• Uses cash method of accounting.
• Sale would not have occurred except for drought.

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Tax Code Section 1033(e)

• Section 1033(e).
• Allows for the non-recognition of the gain on the
  sale of breeding livestock.
• 4 years December 31, 2010
• Animals sold in excess of normal numbers due to
  drought (involuntary conversion).
• Area does not need official designation as
  drought.

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Recognize the Gains?

• Advantages of Deferring
• Have use of money for debt repayment and/or
  investments.
• Tax return can be amended without penalty.
• Tax liability may be higher in current year.
• Abnormally high profits and other income.

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Recognize the Gains?

• Advantages of Paying the Tax
• Money is available.
• Greater flexibility in replacing animals.
• Type.
• Timing.
• Current year tax situation may reduce gains.
• Net operating losses (NOL).
• Reduced profitability in current year.

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What to do with the Money?

• Need funds to
• Replace livestock.
• Pay taxes.
• Investment opportunities.
• Other, such as meeting debt obligations.
• Caveat.
• Do Not spend money for purposes which would
  prevent monies from being available when needed.

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Replacing the Cow Herd

• Should you get back into the cattle business?
• Personal and family issues
• Business risks
• Range/pasture recovery
• Financing alternatives

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Personal Family Issues

• Age
• Health
• Stress
• Personal Goals
• Family Goals
• Equity Management
• Personalities

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Tax Code Section 1033 (h)

• Area must be designated as eligible for
  assistance by the President of USA.
• Invest revenues from the sale of cows in ag and
  non-ag income producing assets, generally.
• Tractor, machinery
• Apartment buildings
• Etc.
• Consult personal tax practioner.

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Tax Code Section 451(e)

• Primarily for sales of market/feeder animals.
• Allows for deferring recognition of forced sale
  income to the following year.
• Livestock sold due to drought, flood, or other
  weather related conditions.
• Area must be designated as eligible for
  assistance by the federal government (Secretary
  of USDA).

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www.coopext.colostate.edu/tranel
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http//www.coopext.colostate.edu/ABM/abmndx.html
http//www.coopext.colostate.edu/tranel

• Thank You!