Bookkeeping

[rsomer]

cowman: I agree. I would add that luck and the ability to spot an opportunity is needed in addition to common sense, good work ethic and so on.

My son is about to leave for university and he will eventually get a piece of paper to hang on the wall. Although he is not pursing an ag related degree I expect the skills he will learn there will do him well if he decides in the future to come back and farm. I strive to present him with an optimistic view of farming so that someday he might see agriculture as a viable option, and it is. Unfortunately there are fewer and fewer young fellows coming out of universities and colleges that want to farm and they are missing a great opportunity.

To be successful in any venture an person needs to develop as many skills as possible, but will likely be better at some things than others. I enjoy working in the shop but I know other people who really have no repair skills but their strengths in other areas does them well. Some skills in front of the computer screen are becoming more important all the time.

I think the number one skill that you may have to be born with is the ability to spot an opportunity. Farming is still as every bit as good an opportunity as when I started in 1972, it is just disguised behind a lot of negativism.

[pandiana]

rsomer, your comments make perfect sense for the individual farmer who is in a position to be 'independent'. This is the crux of the matter. Many who started farming in the last decade have had to build their enterprise in an environment of ever increasing cost with ever diminishing returns.

In order to raise your own feed, you must have enough land. Land has more than doubled in cost during this time in most areas in Alberta. There is no number of cows that can be raised on this land that will pay for themselves and the land payments as well, let alone the machinery required to farm it.

If you increase your production base, i.e. cows, in order to benefit from economy of scale you must purchase feed. Feed prices have doubled or tripled in the last five years. You can cut back on the number of cows but your overhead is still costing you. These costs are not influenced directly by the cattle cycle. In other words you get paid what the market dictates regardless of your increase in input costs.
In summary, for many of us, that $744.00 figure is real. Yes cutting costs is an important aspect of solvency. You can sell your tractor and buy a team. But how much can you cut and still elicit any joy in what you are doing?

[rsomer]

pandiana: Point well taken. Your comments remind me how fortunate I am to have started farming when I did and to live in an area where land is still somewhat priced in relationship to its productivity.

You mentioned "build their enterprise in an environment of ever increasing cost with ever diminishing returns." I believe it has always been this way except for a brief period after World War 2.

Yes, for some it will be $744 if they are paying out cold hard cash for feed, buying replacements etc. The next few years will be very hard.

[Junebug]

Rsomer: You did a good job of trying to convince me but I see this venture from a much different point of veiw. First I'd like to comment on what the young farmer is facing today. 29 years ago a 1/2 section of land in our area (grey wooded soil) sold for 24,000.00, ten years later it sold for 125,000.00 Last year it sold for 412,000.00. Even with all the most modern farming technics the production will not increase enough to pay for this land. The land is an investment that you hope in the end reaps financial gain.
now to reply to your remarks. Everything considered is directed to the cost of keeping the cow because she is the one producing the product that is to make the profit.
We do grow our own feed and replacements. Everytime that fuel trucks pulls up to fill the tank there's a cost. The equipment purchased (even old)Twine, parts, depreciation etc. there's a cost. If you have replacemnets you must have had a bull. He eats and more often than not when sold, he brings less than was paid.Read another thread about the fence smashing happening, There is a cost. However we have a neighbour( who has cows) who has figured out how to keep his fences well maintained at NO cost to him. He lets the 3 surrounding neighbours do all the repairs and replacements. He does not offer to help pay for some of the repairs nor does he offer to help with repairs.
Death loss: Home raised or not when they die you've loss the opportunity to make any profit from that animal. The crop scenario, The cost of putting in the crop I assume is the same if you get 30 bushel instead of 80 bushel. Again loss opportunity to make profit and it could mean the difference between having to purchase grain/feed or not.
Feed and pasture: You are very fortunate to have the option to graze for an extra 30 days if you choose. Here once it freezes, what little grass is left is done. Only rarely can we seem to have late fall grazing and this year we won't make it to the end of September, and we have had No animals or hayed about 200 acres and there is nothing there. Down sized the herd by 75% last year. normally we can put up 1200 big round bales, This year we have 360 These pastures need to be worked up once in a while and there is a cost to that.
Vet Fees: I don't know anyone who hires a vet to calve their cows, most farmer do this themselves so maybe I worded this wrong. Animal health expences: treatment for scours, pneumonia, pinkeye, footrot, ID tags, Vaccinations etc. is a cost.
I do agree that if your cow drops from 1600 to 1000 when you are not selling is like playing the stock market. It only really counts when you need to sell. However it takes a long time to build a good herd and its not easy to sell when prices are high and buy back when they've dropped. But if that cow is worth 800.00 in a year of drought or any anforeseen thing and you had to sell some (as many of us did)when she was worth 1600.00 last fall, then we did lose equity.
Basically in short term ligo, I think if you have 100,000.00 Jan1 and after you have paid all the bills, Fencing, fuel,repairs,interest,crop inputs,cost of infrastructure etc.etc.etc. and on Dec 31 you can put back in the pot 100,000.00 plus some the farm has made a profit.or After 25 years if you have built up your herd and facilities, have no bad debts, and have cash to play with ( WITH NO OUTSIDE INCOME) The farm is paving the way. The increased land value is gravy or maybe a nice bonus to your kids.
One cost that most farmers don't consider as a cost is the cost of selling through the auction mart, as the money is deducted before you get the check, therefore gone before you had it, but it is a direct cost to the producer.
I own a business and I'm fortunate to have the office in my yard in a junk shed, that I revived into an office. I did all the work and used an existing building.Does this mean there is no cost? I view this as: I had to have an office some where, which would cost. therefore the business pays the farm office space rental. True the money is just going from one account to the another but it is a cost the business would have incurred. ( And the farm needs the income).
I guess if you are getting the bills paid, have a roof over your head, food on the table, and you are happy with what you're doing thats what counts most. Good luck to all for the rest of 2003

[rsomer]

junebug: Thanks for your reply, yours and others comments are helping me work through a problem I have had for years, how to approach costs on my farm. Re land, our numbers for equivalent time frames would be $8000, $40,000, $75,000 with less productive capacity. I think land prices might have eased a bit due to BSE but none had traded since May 20 that I know of.

What we are talking about is bookkeeping. There is no right or wrong way, one could say it doesn’t matter. But it does matter. How management information like costs and profits are viewed by the decision maker will influence the decisions made. Viewing internal production such as pasture and feed at market value and thinking of them as profit centers offers advantages when comparing your operation to others as this method offers a standardized approach to costing. You will be able to view your operation in more detail. It is "need to know" information. As a result of this discussion I have dusted off my "Cowprofit$" and intend to get back to my enterprise analysis after freezeup. And yes when I do my enterprise analysis using production centers feed will appear to be a cost when it is transferred from forage and pasture to the cow-calf and backgrounding centers. I do need to know that cost, it is useful information.

But I will still stay with the larger whole farm approach to costs that I have been using because I can’t loose sight of the big picture. I will be doing my enterprise analysis two times, one way with more detail, grain, straw and aftermath, cow-calf, backgrounding, hay, pasture, (which are my farms production centers) and the other with just grain and cattle (my actual revenue centers), the last way is how I think of the operation anyway. And of course my income statement provides me with a yearly view of the overall farm as a complete whole. I guess in the end I will have three enterprise analysis, one based on production centers (showing feed/pasture as a cost), another based on revenue centers (on-farm feed won’t appear as a cost) and one based on the whole farm (the income statement).

However I view my costs and profits, I need to remember that on a farm like mine which has debt that cash flow is king. If there were no debt then I could focus on increasing profit. But until that day comes, if ever, I need to make sure cash is there for this year, next year and the year beyond. My enterprise analysis won’t tell me that. Enterprise analysis is like a little devil in your ear telling that if you just did this and if you just did that then you would make more money. But the direction the little devil leads you may have a cash flow trap around the corner.

Enjoyed all the comments. I do think that even with all the management information at our disposal now that we should not loose sight of how others before us managed their farms in difficult times. My grandfather operated this same farm (only smaller) in an era when at one time he couldn’t even afford a stamp. Now that is tight cash flow. In the next few years it is likely there will be less cash flow than there was in the last ten years. The fellow that manages his cash flow best is the one who will be still farming when the BSE thing is past us. He/she will see their profits then but not in the next few years.

For me what matters the most is that the farm survives and grows, that it doesn’t crash on my watch. That I can look back when I am old and say I did the best I could.

Thanks again to all, the discussion has been invaluable to me. Good luck.