Bookkeeping

[Junebug]

Pandiana, We take into consideration nearly everything related to having that cow. Costs include vet costs,death loss (for cow or calf),cow replacement allowance, salt /mineral,bedding, pasture, bulls, fuel, machinery costs, labour, ferltilizer, fencing, rent, extra power for waterers, interest on operating loan,and some opporunity costs. All these costs are related to having that cow, if you lived in town or acreage you would not have these cow related costs. Most of these costs are based on actual costs with some costs varying depending on the year. A person can lower their costs by: not having to use an operating loan, not using fertilizer, not having a herd health program (that is if you have A1 healthy cattle that never need any treatment of any kind). I'm sorry but there is no way that anyone can convince me they can feed their cow for nothing. I'm interested in seeing what the Ag specialists used in their formula.

[carebear300]

Junebug will try and relate my little experience with agricultural economists, in Sask. though, might be different. When I started farming in 1972 I was going to do everything the modern and correct way not the way my dad operated all his life and consulted the agriculture economics department at the university and long story short by the time I included all the costs that they recommended that I include I would be far better off to sit in the pub all day and drink beer. And maybe in the end they were right but still have managed to survive all these years by keeping my cash out of pocket expenses as low as possible. Don't know if I helped this discussion at all, sorry couldn't keep still any longer.

[cowman]

We can twist these things around however we like but the reality is there is no money in cow/calf right now and hasn't been for at least two years (and I doubt there will be any for quite awhile!).
I'd say that $765/cow is pretty close to reasonable if you don't pay yourself anything. And what about a return to your major asset...land? Land worth $2000/acre should return you $100 at 5%. Are you pasturing cows on that kind of land?
The fact is just about all agriculture enterprizes are a joke when you consider investment versus returns. I was talking to a fairly large farmer this winter. I asked him how he'd made out with the drought. His reply pretty well sums it up! "Well not too bad. Got a crop at least and I'm not starving, but you don't have to be too bright to net $50,000 on a $12 million dollar investment!!! I only had to pay about $600,000 to work last year!"
And there it is...reality!
Now having said all that, here I am still raising cows!! So I've got to count myself in with all the other idiots!

[pandiana]

I totally agree, cowman, but my accountant says there are farmers out there that make good money. I need to know how.

[cowman]

pandiana: Here's how some farmers made good money last year during the drought.Collected the crop insurance then sold the crop for greenfeed at outrageous prices. Some of them had their best year ever!!
Of course in the long run they cut their own throats as they drove a lot of cattlemen out of business. Sort of killed the goose that laid the golden egg! I don't blame them really...hey we all got to try to make a buck and Lord knows grain farming is a tough old business.
I wonder if the cow herd shrinks big time and our feeding industry basically goes bust, where is all the feed grain going to go? Maybe we'll need to dig two big pits...one to shoot the cows in and one to dump the barley in!!

[kato]

One of the best ways we have found to save money, and improve the bottom line is in wise equipment investments. Tying up all your money in depreciable assets has it's dangers.

For instance, we were shopping for a tractor a few years ago, and found a good used Deutz tractor that uses half the fuel that our old Case used, and cost the same as the down payment on a new Case. This tractor has literally paid for itself in fuel savings. I would bet any money that our cost of making hay is probably significantly less than the neighbour's is. (it uses 3 gallons of fuel an hour, and used to carry $1800.00 a year payments)

If you use the same sort of approach to all your equipment purchases, you can save a bundle. You don't need the newest and fanciest, you need the one that can pay for itself.

Check the farm auction flyers...you are more liable to find lots of big fancy new equipment than you are older, well maintained stuff. There is a reason for this...the big fancy things couldn't pay for themselves.

[rsomer]

junebug: your said "I'm sorry but there is no way that anyone can convince me they can feed their cow for nothing." I take that as a bit of a challenge. Let me try. This is a bit long but I thought it needed to be said.

Think about what you are considering as costs and you will see that your $744 is inaccurate and deceiving, my opinion. Your enterprise analysis software encourages you to think as if everything is based on market prices as if an actual cash transaction took place. But that is not reality for most of us. Most cow calf producers actually produce their own replacements and produce their own feed most years. If you purchase all your feed, replacements, cows, rent your pasture then my apologies. But the cow calf industry has evolved towards producers being self sufficient rather than going into the cash market to outsource all inputs. I think producers are more competitive and their costs are lower by doing so. I may be wrong but this how a producer who is mostly self sufficient views costs...feed being just one item, there are others.

You said that costs include death loss (cow or calf). Assuming that all my cows and calves are home raised, do I have a cost if one cow or calf dies? No. True my potential future revenues will decrease and my cost per unit of production will be higher than if the animal didn’t die but to be blunt shit happens. Unless I had to somehow incur a cost to kill the cow or calf i.e. euthanasia (my animals can die quite well on their own, thank-you) there is no cost to a single death loss. Explained another way, if I seed an acre of barley, that has a potential to yield 80 bu. per acre, and it gets hailed and only yields 50 bushels per acre, the 30 bushels I lost is not a cost, it is just lost potential revenue. There is no line item on my income statement for lost crop or lost calves.

If I keep a replacement heifer from my calf crop to go back into my herd do I have a cost? No. Assuming I could maintain cash flow for the operation while providing feed and pasture for her on my existing operation there is no cost involved. In fact my balance sheet position will slowly improve because by keeping the heifer to become a cow I am adding value to the animal. There is foregone revenue but that is what making an investment is all about.

Assuming I produce all my feed and pasture, if I reduce my winter feeding period by 30 days by extending the grazing season have I changed my costs to feed a cow? No or very little. There is a fuel cost to put up feed and spread it out but that cost is small. The cow has to eat and she doesn’t care very much if that feed comes in the form of pasture or bales. If I have no intention of selling my feed or pasture does it matter what the market price is. I don’t think so. My cows don’t care, they are smarter than us. All that matters is the feed is available.

If the worth of my cow drops from $1600 to $1000 has it cost me anything? Not if I wasn’t going to sell her anyway. The market price of a cow has gone up and down all the time since I have been farming and the value of a cow only is relevant when I need to sell that cow to market because that affects my cash flow. Before that does it really matter? Again I don’t buy cows but produce my own. It really matters when the value of my market calves drops, it affects my cash flow big time. But for the most part there is little I can do about it. Knowing my breakeven will not change the actual market conditions.

Vet fees are a cost, but if I calve out my own cow should I include a cost? No, of course not but if I were to include custom calving as a separate enterprise, which might be entirely proper even though Alta. Ag. doesn’t do that, my enterprise analysis would show this as another cost against my cows. So now instead of $744 my cow might cost me $794. If this sounds kind of dumb it is just what producers are doing when they complete their enterprise analysis. You are viewing items that are internal and integral to your cow calf operation at market costs just because an external market does exist and then believing that this is reality. Lets face it, if it really cost $744 to raise a calf then the cow calf industry would disappear virtually overnight in good times much less the situation we find ourselves in.

I have asked you what decision you intend to make based on your computer calculated cost of $744 per cow. I mentioned we have being doing enterprise analysis for some time, the rational decision every time we looked at those numbers was to quit. Being of a stubborn nature, the next rational decision would have been to lower costs per unit of production by maximizing economies of scale. This inevitably means putting all eggs in one basket and either going all hog into hay production or doubling the cow herd and purchasing all feed off farm or going entirely into grain production etc. True the present safety net subsidy programs do tend to encourage single enterprise production by smoothing out some of the cash flow bumps in the road associated with not being diversified. However I am still unwilling to change the structure of my operation and end up relying on FIDP to save my sorry hide when I can’t write all the cheques I will find that are required by having to outsource my feed and maybe pasture too at the same time as there may be drastically reduced income when a single revenue source such as calves goes into the tank.

At some point producers, or at least the ones who stay in the business, realize there is a disconnect between an enterprise analysis and the fact that they are worth more today than they were worth 10 years ago, the bills are getting paid, food is on the table and the pickup truck is still good enough to go to town in. A profit must be there even if they almost never have sold a calf for $744 or worse $794. At times of crisis such as we are in there is more wisdom in the old saying "Hang onto a cows tail and she will pull you through" than any wisdom you will find in an enterprise analysis, breakeven analysis etc.

That is how I see it. I do believe enterprise analysis has value when used as pandiana suggests comparing the profitability of raising cattle in two separate locations particularly when one producer can use his own numbers or for tweaking costs by perhaps lowing machinery costs. But that is as far as it should go. If producers actually start believing it really costs $744 or more to raise a calf then the suicide hot lines are not going to be able to handle the volume after this fall. Its not as bad as all that. Take a long term view rather than worry about making a profit this year or how much it is costing to feed that cow right now. She will look after you in the long run, no matter what your enterprise analysis says.

[countryguy]

Kato you hit the nail EXACTLY on the head.New machinery is just a money pit.The way I figured in my head one day while sitting in the grain truck is that if we were to buy one of the fanciest new combines on the market now we may as well get custom harvesters in and do nothing all fall when you factor in all the expenses associated with owning the machine!I also shake my head when I see a $120 000 tractor on farms with 50 or 60 cows.It doesn't take a rocket scientist to figure out where alot of extra profit can be made on the farm.I think one of the best investments a farm can make is a farm shop to keep the old stuff running.

[Junebug]

Cowman , I agree with your comments. And especially about the investment return.
Rsomer I'm reading your comments off line. But first of all we didnot use a software program, we created our own formulas. Even if you grow all your own feed and replacements there is a cost to that.

[cowman]

Countryguy: You hit the nail right on the head with what you said about a shop! You can save a pile and enjoy doing it! I've always believed being able to use your hands is just as important as being able to use your brain! It's not all that hard to aquire some mechanical, electrician, plumbing, welding skills.
I sometimes get a little chuckle out of some of these young fellows coming out of universities and colleges. They know everything and are going to teach us old dinosaurs how the world works! They seem to think you can do it all in front of a computer screen!
Common sense, a good work ethic, and good people skills are what makes a successful business, not a piece of paper hanging on the wall. And they don't teach those in school! You are either born with them, are taught them at home, or work like hell to get them! Whatever it takes!