Yardage costs?

[cowman]

In the last article of the Cattleman they had an article on yardage costs and how high they can be? In fact in the article they had the cost for yardage per cow at $132 with the feed/bedding costs at $168. These were for herds of 300 head of cows.
Real quick:
Fuel $13.22
Mach. repair $12.07
Building repair $ 4.34
Utilities $16.05
custom work $11.63
paid labor $11.63
unpaid labor $41.59
taxes/misc. $ 4.13
depreciation $15.78
lease payments $ 2.63

TOTAL $132.81

Now I might question some of these costs but I assume they are pretty much in the ball park? I wonder how anyone here would stack up against these figures?
Incidently the 17 herds in the study had an income per cow of $556.80 with a total cost of production(including feed, pasture,vet,breeding,operating and capital interest) coming to $553.14! So a profit of $3.66/cow for 2004! Which is pretty decent considering it was a BSE year?
I will note that on the cow income side there was $80.19 in government payments so I guess without that the profit would be a substantial loss?
Today we have a better calf price but our replacement price is still pricey...in other words we don't get enough for the cull cows and bulls in relation to what it will cost to replace them. I suspect replacement prices will actually rise quite dramatically this year?
There are a whole lot of ways you can reduce your costs. Yardage costs are too high in most cases.

[farmers_son]

Those numbers seem wrong to me. If these numbers are for a herd of 300 cows they would look like this for the year:

Fuel 3966
Mach. repair 3621
Building repair 1302
Utilities 4815
custom work 3489
paid labor 3489
unpaid labor 12477
taxes/misc. 1239
depreciation 4734
lease payments 789
Total 39921


My impression is that the farms in the study had other operations like grain or a feedlot and what we are seeing is just those costs that have been allocated to the cow calf enterprise.

[blackjack]

...sometimes i wonder who the analyst are behind these figures...these ranchers calves would have had to been 6 weight or better between hfrs and strs and of top quality to average 557$ last fall...

[cowman]

Don't know if I threw a curve ball at you guys or what? I think the figures are exactly right for what farmers son said? $39,921 pretty well represents $132.91/cow? Is that out of line?
Blackjack: Not quite sure what you think on this $556 per calf? 600 lb. steer calves were in that $1.05 range last year? Take off the $80 subsidy and that puts a calf at $476? I assume these ranchers involved in the study were calving late and weaning fairly light calves? Personally I don't know how they do it and stay in business?

[farmers_son]

There is some more numbers on yardage costs at:

http://www.wbdc.sk.ca/publications/Yardage%20Technical%20%20Bulletin.pdf

Cowman: You ask how others stack up against these numbers. I am not sure comparisons would be relevant or even useful. The numbers are basically a crock.

The most significant cost listed is unpaid labour, $41.59 a head. We do not know how unpaid labour is calculated, perhaps it is calculated the same as unpaid sunshine and unpaid snow would be. We do not know what unpaid labour really is, it is a term that would not be recognized by any accounting rules. An example of unpaid labour is Mom
staying at home and raising the kids. Now imagine if there was a value put on that and those numbers included in the family budget or even the farm budget. What do you think that would do to the profitability or sustainability of the farm or household?

I have participated in many of these surveys in the past and found the numbers they come up with to be basically of little usefulness and of questionable accuracy. Unpaid labour is certainly a prime example. The person gathering the numbers will ask the producer about how many hours do you spend looking after the cows and will then impute a standard per hour rate which will is spread over the number of cows in the herd as a per cow rate. At best the farmer participant will have only a very rough idea of the time spent with the cows and will tend to underestimate the actual time spent. In any event it is a BS number that does not reflect the actual cost or value of the owner/operators time investment in the herd.

In your example the producer had a income per cow of $556.80 per cow. Even that number is questionable because we do not know how “per cow was calculated”. Is it cow exposed to a bull or is it after the culls are removed in the fall. Does it include replacements or not.

And I look at the costs which include capital interest? Capital interest should not be included in these numbers. Capital interest is a reflection of how the assets of the operation are financed, not the profitability of a cow. We do not know what capital interest is. Capital interest, although not operating interest, should be removed as a cost in calculations such as these. I note that land costs are not included, capital interest should not be either.

I prefer to focus on contribution which is variable returns minus variable costs. Everything left is contribution. This money is available to cover utilities, food on our table and the occasional movie, depreciation and fixed interest. The farm has to have enough contribution to cover all these costs and meet principal payments and growth or I am in trouble. It is misleading and does producers a disservice to put up numbers showing a profit of $3.66 per cow. These numbers might serve to justify government handouts or government support of the industry but from a producer standpoint they are misleading and counter production if not downright depressing. Bottom line I see that there was at probably $200 per cow contribution ($132 yardage plus a guess of $68 for capital interest) even in 2004 with BSE. That is what is important.

You can either raise enough cows to cover all those overhead and fixed costs like utilities and “unpaid labour” and capital interest not to mention pricipal payments in which case you will show a profit and a positive cash flow or you will have to lower you overhead costs if you are unwilling or unable to increase your herd size if there is not enough contribution to cover your overhead. In a commodity business, anytime you can lower your costs per unit produced you will increase your profitability.

[cowman]

In general I agree with you, but I do believe these type of studies are helpful in they get people thinking about the costs of their operations and where they might be able to do things better or more cost effective?
We all have that feed cost nailed down to the last cent but not necessarily our overhead costs? So for instance what is it costing us per cow to run that loader tractor or that silage wagon? I believe those are valid questions. Maybe cswilsons horses make more sense if we are unconcerned about "unpaid labor"?
I definitely agree the bottom line is "contribution" or dollars in your pocket at the end of the day, because like you say that is the thing that really matters. If you end up with $200 for each cow then that is not too bad...as long as you don't expect much of a return on your investment?
Consider this: I'll use some ball park type figures for my area. Suppose everything you own is paid for...cows, machinery, land and facilities. 3 acres per cow per year. Land at $2500/acre or $7500/cow. Hopefully we could get 5% on our investment or $375/cow/yr.? Hopefully our other costs like fence/building/machinery repairs, fertilizer, fuel, oil, utilities, custom work, depreciation,mineral/salt, vet costs, marketing costs and operating interest would come in low enough that we could still be in the black? we won't even talk about "unpaid labor" because as you said how do you really measure that?
I do believe we can put some fairly accurate numbers up for these costs as they are coming right out of our pockets?
The final number taken away from the average price you recieve per calf is what you made? Now if you don't expect any kind of return for your land or your tractor or your facilities then you will do very well and quite frankly if you expect $375/cow from this land it just isn't going to happen!
Bottom line is if you are only getting $200 in your pocket per cow you are not going to make it? 200 cows would be $40,000 which is less than the average wage earner in Alberta makes...with no investment! Try going and buy a new tractor or truck with that kind of income.
Now I realize most land prices are not this high or probably this productive and I further realize that is my choice to live where I do? There are other benifits to living here.

[farmers_son]

I certainly thought this kind of information was useful because I participated in the surveys for years. I have the reports they generated all nicely bound and organized but their benefit is questionable and I really never look at those numbers anymore.

These numbers are intended for benchmarking. The province gathers these numbers and encourages producers to compare their operation to the blended averages of the survey participants. There is an example of these benchmarking numbers at :

http://www.agric.gov.ab.ca/pdf/rtw/economics/03_South_Alta_0714.pdf

I guess I look at this way after doing these surveys for a long time. The only purpose of looking at number like these is to make management decisions about my operation. But if a producer really considered the numbers in your example or in the link pasted above I think those numbers would tend to lead the producer to make bad decisions. For a number of reasons…

Our farm is made up of a number of enterprises. We have a cow calf enterprise but we also have feedlot, grain, forage, pasture enterprises. The provincial benchmarking numbers for the cow calf enterprise assume that all pasture is rented at market costs, all the feed is purchased at market costs, and if that was not enough to make the producer sell out and quit they throw in a BS number like unpaid labour. Capital interest is the last nail in the coffin. But in a typical farm like ours, those pasture costs are just going from one pocket to another as we have our own pasture. The same with feed costs, from one pocket into another. And those unpaid labour numbers are just a measure of how many hours a year does the producer think he spends looking after the cows multiplied by a provincially determined per hour unpaid wage, it looks like about $12.50 per hour.

But those numbers are really just a big yawn. We are in the farming business for the long term. I really do not care if hay prices are high one year because I grow and feed my own. I really do not care what the price of pasture is because I grow my own. My concern is that I can grow enough pasture and winter feed to keep the animals I have fed. As for unpaid labour, if the ag department insists on putting in a value for unpaid labour why not make it $25 an hour, it would make me feel better when I am out feeding those girls on a 40 below morning and the money ends up in the other pocket anyway, just an imputed enterprise transfer. It is all money out of one pocket and into the other.

What would be important to me is how to produce more pounds of weaned calf from the asset base I have because I can control that. However on any given year the market price of hay for the cows, the market price of pasture or the market price of yardage is not of interest to me from a management standpoint as I can’t control that on a year by year basis and I am in the business for the long term. If you outsource feed or pasture on your operation that may be different although you still have to consider a longer period time frame than just one year when making management decisions such as selling the cows versus buying feed assuming you can afford to write the cheque. If my cow calf enterprise only showed a $3.66 profit as illustrated in the enterprise analysis for 2004 I am not going to sell off the herd assuming the bills got paid from my pasture and forage and other enterprises. My overall cash flow is what counts and these benchmarking numbers do not show you that.

If you went by those benchmarking numbers the only logical course of action for a reasonable person would be to sell out and get as far away from those cows as you possibly could before there was nothing left. Those benchmarking numbers as presented, whether by design or unintended consequence, tend to encourage producers to quit.

[Cattleman]

Farmers_son, you make some good points, but you are missing some important steps as well. I wouldn't recommend blindly stating that you are in the business for the long run. You have to keep an eye on your EQUITY, what if for ten years you are getting by, but at the end of those 10 years all your machinery, equipment, and buildings are all worn out! You don't have anything left, and you won't have equity to retire on that you thought. Not every farmer owns everything, and they face a lot more cash costs than someone who owns everything. They may feel like they are doing terrible in cash terms, but they may actually have a better return on investment than other operations which is very good to know and judge your business, and make decisions.

[kalielda]

Interesting discussions folks ... & many valid points. A few things for you to throw into the mix.

We're all in the business for the long haul, so as we look at each of our farm businesses/enterprises over time, shouldn't they cover all of the economic costs and provide some return for the assets utilized?

If you have to work twice as long in one enterprise vs. another but get the same returns to the time you spend over the long haul, which would you choose to be in?

Benchmarks are just that ... a point of reference for folks to see how they're doing and to provide hints at where they might be able to find "efficiencies" in their business. But you have to use your own costing along with them as a basis for moving forward to meet the constant drive / need to make your business better ...

When I look at feeds and grazing costed into a cow herd at market value, I realize that it's only part of the picture ... the "economic" side ... and that's something I keep in a long term perspective. The other side is managing annual cash flow. Yes, feed and grazing could come into the herd at its cash or total cost ... this would help in addressing some short term cash issues but if I have to do this every year to make my herd pay, I have to ask myself why I would want to run the other, land-based part of my operation at a loss? ... basically giving me a zero or negative return on my land?

[farmers_son]

I presume kalielda is Dale Kaliel, Senior Economist with Alberta Ag. I hope it is not rude if I question the cow calf numbers and how the various ag departments present their benchmarking numbers. I bear in mind that it is hard enough to get producers to know their costs without having someone pointing out possible weaknesses in benchmarking numbers.

You say “Benchmarks are just that ... a point of reference for folks to see how they're doing and to provide hints at where they might be able to find "efficiencies" in their business.” I would agree.

I would say that while hours spent in one enterprise versus another enterprise is useful information it is a physical performance measure more than an economic performance measure. As such hours spent per cow would be better grouped with feeding days and calf crop %. By placing an artificial and arbitrary dollar value to unpaid labour and then adding that as an artificial cost to an already depressing economic picture I suggest the end result does more harm than good. What would be interesting to me is knowing other producers actual cash draws on their operation so I could compare our living costs to other producers. Actual living costs are a major expense and warrants being included.

I do not think capital interest should be included as a cash production cost. It is a financing cost, not a production cost. Although producers deduct capital interest for income tax purposes including capital interest as a production cost in these calculations is incorrect.

It is my opinion that including the cost of a land lease is incorrect. Where does land come into these production costs anyway? If anything land cost should be included with the pasture and forage enterprises, certainly the cow calf enterprise should not have to bear the cost of pasture and winter feed at market prices then pay the land rent too.

I believe when numbers such as these are presented to the farm decision maker it needs to be kept in mind how the farm manager will be motivated to respond. While the goal may be to encourage the producer to find efficiencies in their enterprise I do not think the possibility that the producer will instead be motivated to sell out when they see negative margins should be ignored. Hopefully that is not the intention of Alberta Agriculture. If the goal was indeed to find efficiencies then it might be better if the numbers were presented in a different format. Definitely it appears to me that costs are included in the economic performance numbers that do not belong there.

I think it is fair to question using arbitrary market values as transfer costs in agriculture due to the nearly pure competitive environment farmers find themselves in. While using market prices to determine transfer values in enterprise accounting is a common practice in the business world (when market prices exist) I think it is important to note that in that marketplace prices may be more stable. Since you are using an arbitrary number anyway to show a cost for pasture, winter feed and bedding it might be worthwhile considering using a five year average market value for those inputs rather than cost or today’s going price. Given the long term nature of the cow business that might give a better picture for producers.

[farmers_son]

Oops, I made a mistake. Land rent was not included in the cow calf enterprise numbers, rather they were included with the pasture costs.

I feel I was being too critical here. However when I am hoping to encourage a son or daughter to farm with me, numbers presented as the Alberta Ag benchmarking numbers are presented make it less likely that my children will pursue an ag career. Bottomline, I guess I am saying we need to make sure we are not painting the picture worse than it really is.

[cowman]

farmers son: I don't think there were any capital interest costs included in the yardage costs the article posted? Nor for that matter any feed costs, whether pasture or feed/bedding? The fact is most of these costs were actual "yardage" costs and they mostly come right out of your pocket...except the unpaid labor portion?
Now personally I like to be paid something for going out and working in minus forty weather...especially when that old wind is blowing! But if you enjoy doing it for free then you can figure it that way?
I don't know if "capital interest" should be included in production costs? Maybe not on land, but I would suggest "capital interest costs" on the cattle, feeding equipment, facilities used to winter, should indeed be included? If you weren't feeding cattle you wouldn't need them...so definitely the cows should be paying for them? If you don't acknowledge your actual costs where they are spent...you are just deluding yourself?
I also agree that one of the most important things is the "cost of living" which can be all over the map! What one man might need to live can be a world apart from what the next guy needs? A bachelor with modest tastes can live pretty darned cheap...not so easy when you have a family who might want to live as well as the city slickers! Is it any wonder why a lot of farm kids might not think farming was so hot? They lived it! While the kids in town were living an upscale type of life how were they doing?

[farmers_son]

Cowman: In the figures you put up the $553.14 total cost included capital interest. I had put up a link to Alta. Ag benchmarking numbers for 2003 which were more detailed and I looking at those numbers.

http://www.agric.gov.ab.ca/pdf/rtw/economics/03_South_Alta_0714.pdf

Profit is an opinion and cash flow is a fact. Now to be fair, the Alta Ag figures do not use the profit word but you did, $3.66 per cow. And I think that is very important, when these numbers are presented to producers it should not be without consideration for how producers will interpret those numbers. Any typical producer is going to make the assumption that the bottom line is profit even if it is not. We have been doing these kind of surveys for the ag department for two generations and the numbers you get back would always drive you to despair. Somehow we managed to carry on and do not too badly. Obviously these benchmarking numbers give a very distorted view of reality.

In my opinion, and that it is all it is, capital interest should not be included in financial analysis which is what we are talking about with these numbers. We are trying to compare operating costs for benchmarking purposes, not financing costs for benchmarking purposes. Although capital interest is an interesting number I think it should be excluded from these calculations. It is a financing cost. You will note that capital principal is excluded. Consider this, we could have two producers making exactly the same blended financing payments only one is in the early part of the term and is paying a lot of interest, the other is nearing the end of the financing term and is starting to pay more principal. No matter which one of the two gets surveyed the financing costs is going to distort the numbers for the other person. It could be more useful if the numbers were gathered leaving out interest but including a line for debt repayment capacity so producers could then consider their own situation directly.

It is my opinion there is a bias in these provincial ag benchmarking numbers to make farming look worse than it is. Now maybe that is done with the best of intentions, to justify more government support for agriculture or to encourage producers to even further lower the per unit cost of production (produce more for less). However I see what may be unintended consequences from presenting numbers in this format such as driving people away from agriculture who are either farming now and despair of their future or as in my case children who might otherwise be encouraged to start farming with their parents may decide to choose careers in town. I would not rule out the possibility that fewer farmers is a policy direction government is taking and presenting benchmarking numbers like this directly serves that policy goal.

Regarding the yardage costs you included… unpaid labour is 31% of the total. The next two largest cost items were utilities and depreciation. Totaled these three contribute 55% of what is grouped as yardage costs. These three items are fixed costs, if you want to cut those costs in half just keep twice as many cows. Doubling your cow herd would reduce yardage from $132.81 (perhaps an addition error, looks like $133.07 when I add it) to 96.36 by keeping 600 cows. Or 6000 cows, even better. I guess if we really focused on yardage costs we could move to Argentina or Brazil where they do not have winter and we would get rid of winter feeding costs and yardage too. After a while it gets absurd.

Reducing costs will improve your financial performance in a least cost commodity business. For the most part we are doing that. At some point we are going to need to increase our actual returns per head as we approach the point where we can no longer reduce costs.

[cowman]

And without a doubt this year we have increased those returns? Last time I looked 600 lb. calves were around $1.30 or$780...an increase of $233? So now the "profit" would go from $3.66 to $236? If you add on the unpaid labor you could argue your profit would be $277? So if you own everything you might not be doing too bad.
And yes we are reducing our costs, especially feeding costs and maybe our yardage costs? Swath grazing, banked forage etc. reduce both? In fact "yardage" might be reduced more than feeding costs under those systems!
Consider this: If you were renting everything, including the cow how much of a profit would be in it? I would suggest the figures for 2003-2004 both from you and the ones I put up would be fairly accurate? Obviously those figures do not represent a sustainable operation, which is pretty well excepted? If those prices were constant why would anyone bother raising cows? Fortunately that isn't how it stays and it has turned around.
We all make decisions on how we manage our assetts. For those who hung in there and ate the loss the rewards are coming back into the market.
Quite frankly the return we get on our products are largely in someone elses hands? We can do a whole lot of marketing stratedgies that might make us some more money (or lose us more!) but with the situation we were in we were at the mercy of the market? We do however have many ways to reduce our costs including feed and yardage? If you are happy with those costs then that is fine. If not then find a way to reduce them. Costs are one thing we have some control over...we don't have that much control over the market.

[farmers_son]

I think you hit the nail on the head when you say “Quite frankly the return we get on our products are largely in someone elses hands?"

I have worked out my yardage costs in 2004 on a per head basis:

Fuel 1.5
Mach. repair 2
Building repair 0
Utilities 1
custom work 0
paid labor 0
unpaid labor 12.5
taxes/misc. 2
depreciation 0
lease payments 0
Total 19

However until you know my total farm costs you really do not know nothing about my operation. You do not know how my numbers are that much lower than the example. In fact my total farm costs would be similar to any other farm but the costs just get allocated to other enterprises because of the way I happen to winter my cows.

Rather than lowering my yardage costs I am working hard to increase them. Why? Because the critical success factor on our farm is not whether my yardage costs are $10 per head lower than someone elses but whether or not one or more of my children decide to farm with me and keep the farm going after I am gone. Part of attracting a child to farm may be making feeding the cows a little nicer by having a nice FWD John Deere tractor and loader with hay shredder, even if that costs more.

I know what you mean when you say that if we rented everything the benchmarking numbers you and I are looking at would be fairly accurate. However we need to bear in mind we do not know how the cost allocations between the various enterprises are made, just like you do not know how I came up with my yardage costs. The numbers are always presented out of context with the whole farm so although the numbers may be accurate for a particular enterprise the picture they paint is not accurate at all. The provinces benchmark farm numbers is based on a farm model that does not exist, a model where all pasture is rented and all forage is purchased.

When you say "costs are something we have control over…we do not have control over the market" I would point out that in these examples pasture and winter feeding costs are determined by a market too. And while 2005 may make our cow calf numbers look better our forage enterprise just took a beating. Can’t win for loosing. In fact we are winning but viewing a farm enterprises in isolation from the whole farm gives the impression that it is feast or famine.

I certainly do not want to leave the impression it is not important to know costs on our farm. First and foremost we should be benchmarking against ourselves. On our farm although my costs and returns are viewed on an enterprise by enterprise basis they are never considered out of context of the whole farm. My spreadsheets show all my enterprise costs and returns side by side with the whole farm totals included in the first column right of the line items. Enterprise breakdowns are shown after that. Gives a much better picture and a more optimistic picture. However when I do my costing there are no BS items like “unpaid labour” and while capital interest is not ignored it is not included as a production costs to be paid by a particular enterprise.

About capital interest. To put it in technical terms, capital debt is fungible. All that means is that debt is debt, doesn’t matter if I borrowed for land or machinery or a new house. It is still debt but it cannot be allocated to a particular enterprise just because I decided to borrow for land instead of machinery instead of cows or vice versa. At any given point I could refinance my capital loans and shift the burden of debt from cow calf to pasture or forage.

Perhaps another way of looking at it is the right hand side of every balance sheet is liability, either owed to others or myself. Although return on debt owed to others appears as interest and is a cash flow item it is not a production cost any more than net returns is a production cost. Another way of viewing net returns is the interest I receive on what the farm owes me for my equity or personal financial contribution to the farm.

I think the way the provinces present benchmarking numbers unfortunately gives a inaccurate and pessimistic image of agriculture and any benefits of that may be offset by unintended consequences of discouraging people from choosing farming as a living.