Current Edition

current edition

In early April, American Agri-Women First Vice President and Illinois farmer Heather Hampton-Knodle spoke during the American Agri-Women Essential Farm and Ranch Business Management Skills Webinar Series on business management and bookkeeping consideration for beginning producers.

“I’m coming to women as a peer to share some lessons I’ve learned over time. We’re going to demystify some of the jargon that comes with business and talk about some resources available to beginning producers,” she said.

Terminology

“Cash flow is the total amount of money being transferred into and out of a business, especially as it affects liquidity,” commented Hampton-Knodle, noting that liquidity is the availability of cash.

According to Hampton-Knodle, land is not necessarily a liquid asset because there may be a large tax consequence.

A balance sheet is a statement of assets, liabilities and capital over a defined time, usually a year.

She explained that assets can be broken down into current or non-current, as well as intangible and tangible.

“An example of an intangible asset would be a copyright,” Hampton-Knodle said. “Tangible assets are things like vehicles, buildings and inventories.”

Current assets are items producers are expecting to consume in one year, such as feed. Non-current or long-term assets are expected to be productive for the business during more than one year.

Hampton-Knodle defined a liability as a binding obligation that is payable to another entity

“Long-term liabilities are settled through the transfer of cash or other assets in terms longer than one year,” she commented.

Ratio

“One factor bankers are really going to look for is our debt-to-asset ratio, which is total farm liabilities divided by total farm assets,” said Hampton-Knodle.

The calculation comes out as a percentage, which is then assessed to determine position in a lending agreement.

“If we come out in the less than 30-percent range, we’re in a very strong position,” she continued.

In the 30- to 70-percent range, producers are considered stable. Hampton-Knodle noted that a producer’s strength in this range will vary greatly depending on the region they’re in.

“Bankers may be more willing to take a risk on someone in the 70-percent range if there is a variety of businesses in the area versus more of a homogenous area where there’s a lot of the same business going on,” Hampton-Knodle explained.

A weak lending position would be a debt-to-asset ratio greater than 70 percent.

Resources

According to Hampton-Knodle, numerous resources are available online for beginning farmers and ranchers.

She explained that USDA has a new farmers website, which can be found at newfarmers.usda.gov, that features an assistance program discovery tool.

“It asks several different questions, and we can learn about the different programs we can qualify for,” Hampton-Knodle said.

Hampton-Knodle commented that oftentimes, assessing the market is the most challenging aspect of agricultural businesses.

“Ultimately, it comes down to knowing our market. Maybe in the place we’re at, people don’t have the disposable income or the shopping patterns to look for our product, and we’ll have steeper roads to climb,” she continued.

To assess local market patterns, Hampton-Knodle suggested producers look at local census data, found at census.gov/data. Local economic development organizations at the local, regional and state level can also be extremely helpful.

She continued, “A program called Market Maker is a super resource to tap into. It helps us identify specific buyers or suppliers of products in the food industry.”

Market Maker can be accessed online at foodmarketmaker.com.

The Small Business Administration (SBA) also has resources for producers in the business planning process.

“SBA has some good resources at sba.gov/starting-business/write-your-business-plan/market-analysis,” she commented.

Financial

When looking at financial management strategies, Hampton-Knodle advised, “Getting a very good accountant makes life so much easier.”

She explained that many programs are available to farmers and ranchers for finance management.

When choosing what program to use, Hampton-Knodle first suggested joining an association for the product specialization chosen.

“Then, ask staff what accounting programs they recommend,” she said. “Ask fellow members in the organization what accounting programs they would recommend.”

Land-grant university business programs are another excellent resource when choosing financial software.

Depending on a producer’s situation, the benefits of being involved with a cooperative to provide investors with information comparing an operation’s production to others in the group should be considered.

“We need to determine if we want to be part of a larger pool to provide analysis and if it’s worth it,” Hampton-Knodle concluded.

Emilee Gibb is editor of Wyoming Livestock Roundup and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

Riverton – On May 18-19, bankers and lenders from around the state gathered for the Wyoming Bankers Association Agricultural Bankers Conference.

In addition to discussions on management tools, current market trends and other topics, the conference featured a presentation by John Blanchfield of Agricultural Banking Advisory Services who spoke on agricultural banking in the post farm boom economy.

Farm Bill

As hearings begin for the 2018 Farm Bill, Blanchfield noted that House Ag Committee Chairman Mike Conaway (R-Texas) has stated the farm bill will be delivered on time and under budget.

“The last time a farm bill was delivered on time was 2002,” said Blanchfield.

He continued, “For those who are currently receiving either Agriculture Risk Coverage or Price Loss Coverage, that’s supposed to all end in October of 2018, but the last farm bill went two years longer. You should be prepared for an extended period of wrangling and fighting.”

Ranking member Collin Peterson (D-Minn.) has also asserted that the Conservation Reserve Program needs to increase.

While many of the changes under discussion for the farm bill don’t have a large direct impact on Wyoming, Blanchfield noted that it still is a spillover effect for economies in Wyoming, Idaho and Montana.

According to Blanchfield, crop insurance has become an integral part of the farm bill.

“It’s the cornerstone of the farm safety net,” he said.

He cautioned that 80 percent of crop insurance is subsidized by the government, and some adjustments will be made to the price of crop insurance going forward.

“We need to get the word out because many farmers are not prepared for that, especially in these tight times,” commented Blanchfield.

Payouts

“The farm bill paid out big in 2016, especially in corn country and bean country,” said Blanchfield.

While there will still be considerable pay outs in 2017, he noted that 2018 will be drastically different.

“2018 will be the year the cheese binds because it’s not going to pay out much of anything, if anything,” he continued.

In 2016, the farm bill paid out $7.8 billion, with Wyoming receiving $4.5 million.

“USDA has already projected that farm bill payments are going to go down by four percent this year,” commented Blanchfield.

Blanchfield stressed that it’s not because the market is better but rather because of use of the Olympic average, where the high and low commodity prices are not used.

Good years

Looking back at the last 15 years in agriculture, Blanchfield noted there were certain factors that resulted in the agriculture boom that can’t be counted on the future.

“This goes to my theory that what we’re seeing today is a heck of a lot more like what we’re going to see in the future versus what we saw in the past,” he said.

One factor Blanchfield cited was the rise of ethanol, with 40 percent of U.S. corn production going to ethanol production.

“We’re exporting ethanol now. We’re the Saudi Arabia of ethanol now. Is that going to give us a boost going forward? I don’t think so,” commented Blanchfield.

Another pivotal factor for agriculture success has been trade agreements.

“We’re going to renegotiate the North American Free Trade Agreement. Is it going to be a great win for the United States? That’s what we’ve been told, but are we going to get that? I don’t know,” he continued.

Blanchfield also cited the rise of China and other emerging countries, as well as the improved flow of information to create a world-wide consuming audience over the last two decades.

“I may be wrong on this, but I don’t see a big leap forward of the next generation of countries right now,” he asserted.

New normal

Looking at 2017, Blanchfield predicted the farm economy will be flat.

A major concern for both producers and ag lenders is that farmer liquidity is weakening and farm debt is increasing.

“We’re probably going to lose one-third of our young farmers, and one in five wheat, cotton, poultry and hog farmers are highly leveraged,” he said, noting that highly leveraged means a debt to asset ratio greater than 40 percent.

“These numbers are getting to be kind of scary, and I think this is going to be the new normal,” commented Blanchfield.

According to Blanchfield, there have been major demands on Flexible Spending Account (FSA) funding.

“Every year going forward, FSA is going to run out of money until this farm economy changes in some way,” he concluded. “Who gets the money? The ones who can get the loans approved the fastest.”

Emilee Gibb is editor of Wyoming Livestock Roundup and can be reached at emilee@wylr.net.

In light of overwhelming startup costs in cow/calf operations, as well as a volatile market for established producers, University of Nebraska-Lincoln Extension Educator Aaron Berger recently advised producers to consider whether entering into a cow leasing agreement is an economically viable option for their operation.

Lease agreements can meet the needs of both the cow owner and the operator, said Berger.

“Cow/calf production requires a large amount of capital, which can be a challenge to beginning producers,” he said. “When leasing a cow, the producer can access cows without having to purchase them.”

Cow owners are then able to maintain or phase out of ownership without providing labor.

“This option can be particularly attractive to those cow owners who are nearing retirement and want to phase out of the production side of the business,” explained Berger.

Two main agreement options exist for cow leases. The first option is a cash lease.

“This is where the cow/calf owner is paid a set amount by the person leasing the cows,” continued Berger.

The second option is a cow/calf share agreement. In this type of agreement, the cow owner receives a percentage of the calf crop based on their contribution toward the production of calves.

Pros and cons

Each type of lease agreement has benefits and disadvantages for the owner and lease operator, said Berger.

In cash leases, benefits for the owner include having a known income, lower risk and simplicity.

“It’s simple to understand and owners get a guaranteed payment,” noted Berger.

However, cow owners may lose income if calf prices are high.

Cash leases benefit the operator primarily in the simplicity of the agreement.

“It’s a simple payment of the cow/calf’s owner for the portion they would normally get in the calf crop, except the cow owner gets their payment in cash from the operator,” said Berger.

The disadvantage of a cash agreement for the operator is that they are accepting all of the calf price risk and must have cash to pay the owner.

A cow share agreement benefits the owner because they have the option to sell or retain the calves in their share, but they also share production and price risks.

“That might be an impact to them in terms of what they might get back in return on their investment,” he continued.

Operators do not have to pay for the lease in cash. They do, however, give up a portion of the calf crop.

“It may be a situation where the operator wants to grow their herd,” said Berger. “Maybe they have an investment in the genetics that are there and they would just as soon keep the calves and give the cow owners the cash value instead of giving them calves.”

Owner price

When agreeing on a cash price or percent of the calf crop, many factors influence the needed price for both the owner and operator.

The first factor driving price for cow owners is cow value. Berger noted that owners should expect a different return in investment in a cow valued at $2,500 compared to a cow valued at $1,200.

Other important considerations include replacement rate, interest rate and cull cow value.

“Cull cow value is the difference between cow purchase price minus her salvage value,” explained Berger. “If we can find ways to increase the value of those cows when they leave the herd, that’s going to decrease depreciation expense and decrease the amount that the cow owner needs to get back from the calf crop percent or as a cash lease.”

The final major factor for owners is whether the owner or operator is responsible for the bull.

“In some arrangements, the cow owner provides the bull. In other arrangements, the cow operator provides the bull. That can make a significant difference on what the breakout should be,” said Berger.

Operator price

As feed costs account for 60-65 percent of annual cow costs, a major driver is price for the operator, said Berger.

Overhead costs, including equipment and labor, are other important factors for the operator to consider.

“How much equipment is used in the care of those cows and whether the operator is providing labor himself or is hiring someone is important,” continued Berger.

Like cow owners, the agreement on the bull in a significant factor for operators in lease costs.

“If that person who is operating the cowherd is keeping back calves, they might specifically want to provide bulls to move themselves genetically toward where they want to go,” said Berger. “That can be an impact in terms of what they’re going to get, percent of calf crop or cash leasing those cows what they need to pay that cow owner.”

Emilee Gibb is editor of Wyoming Livestock Roundup and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

North Platte, Neb. – With cattle prices declining, scientists and industry analysts are showing producers ways to raise calves more efficiently. Close to 150 producers were in attendance at the second annual State of the Beef Conference in North Platte, Neb. on Nov. 2-3.

With the event kicking off with a market report still showing declining cattle prices, research specialists focused on showing producers how to reduce costs and encouraging them to try new ideas to get the best return.

Production

Randy Blach with CattleFax said he expects beef production to continue to increase in the U.S. but at a slower rate.

In 2000, packers were harvesting 30 million head, but now that number is closer to 20 million head. This significant decline in harvestable cattle over the last several years has caused some packing plants in the U.S. to close.

Based on a 40-hour week, Blach said packers are harvesting about 460,000 head a week, which is a decline from 570,000 head several years ago.

After prices started to decline in 2015, feeders began holding fat cattle, and the market responded by not staying current. When those cattle did go to market, processors began to see too many yield grade fours and fives. To prevent this from reoccurring, packers have put a 1,600-pound weight limit in place.

Continued adjustment

Despite ongoing market adjustments, Blach said consumer demand for beef at the retail level is still good, and exports are picking up with stabilization in U.S. currency.

“Trade is going to be essential,” Blach said. “We will need to increase exports to handle any additional cattle expansion.”

Blach doesn’t predict a lot of Brazilian beef moving into the U.S. this year because of the tariff quota.

“We will have to monitor the exchange rate,” he said.

Role of genetics

Matt Spangler, geneticist with the University of Nebraska, discussed ways to maximize profitability of the cowherd. He told producers to focus on traits that will maximize profitability.

“If our cows excel in the same areas as our bull battery does, we are not maximizing profitability,” he said.

Spangler added that cows can be cheap to maintain, so producers should focus on selecting bulls that have a good rate of gain and growth.

“Smaller cows can reduce maintenance requirements,” he explained.

The geneticist cautioned producers about genetic selection.

“More is not always better, depending on what the goal is,” he said.

Despite that, most breeds have elected to continue increasing weaning weight and yearling weight.

Other factors

Environment is also important, Spangler noted. In some areas, producers continue to select for increased weaning and yearling weights, but the calves won’t get any bigger. He said resources can be limited, so cattle can’t get any more out of the inputs.

“The environment just can’t handle anymore,” he said.

Spangler said producers need to look at their labor costs.

“I know we don’t do this because it is important to us to save every calf we can, but have we ever determined how many dead calves we would have by not checking them at night?” he asked producers.

Spangler told producers that if they want to reduce their input costs, first they need to determine all their costs.

“Sometimes we just make selections based on profit, not just revenue. We know how much we got out of our calves, but we don’t always know what it costs to produce that calf,” he says.

Calf health considerations

Stewardship is the careful and responsible management of the cattle entrusted to one’s care.

Jerry Stokka, livestock stewardship specialist at North Dakota State University, explained to producers how they can better protect the health of their cattle. Using a chart showing the relationship of calf health and genetic potential, Stokka told producers that 90 percent of health failures relate back to stress.

“We impact a lot of these factors,” he pointed out.

“How do I know, from a health standpoint, that the bull I select will produce cows suitable for the environment?” he asked producers. “It is easy to make genetic selections to make the cows bigger. It is a lot harder to keep them moderate.”

The question, according to Stokka, is how to determine which cows will produce healthy calves.

“As a producer, we want calves that will get up and nurse immediately to take advantage of passive immunity,” he said.

“If we abandon the pillar of health and genetic selection, we will get to the point where we will need to cull heavily, sell out or start over,” he explained.

Supplementation

Stokka also questioned whether late gestation supplementation can help. Many believe runt piglets are the result of uterine crowding, causing a failure of the runt to obtain adequate nutrition.

In the case of cattle, Stokka said how the cow is fed relates to the health of the cow and its unborn calf. 

“Plumbing also makes a difference. Most producers cull cows with bad bags because it is a health issue,” he explained, recalling an incident where a cow kicked her calf off while it was nursing because it had mastitis, and it hurt her to allow her calf to nurse.

Colostrum is also crucial.

“The cow passes live cells to the newborn to protect it from diseases and antigens,” Stokka said. “It is very important that they get colostrum. My question is, have we done everything we could to make the environment so that calves can get up and nurse all the colostrum they need to the full mark?”

Gayle Smith is a correspondent for the Wyoming Livestock Roundup. Send comments on this article to This email address is being protected from spambots. You need JavaScript enabled to view it..

 

Ranch profitability is influenced by many factors.  Oftentimes, on Wyoming ranches, there are enterprises other than livestock that may account for significant sources of income.  However, the primary source of income on most Wyoming ranches is livestock production.

A majority of Wyoming ranches can be characterized as cow/calf operations.  A smaller number could be characterized as sheep operations. There are also a few ranches that utilize both cattle and sheep for livestock production.

The Livestock Marketing Information Center (LMIC) estimates returns for cow/calf producers in the U.S.  The estimates are returns over cash costs plus pasture rent. LMIC has consistently ratcheted-down estimated cow/calf returns this year, as forecasted cattle prices for the fourth quarter were lowered.  As of late September’s revisions, LMIC’s 2016 estimate was a return over cash costs plus pasture rent of about $15 per cow, which is the lowest since 2009. That is a huge one-year decline of about $285 per cow – 2015 was about $300 per cow – and was even more disappointing when compared to 2014’s record high level, about $550 per cow.  

Returns this year will not cover the total economic costs for most cow/calf operations.  While estimated costs of production have decreased slightly in 2016, based on cheaper fuel, feed and slight drops in pasture cost, it has not been enough to offset declining calf prices.

An LMIC working group also recently developed and published a “U.S. Baseline Lamb Cost of Production Model.”  Best estimate industry parameters were used to generate regionally representative budgets.  These budgets were then aggregated into a national model.  I shared the Western Region budget in a Wyoming Livestock Roundup article a couple of months ago. 

Utilizing the aggregated national model, I calculated an estimate for lamb returns as cash costs plus pasture rent for 2010-15.  The high was $71 per ewe in 2011 with the low being $8.20 per ewe in 2013.

It is important to note that in both cattle and sheep, these calculated returns do not include all economic costs of production. They are used in market analysis and estimated cash costs plus pasture rent.  Of course, every operation has different resources and costs.  Year-over-year changes in calculated returns are more insightful than the specific numeric levels. 

With that said, I was interested in comparing cow/calf returns with sheep production returns from 2010-15. At first glance, it seems like cattle is the clear winner.  The low return for cow/calf in the 2010-15 timeframe was $30 per cow while the high was $530 per cow. Clearly on a per-cow versus per-ewe basis, cattle is king.

However, this is not an accurate comparison based on resource use.  Ranchers are generally able to run five ewes on the same set of resources as one cow. Therefore I adjusted the sheep returns to reflect this relationship.

While the specific numeric levels are not as important as the trend, it is very instructive that the six-year average for adjusted sheep production is nearly identical to the cow/calf average.  It is also interesting to note that over the last six years, while the average was nearly identical, the timing and magnitude of the returns have been different. Certainly over the last six years, those few ranches in Wyoming that have a mix of sheep and cattle have had a more consistent return than those that relied on one or the other species.

Not all ranches have resources that can be utilized efficiently by both sheep and cattle, and not all ranches are structured with appropriate personnel and management skill sets to run both species.  However, for those ranches that are able to run multiple species, a combination approach may serve to mitigate fluctuations in returns.