Tool aids in decision making
Producers faced with the tough task of determining whether to buy hay or sell some cows may want to access an on-line tool to help them reach a decision.
Jeff Tranel, who is an agricultural and business management economist at Colorado State University, discussed the “Buy Hay or Sell Cows” decision tool during the webinar Ag in Uncertain Times.
Decision making tool
Tranel said this tool can be accessed through his website coopext.colostate.edu/tranel, or through farmmanagement.org. The program uses actual inputs from the producer’s own operation to help estimate whether it is profitable to retain cows for the next five years.
Step one of the decision tool asks the producer to enter the current year, number of cows in the herd, an estimated conception rate, estimated weaning weight and the average weaning weights for the steers and heifers. This step also asks for annual cow costs, non-feed costs and the annual percentage change in non-feed costs.
Step two estimates futures prices for the next five years using the weaning weight of the calves when they are sold in dollars per pound. It also estimates the cost of hay per ton for the next five years, and the market value of cows, in dollars per cow, for the next five years.
Producers also need to input the amount of hay to be fed, the number of days per year they feed hay, and the quantity of hay fed in terms of pounds per day per cow.
Once this information is inputted, the program will show the results to help the rancher make an informed decision.
The results include revenue, expenses, pre-tax profits and accumulated profits. It will also show the salvage value of the cow, which tells the producer if the value of the cow kept in the herd is greater than the market value of the cow, and if the cow is worth more to keep, Tranel said. It will also show the value of the cow kept in the herd.
Producers will also know the annual speculative profit, which is the difference between the salvage value and the value of the cow kept in herd, and the accumulated speculative profit, which is the amount you would realize if you retained ownership of the cow for sale in five years, he explained.
This program can also tell a producer if a cow/calf is sold each year, what that cow is worth to the owner if they are sold in the fall of that specific year. In order to achieve worth of the cow, it adds salvage value, the price of the calf and profits.
Critical decision making
Tranel said this program would show producers how critical the decisions they make really are.
“The decision to keep cows this fall is really a long-term decision,” he explained. “The financial costs of keeping cows this fall and waiting to sell next fall can be quite dire.”
“Really, the only way to get through the costs producers will incur the next two years to get through the drought is to keep her for some time,” he added.
“I would strongly recommend producers seek appropriate counsel before they make a final decision whether to buy hay or sell cows,” he continued. “Jan. 1 is too late to talk with a tax preparer about this.”
Selling cows can have income tax and capital gains tax implications. It can also impact a producer’s ability to borrow money in the future, as well as the ability to rent land, he said.