NEWS for North Dakotans
Agriculture Communication, North Dakota State
University
7 Morrill Hall, Fargo, ND 58105-5665
April 1, 1999
Harlan Hughes, Extension Livestock Economist
NDSU Extension Service
It is that time of the year when you are calving and I am conducting cost and return analyses of Integrated Resource Management (IRM) cooperators' herds. I am writing this Market Advisor to ask additional beef cow producers (in North Dakota and outside of North Dakota) to become IRM cooperators by letting me prepare a cost and return analysis of their beef cow herds.
In an IRM cost and returns analysis, we try to answer four specific questions.
To increase profit in any beef cow herd, the manager must first measure that herd's production, costs and profits. Once these items are calculated and analyzed, an action plan can then be formulated to increase profits.
Paulann Kautzman (my secretary), Ron Haugen (a farmer who works for Extension part time) and I are now entering IRM cooperators' beef herd data into our computers and are preparing written reports that answer these four questions. We will spend the next 30 days or so calculating and summarizing the costs and returns from the production of 1998 calves. As these data are analyzed, we will be looking for ways to run a more profitable beef cow herd. This is the ninth year I have prepared IRM analyses for cooperators.
We've come a long way from the four pilot herds analyzed in 1989 and 1990. In the early years, the county Extension agent and I went to the ranch and sat down at the kitchen table and analyzed the herd. As the number of cooperators grew, we progressed to holding two one-day IRM workshops where we could help several producers at once.
Today my workshops are on videotape. Call Paulann at (701) 231-7393 to request the tapes. She'll send out the two videotapes, the input form, three accompanying publications and a bill for $25.
The first videotape introduces the cooperator to Integrated Resource Management and then instructs the cooperator how to fill out the IRM input form. Cooperators then mail the completed input form to my office. Paulann enters the data into the computer. Ron Haugen and I process the data and prepare a draft report. Paulann duplicates and mails out the reports — two copies to the cooperator, one to the county Extension agent, and one to the area livestock specialist.
Cooperators use the second videotape to gain an understanding of the draft economic report of their beef cow herd. The cooperator marks any questions, changes or data corrections on one of his copies and returns the annotated report to my office for further processing. Ron and I re-run the revised data through our computers, and we prepare a final report. Paulann duplicates and mails out the final report.
In return for being an IRM cooperator, you'll receive weekly mailings of beef cattle economic materials to keep you apprised of the changing economic aspects of the beef industry.
Let's review some of the key economic concepts that are integrated into North Dakota's IRM-FARMS cost and return analyses. First, IRM-FARMS stands for Integrated Resource Management Financial and Reproductive Management System. The key to any IRM-FARMS analysis is the integration of production, reproduction and financial analyses.
The second key economic concept is that we divide the ranch or farm business into profit centers — such as beef cows, backgrounding, hay, feed grains, etc. — and treat each profit center as a stand-alone business. The profit-enhancing concept behind profit center analysis is really quite simple — expand those centers making a profit and reduce those centers that are losing money. For example, the beef cow profit center is charged the market value of farm-raised hay consumed; in turn, the hay profit center is credited with the market value of the hay produced. Did this cooperator make money raising hay? Compare the cost of producing the hay to the market value of the raised hay and you have the answer to that question.
In general, I am finding that most North Dakota beef cow producers can raise hay year in and year out cheaper than they can buy hay on the spot cash market. The exception to this rule is the producer who has money borrowed on the hay land, baler and/or the tractor pulling the baler. In these cases, cash costs of producing the hay may exceed the market price of purchasing the hay.
The third key economic concept is that machinery costs for producing and harvesting farm-raised feeds are ever increasing. The cost of farming machinery and repairs increased substantially during the last 20 years. The result is economic pressure to spread those costs over more acres and/or more tons. As a result, machinery economics are forcing traditional ranchers to get bigger. Others, on the other hand, are cutting out these machinery expenses by purchasing their hay. Both types of cooperators are in my IRM database.
A fourth key economic concept is that a proper business analysis has to measure gross income on an accrual basis; that is, cash sales have to be augmented with inventory changes. Inventory changes can be either positive or negative. Inventory changes absolutely must to be taken into account if one is going to accurately manage the beef cow herd. My experience has been that most IRM cooperators are not measuring inventories prior to becoming an IRM cooperator.
The fifth economic concept is that it's essential to measure the unit cost of producing a hundredweight of calf. Unit cost of production (UCOP) provides management power because all production costs and all units of physical production are simultaneously taken into account in either the numerator or denominator. The calculated UCOP enables a producer to directly compare unit cost of production to steer market price, giving an immediate feel for profit. This immediate cost/price comparison goes on in the producer's mind all year long, resulting in a continuous, year-long evaluation of profit potential.
I hope you will consider becoming an IRM cooperator. Call Paulann at 701-231-7393 and ask her to send you the IRM videotapes and supporting materials.
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Source: Harlan Hughes (701) 231-7380
Editor: Tom Jirik (701) 231-9629