Submitted by: agcomm,  Thu Dec 18 12:35:24 1997


The Market Advisor: More Homework Before You See Your Banker  
 
Harlan Hughes, Extension Livestock Economist
NDSU Extension Service
 
Graphic accompanies this column in hard copy and is available on
the World Wide Web at
http://www.ext.nodak.edu/extnews/newsrelease/graphics/
 
     The last three years of low cattle prices, last winter's
high feed bills, last winter's storm losses, and the aftermath of
this fall's open cows make it imperative that beef cow producers
take some extra time this winter to analyze their businesses.  My
last Market Advisor presented  recommendations for analyzing the
production side. This column and my next will present
recommendations for analyzing the economic side of your beef cow
business.    
     Your ranching future may well hinge on your in-depth
analysis of your current beef cow business and the completeness
of your 1998 business plan. As you prepare a plan to share with
your banker, it is important that you do your homework and
analyze the economic performance of your herd.  
     Here are my step-by-step recommendations on how to do it.  
     First, determine your economic costs.  A publication
entitled "Determining Your Unit Costs of Producing a
Hundredweight of Calf" is available from Sandy, my secretary, at
701-231-8642, or from my Web
page--www.ag.ndsu.nodak.edu/cow--under the "Other Web Sites"
button where you will find "Managing For Today's Markets And
Beyond." Click there and you will find an index of publications.  
     Second, compare your  herd's economic facts with the
economic facts of some benchmark herds to identify your herd's
strengths and weaknesses.  A second publication, "Conducting a
Comparative Analysis of Your Herd's Economic Facts with Other
Herd's Economic Facts," is also available from Sandy or at the
 Web site.   
     Third, decide if you are a high-cost producer or a low-cost
producer.  Worksheets included and my next Market Advisor should
help you determine this.  
     Fourth, build an aggressive 1998 business plan for your cow
herd and share it with your banker.  
     North Dakota's 73 Integrated Resource Management (IRM) herds
will be used as benchmark herds for this economic analysis. 
These herds are in North Dakota, eastern Montana, Minnesota, and
a few are in other western states. Most, however, are in North
Dakota.  All these herds will be referred to as the Northern
Plains Benchmark Herds.  They have been subdivided into four
groups based on their unit cost of producing 100 pounds of calf. 
Comparative data will be presented for the low-cost one-third,
the middle-cost one-third, the high-cost one-third and for the
average of all 73 herds.  
     A ranch business should be broken down into specific profit
centers, and each specific profit center should be treated as a
stand-alone business.  While the exact profit centers will vary
from ranch to ranch, most of you should have a beef cow profit
center, a forage profit center, a cash grain profit center, a
backgrounding profit center, etc. In an economic analysis,
home-raised forages are charged to the beef cow profit center at
market prices and credited to the forage profit center at market
prices. Do not use costs of production to price forages to the
beef cows, as this distorts the beef cow profits.  This Market
Advisor's focus will be only on  the beef cow profit
center--conception through weaning.
     The primary basis for the economic analysis of your beef cow
profit center should be the Jan.1, 1997, beginning inventory of
cows held for calving.  Include only cows held for calving do not
include any 1996 cull cows that you held back in the fall of 1996 
to sell on a higher cull cow market in the first quarter of 1997.
     Northern Plains Benchmark Herds ranged from a low of 12 cows
to a high of 3,437 and averaged 233 cows held for calving as of
Jan. 1, 1997.  Jan. 1 cow numbers varied from 169 for the
high-cost one-third herds to 376 cows for the low-cost one-third
herds.  This suggests that the smaller herds typically had higher
costs.  
     One of the key economic factors for any beef cow herd is the
capital invested.  Capital investment is based on fair market
value of the assets. This beef cow profit center analysis
includes the capital invested in the cow breeding herd (cows,
heifers, bulls), beef cow facility investment, beef cow equipment
investment and beef cow pasture land.  It does not include
farming machinery or farmland investments.  It does include a
prorated machinery investment for feeding and caring for the
cows. 
     The benchmark herds average $2,031 capital invested per cow
in the Jan.1, 1996, inventory.  Capital investment by group
ranged from $1,813 per cow for the low-cost group to $2,142 for
the high-cost group. Individual herd investments ranged from a
low of $695 per cow to a high of $8,279 per cow.  These benchmark
herds are operated by ranchers who rent some or all of their
pasture land, and even ranchers who rent or lease all or part of
their cows.   
     Debt per cow is the sum of the short-, intermediate- and
long-term liabilities associated with the beef cow profit center
on the Jan. 1, 1997, beginning balance sheet.  Total debt per cow
is taken from the beginning balance sheet and represents Jan. 1,
1997, breeding herd debt, pasture land debt, beef cow equipment
debt and beef cow facility debt, all expressed on a per-cow
basis.  The benchmark herds' Jan. 1, 1996, average beginning debt
was $416 per cow, ranging from $314 per cow for the low-cost
one-third to $574 per cow for the high-cost one-third.
Higher-cost herds tend to have more debt per cow. 
     Average steer prices are based on Northern Plains market
prices for October 1996.  If the IRM cooperator sold his calves
at weaning, we used his actual market prices.  If he retained his
calves, I provided a market price based on local sale barn prices
for the week that he weaned his calves.  The market price for
steer calves in October 1996 averaged from $64 to $65 for each of
the cost groups.  Individual prices varied from $56 per
hundredweight to $84 per hundredweight. The individual prices
tended to reflect quality differences. Sale barn price data
suggest that calf prices were $22 per hundredweight higher in
October 1997 than in October 1996.  Weaning weights averaged 525
pounds, and the group averages varied only 13 pounds among the
cost groups.  Individual herds' average weaning weights varied
from 350 pounds to 695 pounds.  Please note that something else,
other than weaning weights, is determining the cost groups.  
Gross income per cow is the sum of all income sources in the beef
cow profit center.  It includes the sales of steer calves, heifer
calves, cull cows, cull bulls, open yearling heifers and
inventory changes.  Inventory changes can be either negative or
positive.  
     Gross income per cow then becomes an accrual-adjusted income
per cow.  Asset values are locked in at Jan. 1 values so that 
inventory change is due to changing cattle numbers rather than 
changing asset values.  Asset values are changed each January to
reflect current market conditions.  
     1996 was a tough year for beef cow producers, as is
reflected in the gross-income-per- cow figure.  The average gross
income for the benchmark herds was $313 per cow, which is down
$61 from 1995's average.  The low-cost herds generated $358 per
cow while the high- cost herds generated only $256 per cow.  My
phone calls throughout the year indicated that many  producers
were trying all kinds of things to generate gross income.  1996
was not the year to just produce and sell weaned calves. 
     Fill in the blanks for your herd.  So far, what are your
herd's strengths?  What are your herd's weaknesses? 
     I am out of space, so my next Market Advisor will complete
this economic analysis of your beef cow herd.  
                              ###
NDSU Agriculture Communication
Source: Harlan Hughes (701) 231-7380
Editor: Barry Brissman (701) 231-7866