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1 econstor Make Your Publications Visible. A Service of Wirtschaft Centre zbwleibniz-informationszentrum Economics Richardson, James W.; Outlaw, Joe L.; Knapek, George M.; Herbst, Brian K.; Raulston, J. Marc Research Report Economic outlook for representative ranches given the December 213 FAPRI/AFPC Baseline AFPC Briefing Paper, No Provided in Cooperation with: The Agricultural & Food Policy Center (AFPC), Texas A&M University Suggested Citation: Richardson, James W.; Outlaw, Joe L.; Knapek, George M.; Herbst, Brian K.; Raulston, J. Marc (213) : Economic outlook for representative ranches given the December 213 FAPRI/AFPC Baseline, AFPC Briefing Paper, No This Version is available at: Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence.

2 Economic Outlook for Representative Ranches Given the December 213 FAPRI/AFPC Baseline Briefing Paper 13-4 December Agricultural and Food Policy Center Department of Agricultural Economics Texas AgriLife Research Texas AgriLife Extension Service Texas A&M University 9 14 AFPC College Station, Texas Telephone: (979) Fax: (979)

3 ECONOMIC OUTLOOK FOR REPRESENTATIVE RANCHES GIVEN THE DECEMBER 213 FAPRI/AFPC BASELINE AFPC Working Paper 13-4 James W. Richardson Joe L. Outlaw George M. Knapek Brian K. Herbst J. Marc Raulston Agricultural and Food Policy Center Department of Agricultural Economics Texas AgriLife Research Texas AgriLife Extension Service Texas A&M University December 213 College Station, Texas Telephone: (979) Fax: (979) Web Site:

4 EXECUTIVE SUMMARY The Agricultural and Food Policy Center (AFPC) at Texas A&M University develops and maintains data to simulate eleven representative cow/calf ranch operations in major production areas of ten states. The chief purpose of this analysis is to project those ranches economic viability for 213 to 218. The data necessary to simulate the economic activity of these operations is developed through ongoing cooperation with panels of ranchers in each of these states. The Food and Agricultural Policy Research Institute (FAPRI) provided projected prices and input inflation rates in their December 213 Baseline that were used to analyze the viability of the AFPC representative ranches. Under the December 213 Baseline, the Montana ranch (MTB6), the Colorado ranch (COB25), the Missouri ranch (MOB25), and the Florida ranch (FLB1155) are all considered in good liquidity condition (less than a 25 percent change of negative ending cash in 218). The Nevada ranch (NVB65), the Wyoming ranch (WYB435) and the South Dakota ranch (SDB375) are considered in marginal liquidity position (between 25 percent and 5 percent chance of negative ending cash in 218). The California ranch (CAB5), the New Mexico ranch (NMB16), the Texas Rolling Plains ranch (TXRB25) and the South Texas ranch (TXSB2) are all considered in poor liquidity condition (greater than a 5 percent chance of negative ending cash in 218). Ten of the eleven ranches (NVB65, MTB6, WYB435, COB25, NMB16, SDB375, MOB25, TXRB25, TXSB2, and FLB1155) are all in good equity position (less than a 25 percent chance of decreasing real net worth during ). The California ranch (CAB5), with land values constrained by the Williamson Act has a greater than 5 percent probability of decreasing real net worth (poor equity position). No ranches have a marginal equity position (between 25 percent and 5 percent likelihood of losing real net worth). Overall rankings for the representative ranches are projected in 218 to be as follows: Seven of the eleven ranches (NVB65, MTB6, WYB435, COB25, SDB375, MOB25, and FLB1155) are classified in good condition, three (NMB16, TXRB25, and TXSB2) are in marginal condition, and the remaining ranch (CAB5) is in poor condition. 1

5 FAPRI DECEMBER 213 BASELINE While projected cattle prices are considered to be the primary determinant of the financial viability of the representative ranches, the prices of feed crops and bi-products can also have an impact. The ranches produce hay and are often net buyers and not net sellers. At least two of the ranches retain ownership through the backgrounding stage and feed some concentrates. The Missouri ranch produces a number of grain and oilseed crops and the smaller Texas ranches also raises broilers. Additionally, crop prices have an impact on fed cattle returns, which impacts feeder cattle prices. Projected livestock prices for FAPRI s December 213 Baseline are summarized in Table 1. Feeder cattle prices are expected to see growth until 215. Cattle prices are projected to move as follows: Feeder cattle prices are projected to steadily increase from $11.89/cwt in 29 reaching $173.85/cwt by 215 and then falling to $151.4/cwt in 218. Fed cattle prices are expected to increase from the low in 29 of $83.25/cwt, ending 218 at $12.64/cwt. Culled cow prices range between $47.1/cwt and $78.92/cwt. Projected crop prices for FAPRI s December 213 Baseline are also summarized in Table 1. In general, cotton, corn, wheat, rice, sorghum, and soybean price projections decline in 214. From prices are projected to be relatively flat. Individual crop prices are projected to move as follows: Corn prices are projected to reach a high of $6.89/bu in 212. Corn prices are projected to fall to $4.47/bu in 213 and settle around $4.2/bu in the latter projected years. Wheat prices increase significantly from before declining and ending 218 at $5.78/bu. After reaching a high of $.883/lb. in 211, cotton prices decline significantly in 212 before settling around $.73/lb for the remainder of the projection period. Rice prices reach a peak of $15.38/cwt. in 213 before slowly declining and end 218 at $13.7/cwt. Sorghum prices decline from a high of $6.33/bu. in 212, ending the projection period at $3.86/bu. Prices for Soybeans are expected to fall from a high of $14.4/bu. in 212 and remain around $1.5/bu. during the planning horizon. Projected annual rates of change for variable cash expenses are summarized in Table 2. The rates of change in input prices come from FAPRI s December 213 Baseline. Fertilizer prices increase 36.9 percent in 211 and 5.8 percent in 212. However, fertilizer prices are projected to decline by 7.5, 11.2, and 3.7 percent from 213 to 215 before seeing small increases from 216 to 218. Fuel price projections follow the same pattern as fertilizer with declines from 213 to 215 and small increases afterwards. Projected annual rates of change in land values over the period were provided by the December 213 FAPRI Baseline and fall annually from a projected high of 1.9 percent in 212 to 2. percent in

6 Table 1. FAPRI December 213 Baseline Projections of Livestock and Crop Prices, Cattle Prices Feeder Cattle ($/cwt) Fed Cattle ($/cwt) Culled Cows ($/cwt) Crop Prices Corn ($/bu.) Wheat ($/bu.) Cotton ($/lb.) Sorghum ($/bu.) Soybeans ($/bu.) Barley ($/bu.) Oats ($/bu.) Rice ($/cwt.) Soybean Meal ($/ton) All Hay ($/ton) Peanuts ($/ton) Source: Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri-Columbia. Table 2. FAPRI December 213 Baseline Assumed Rates of Change in Input Prices, Annual Interest Rates, and Annual Changes in Land Values, Annual Rate of Change for Input Prices Paid Seed Prices (%) All Fertilizer Prices (%) Herbicide Prices (%) Insecticide Prices (%) Fuel and Lube Prices (%) Machinery Prices (%) Wages (%) Supplies (%) Repairs (%) Services (%) Taxes (%) PPI Items (%) PPI Total (%) Annual Change in Consumer Price Index (%) Annual Rate of Change for U.S. Land Prices (%) Source: Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri-Columbia. 3

7 Economic Viability of Representative Farms over the Period Farm Name Overall Ranking P(Negative Ending Cash) P(Real Net Worth Declines) 7/3/ CAB NVB MTB WYB COB NMB SDB MOB TXRB TXSB FLB Viability is classified as good (green), moderate (yellow), and poor (red) based on the probabilities: < >5 2 P(NegativeEnding Cash) is the probability that the farm will have a cash flow deficit. Reported values represent the probabilities for 213 and P(Real Net Worth Decline) is the probability that the farm will have a loss in real net worth relative to the beginning net worth. Reported values represent the probabilities for losing real net worth from 29 to 213 and from 29 to

8 CAB5 Located in the northern Sacramento Valley (Tehama County, California), this 5-cow operation covers 1, acres of deeded and privately owned leased range. Additionally, 2, AUMs are leased from the federal government. All 212 receipts were generated by the cow-calf operation $1,s Market Receipts ($1,)..... Livestock Receipts ($1,) Government Payments ($1,)..... Total Receipts ($1,) Total Expenses ($1,) ($1,) Ending Cash ($1,) Net Worth ($1,) 4, , , , ,228.4 Return on Assets (%) P(Cash Flow Deficit) (%) P(Refinancing) (%) P(Decreasing RNW) (%) Producers participating in the panel include: Jerry Hemsted, Dick O'Sullivan, Britt Schumacher, Ron Masingal, and Wally Roney. Larry Forero, Josh Davy, Glenn Nader, and serve as the facilitators. 5

9 NVB65 NVB65 is a 65-cow ranch located in northeastern Nevada (Elko County). The operation consists of 1,3 acres of owned hay meadow and 8,725 acres of owned range, supplemented by 4,45 AUMs leased from the U.S. Forest Service. Each year, the ranch harvests 975 acres of hay. Annually, cattle sales represent all of the ranch s receipts $1,s Market Receipts ($1,)..... Livestock Receipts ($1,) Government Payments ($1,)..... Total Receipts ($1,) Total Expenses ($1,) ($1,) Ending Cash ($1,) Net Worth ($1,) 7,24.7 7,43.3 7, , ,71.3 Return on Assets (%) P(Cash Flow Deficit) (%) P(Refinancing) (%) P(Decreasing RNW) (%) Producers participating in the panel include: Tom Barnes, Jay Dalton, Mitch & Rhonda H, Ed Sarman, Brad & Dani Dalto, Jon Griggs, Sam Mori, and Craig Spratling. Desiree Seal, Tom Harris, Ron Torell serve as facilitators. 6

10 MTB6 A 6-cow ranch located on the eastern plains of Montana (Custer County), MTB6 runs cows on a combination of owned land and land leased from federal, state, and private sources. The ranch owns 14, acres of pasture. 8 acres of hay are produced annually on the owned land. Sales of high-quality replacement females comprise a significant portion of receipts for this ranch. Also, all deeded acres are leased for hunting. Cattle sales represented 98 percent of this ranch s 212 receipts $1,s Market Receipts ($1,)..... Livestock Receipts ($1,) Government Payments ($1,)..... Total Receipts ($1,) Total Expenses ($1,) ($1,) Ending Cash ($1,) Net Worth ($1,) 7,99.7 8, , , ,489.1 Return on Assets (%) P(Cash Flow Deficit) (%) P(Refinancing) (%) P(Decreasing RNW) (%) Producers participating in the panel include: Clarence Brown, Levi Foreman, Jeff Okerman, Andy Zook, Art Drange, Alyn Haughian, Scot Robinson. Michael Schuldt serves as the facilitator. 7

11 WYB435 This 435-cow ranch is located in north central Wyoming (Washakie County). The ranch leases 2 AUMs from the U.S. Forest Service and owns 1, acres of range. In response to drought, the ranch has begun leasing 7 acres of private pasture. Annually, the ranch harvests 35 acres of alfalfa and grass hay on owned ground. The ranch backgrounds two-thirds of its calves for ninety days. In 212, cattle sales accounted for 92 percent of gross receipts, while hay sales accounted for seven percent $1,s Market Receipts ($1,) Livestock Receipts ($1,) Government Payments ($1,)..... Total Receipts ($1,) Total Expenses ($1,) ($1,) Ending Cash ($1,) Net Worth ($1,) 4, ,2.2 5,7.9 5, ,168.7 Return on Assets (%) P(Cash Flow Deficit) (%) P(Refinancing) (%) P(Decreasing RNW) (%) Producers participating in the panel include: Hugh Baird, Tim Flitner, Vance Lungren, Dan Rice, Gary Rice. Jim Gill serves as the facilitator. 8

12 COB25 This 25-cow ranch is located in northwestern Colorado (Routt County). Federal land provides seven percent of the ranch s grazing needs. The ranch owns 2,3 acres of rangeland, and the cattle graze federal land during the summer. COB25 harvests 45 acres of hay each year at a projected yield of 2.5 tons per acre. Cattle sales accounted for 73 percent of the ranch s 212 total receipts $1,s Market Receipts ($1,) Livestock Receipts ($1,) Government Payments ($1,)..... Total Receipts ($1,) Total Expenses ($1,) ($1,) Ending Cash ($1,) Net Worth ($1,) 2,1.1 2, , , ,65.6 Return on Assets (%) P(Cash Flow Deficit) (%) P(Refinancing) (%) P(Decreasing RNW) (%) Producers participating in the panel include: Doug Carlson, Kurt Frentress, Jay Fetcher, Larry Monger, Jim Rossi, and Wayne Shoemaker. Todd Hagenbuch serves as the facilitator. 9

13 NMB16 NMB16 is a 16-cow ranch located in northeastern New Mexico (Union County). In 211, this ranch liquidated 33 percent of its mature cowherd in response to oppressive drought, culling 8 of its 24. During 212, 94 percent of gross receipts were derived from cattle sales with the balance of receipts generated from fee hunting $1,s Market Receipts ($1,)..... Livestock Receipts ($1,) Government Payments ($1,)..... Total Receipts ($1,) Total Expenses ($1,) ($1,) Ending Cash ($1,) Net Worth ($1,) 6, ,975. 7,71.2 7, ,258.9 Return on Assets (%) P(Cash Flow Deficit) (%) P(Refinancing) (%) P(Decreasing RNW) (%) Producers participating in the panel include: Justin Bennett, Damon Brown, John Gilbert, John Vincent, and Derek Walker. Blair Clavel, Manny Encinias serve as facilitators. 1

14 SDB375 SDB375 is a 375-cow West River (Meade County, South Dakota) beef cattle ranch. This operation produces hay on 1,15 acres of owned cropland, and runs its cows on 6,7 acres of owned native range. In 212, calf and culled cow/bull sales accounted for 1 percent of gross receipts $1,s Market Receipts ($1,)..... Livestock Receipts ($1,) Government Payments ($1,)..... Total Receipts ($1,) Total Expenses ($1,) ($1,) Ending Cash ($1,) Net Worth ($1,) 7, ,62.4 7, , ,957.2 Return on Assets (%) P(Cash Flow Deficit) (%) P(Refinancing) (%) P(Decreasing RNW) (%) Producers participating in the panel include: Alan & Jill Bishop, John & Lance Frei, Lynn C. Frey, Leo E. Grubl, Larry Stomprud, Wayne Oedekoven. Adele Harty, Dan Oedekoven, Dave Ollila, Ken Olson, Shannon Sand serve as facilitators. 11

15 FLB1155 This is a 1,155-cow ranch located in central Florida (Osceola County). FLB1155 runs cows on 5,4 acres of owned improved pasture, from which 3,56 acres of hay are harvested annually. Sales of sod are a burgeoning source of agricultural income for area ranches. During 212, cattle sales represented 89 percent of total receipts $1,s Market Receipts ($1,)..... Livestock Receipts ($1,) Government Payments ($1,)..... Total Receipts ($1,) Total Expenses ($1,) ($1,) Ending Cash ($1,) , , ,411.7 Net Worth ($1,) 24, , , , ,16. Return on Assets (%) P(Cash Flow Deficit) (%) P(Refinancing) (%) P(Decreasing RNW) (%) Producers participating in the panel include: Mike Adams, Wes Carlton, Ralph Pelaez, Alan Kelley, Cary Lightsey, Bert Tucker, Fred Tucker, and Wes Williamson. 12

16 MOB25 A 25-cow beef cattle operation is the focal point of this diversified livestock and crop farm located in southwest Missouri (Dade County). MOB25 plants 12 acres of corn, 12 acres of wheat, 16 acres of soybeans, and 28 acres of hay. Improved pasture makes up another 57 acres of this ranch. During 212, cattle sales comprised 5 percent of gross receipts $1,s Market Receipts ($1,) Livestock Receipts ($1,) Government Payments ($1,) Total Receipts ($1,) Total Expenses ($1,) ($1,) Ending Cash ($1,) Net Worth ($1,) 3, ,98.6 3, ,83.3 4,168.2 Return on Assets (%) P(Cash Flow Deficit) (%) P(Refinancing) (%) P(Decreasing RNW) (%) Producers participating in the panel include: Steve Allison, Scott Daniel, James A. Nivens, Gary D. Wolf, Chuck Daniel, Randall Erisman, and Mike Theurer. Brian Gillen serves as the facilitator. 13

17 TXRB25 The western Rolling Plains of Texas (King County) is home to this 25-head cow-calf operation. This ranch operates on 2, acres (half owned, half leased) of native range. Due to extended drought in the area, the ranch sold 25 cows in 211 and 212 and move 75 cows to 5, acres of leased land. After weaning, calves are placed on wheat pasture and then either sold as feeder cattle or retained as replacement females. Seventy-eight percent of 212 receipts came from cattle sales, while 22 percent came from fee hunting $1,s Market Receipts ($1,)..... Livestock Receipts ($1,) Government Payments ($1,)..... Total Receipts ($1,) Total Expenses ($1,) ($1,) Ending Cash ($1,) ,14.5 Net Worth ($1,) 7,673. 7, , , ,55.7 Return on Assets (%) P(Cash Flow Deficit) (%) P(Refinancing) (%) P(Decreasing RNW) (%) Producers participating in the panel include: Duane Daniel, Leland Foster, Glenn Springer, Greg Arnold, and Steve Drennan. Kevin Brendle, Stan Bevers, Toby Oliver, and Ryan Martin serve as facilitators. 14

18 TXSB2 A 2-head cow-calf operation is the central focus of this fulltime agricultural operation in south central Texas (Gonzales County). Faced with continued drought, the ranch has been able to only slightly rebuild its numbers from its 3 percent liquidation in 26. Contract broiler production is an important source of agricultural revenue for this ranch; even so, cattle sales accounted for 84 percent of 212 gross receipts $1,s Market Receipts ($1,)..... Livestock Receipts ($1,) Government Payments ($1,)..... Total Receipts ($1,) Total Expenses ($1,) ($1,) Ending Cash ($1,) Net Worth ($1,) 4, ,5.7 5,14.6 5,154. 5,174.7 Return on Assets (%) P(Cash Flow Deficit) (%) P(Refinancing) (%) P(Decreasing RNW) (%) Producers participating in the panel include: Steve Breitschopf, Brian Fink, Michael Kuck, Mitchell Hardcastle and William L. Quinney. Dwight Sexton serves as the facilitator. 15

19 AFPC Briefing Series The briefing series is designed to facilitate presentation by AFPC related to requests for specific policy impact analyses. The materials included in this package are intended only as visual support for an oral presentation. The user is cautioned against drawing extraneous conclusions from the material. In most instances, the briefing series will be followed by an AFPC Working Paper. AFPC welcomes comments and discussions of these results and their implications. Address such comments to: Agricultural and Food Policy Center Department of Agricultural Economics Texas A&M University College Station, TX or call Copies of this publication have been deposited with the Texas State Library in compliance with the State Depository Law. Mention of a trademark or a proprietary product does not constitute a guarantee or a warranty of the product by the Texas AgriLife Research or Texas AgriLife Extension Service and does not imply its approval to the exclusion of other products that also may be suitable. All programs and information of the Texas AgriLife Research or Texas AgriLife Extension Service are available to everyone without regard to race, color, religion, sex, age, handicap, or national origin.