Crunching the Numbers for Taxes and Analysis Chris Prevatt University of Florida, Range Cattle REC Extension Economist
Chris Prevatt Beef Cattle and Forage Economist UF/IFAS Range Cattle Research and Education Center
2017 Beef Cattle Market Both beef supplies and cattle prices increased in 2017 relative to 2016, this outcome is only possible because of demand growth.
Projected Cow-Calf Profits During the Four Phases of the Cattle Price Cycle Phase of Cattle Price Cycle Projected Cow-Calf Profits/Losses This is simply a projection about cow-calf profit trends based on the past history using a 12-year cattle price cycle. No one knows for certain the length of the four phases of the cattle price cycle. We will update this projection as time progresses and new economic information becomes available.
Projected Cow-Calf Profits During the Four Phases of the Cattle Price Cycle Phase of Cattle Price Cycle Top of Price Cycle (2013-2015) Downward Price Transition (2015-2019?) Bottom of Price Cycle (2019-2021?) Projected Cow-Calf Profits/Losses Upward Price Transition (2021-2024?)
Projected Cow-Calf Profits During the Four Phases of the Cattle Price Cycle Phase of Cattle Price Cycle Projected Cow-Calf Profits/Losses Top of Price Cycle (2013-2015) Significant Profits Downward Price Transition (2015-2019?) Profits/Losses Declining Profitability Bottom of Price Cycle (2019-2021?) Significant Losses Upward Price Transition (2021-2024?) Profits/Losses Improving Profitability
Mil. Head 140 JANUARY 1 TOTAL CATTLE INVENTORY U.S., Annual 130 120 2018 = 94.4 Million Head +0.7 Percent 110 100 90 80 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018 Data Source: USDA-NASS Livestock Marketing Information Center C-N-01 01/31/18
PERCENT CHANGE IN CATTLE INVENTORY U.S., January 1 4 3 2 1 0-1 -2-3 -4 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 Data Source: USDA-NASS, Analysis by LMIC Livestock Marketing Information Center C-N-48 01/31/18
Mil. Head 7.0 HEIFERS HELD AS BEEF COW REPLACEMENTS January 1, U.S. 6.5-3.7 % 6.0 5.5 5.0 4.5 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 Data Source: USDA-NASS Livestock Marketing Information Center C-N-38 01/31/18
Mil. Head 55 CALF CROP U.S., Annual 50 45 40 35 30 2017 = 35.8 Million Head +2 Percent 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 Data Source: USDA-NASS Livestock Marketing Information Center C-N-18A 01/31/18
BEEF COWS THAT CALVED JANUARY 1, 2018 (1000 Head) 236 5 536 660 238 510 187 338 1497 714 809 483 985 1801 1910 1507 2131 365 285 970 397 2166 924 15 105 102 215 296 208 203 633 1033 910 370 174 9 46 10 3 7 2 6 501 714 485 4585 473 5 75 US Total 31723 886 0 to 174 174 to 473 473 to 924 924 to 4586 Livestock Marketing Information Center Data Source: USDA-NASS 02/01/18
CHANGE IN BEEF COWS NUMBERS 2017 TO 2018 (1000 Head) 11-1 5-10 18 10 3 0 11 0 4 18 31 137-10 -63 36-5 5 111 10-5 10-18 -2 10 1 8-4 1 30-10 0 4-5 3 2-1 0 0 0 1 1 125 25 25 21-12 -22-63 to 0 0 to 3 3 to 18 18 to 138 1 US Total 510 Livestock Marketing Information Center Data Source: USDA-NASS 02/01/18
CHANGE IN BEEF COWS NUMBERS 2008 TO 2018 (1000 Head) -36-1 5-59 0-6 61-32 5 50 15 157-9 -4 27 5 57 0-27 -30-26 85 2 96-126 0-59 -169-2 -8-37 78-19 -18 1 3 0-2 -2-2 0 1-1 -565-40 2 47-68 -54-565 to -26-26 to 0 0 to 6 6 to 158-8 US Total -712 Livestock Marketing Information Center Data Source: USDA-NASS 02/01/18
CALCULATED BEEF CALF CROP 2017 (1000 Head) 198 4 511 513 194 436 150 295 1466 655 696 377 944 1720 1648 1305 1918 352 264 891 339 1921 785 10 90 156 257 181 188 564 938 813 325 135 83 8 5 2 33 6 1 4 393 624 411 3964 360 4 58 US Total 27557 696 0 to 135 135 to 360 360 to 813 813 to 3965 Livestock Marketing Information Center Data Source: USDA-NASS 02/01/18
CHANGE IN BEEF CALF CROP 2007-2017 (1000 Head) -41 0-54 -33 9-20 -17 15-29 14 43 146-59 -64-43 14 42 25-56 -3 17-27 -93-1 2 23-67 16-1 -1-1 0 0-1 -5 43 42-19 -168-13 -26-0 1-510 -40-19 45-58 -95-510 to -33-33 to 0 0 to 15 15 to 147-4 US Total -1158 Livestock Marketing Information Center Data Source: USDA-NASS 02/01/18
Thou. Head 675 CATTLE SLAUGHTER Federally Inspected, Weekly 625 575 525 475 425 JAN APR JUL OCT Avg. 2012-16 2017 2018 Data Source: USDA-AMS & USDA-NASS Livestock Marketing Information Center C-S-08 02/08/18
Pounds 920 910 900 890 880 870 860 850 840 830 820 STEER DRESSED WEIGHT Federally Inspected, Weekly JAN APR JUL OCT Avg. 2012-16 2017 2018 Data Source: USDA-AMS & USDA-NASS Livestock Marketing Information Center C-S-18 02/08/18
$/cwt 110 105 100 95 90 85 80 75 70 65 KANSAS FEEDLOT CLOSEOUTS Feeding Costs per Cwt, Steers Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Avg. 2011/15 2016 2017 Data Source: KSU Focus on Feedlots, Compiled by LMIC Livestock Marketing Information Center 02/05/18
$ Per Head 150 100 50 0-50 -100-150 -200-250 -300-350 AVERAGE ANNUAL RETURNS TO CATTLE FEEDERS Feeding 750 Lb. Steers, S. Plains, Custom Feeding Total Costs 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Data Source: USDA-AMS, Analysis and Forecasts by LMIC Livestock Marketing Information Center C-P-10 02/05/18
$ Per Cwt. 240 230 220 210 200 190 180 170 160 150 140 MED. & LRG. #1 STEER CALF PRICES 400-500 Pounds, Southern Plains, Weekly JAN APR JUL OCT Avg. 2012-16 2017 2018 Data Source: USDA-AMS Livestock Marketing Information Center C-P-49A 02/05/18
$ Per Cwt. 220 210 200 190 180 170 160 150 140 130 MED. & LRG. #1 STEER CALF PRICES 500-600 Pounds, Southern Plains, Weekly JAN APR JUL OCT Avg. 2012-16 2017 2018 Data Source: USDA-AMS Livestock Marketing Information Center C-P-54 02/05/18
$ Per Cwt. 150 SLAUGHTER STEER PRICES Southern Plains, Weekly 140 130 120 110 100 90 JAN APR JUL OCT Avg. 2012-16 2017 2018 Data Source: USDA-AMS Livestock Marketing Information Center C-P-52 02/05/18
$ Per Cwt. 14.50 14.00 13.50 13.00 12.50 12.00 11.50 11.00 10.50 10.00 9.50 STEER HIDE AND OFFAL VALUE Live Animal Basis, Weekly JAN APR JUL OCT Avg. 2012-16 2017 2018 Data Source: USDA-AMS Livestock Marketing Information Center C-P-39 02/05/18
$ Per Cwt. 100 SLAUGHTER COW PRICES Southern Plains, 85-90% Lean, Weekly 90 80 70 60 50 JAN APR JUL OCT Avg. 2012-16 2017 2018 Data Source: USDA-AMS Livestock Marketing Information Center C-P-35 02/05/18
$ Per Cwt 300 275 250 225 200 175 150 125 100 75 AVERAGE CALF PRICES 500-600lb Steer Calves, Southern Plains 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Annual Average 4th Quarter Data Source: USDA-AMS, Compiled and Forecasts by LMIC Livestock Marketing Information Center
$ Per Cwt 275 250 225 200 175 150 125 100 75 50 AVERAGE ANNUAL CATTLE PRICES Southern Plains 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 500-600lb Steer Calves 700-800lb Feeder Steers Fed Steers Data Source: USDA-AMS, Compiled and Forecasts by LMIC Livestock Marketing Information Center C-P-06 02/08/18
Cattlefax Projections for Marianna, Florida: 550 lb. Steer Calf: $144/cwt. ($121-$164) 750 lb. Feeder Steer: $134/cwt. ($124-$149) Utility Cow: $58/cwt. ($48-$68)
You Can t Manage What You Don t Measure Chris Prevatt UF/IFAS Range Cattle REC Livestock and Forage Economist
$ Per Cow 1000 900 800 700 600 500 400 300 200 100 0 ESTIMATED AVERAGE COW CALF COSTS Total Cash Cost Plus Pasture Rent, Annual 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Data Source: USDA & LMIC, Compiled by LMIC Livestock Marketing Information Center 02/08/18
$ Per Cow ESTIMATED AVERAGE COW CALF RETURNS Returns Over Cash Cost (Includes Pasture Rent), Annual 500 400 300 200 100 0-100 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Data Source: USDA & LMIC, Compiled by LMIC Livestock Marketing Information Center C-P-66 02/08/18
$ Per Cow 600 500 400 300 200 100 0 COW-CALF RETURNS AND CATTLE INVENTORY U.S., Annual Mil. Head 108 104 100 96 92 88 84-100 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 Estimated Cow-Calf Returns Cattle Inventory Jan 1 80 Data Source: USDA-AMS & USDA-NASS, Compiled and Analysis by LMIC Livestock Marketing Information Center C-P-67 02/08/18
Where do I Start? Cow-Calf Production continues to become more complicated. We must approach things with an open mind and being willing to learn. From your Cattle and Land Set goals that are reasonable and attainable. Make Projections for 2018!
Where do I Start? Develop A PLAN. WRITE IT DOWN. Make Adjustments As You GO. Evaluate. Each Year You Will Get Better.
Measurements Herd Records are useless, unless you use them We don t want to know stuff, just to know it We have to use them to make improvements
How can we get better? Management Mistakes What s Going Wrong? Do Stuff. Mistakes Will Happen. Learn From Them. Management Successes What s Going Right?
Measurements Is your Ranch Getting Better? Staying the Same? Getting Worse? How do we know???
Measurements Under reporting costs and overstating performance does not serve your needs
Florida Ranch Analysis
Florida Ranch Analysis % of total costs $/beef cow $/day $/beef cow/day Cow-Calf Profitability Breakeven Price or UCOP Value of the Next Unit of Production
Cow-Calf Ranch Analysis Part II: Ranch Expenses - Cash Method Data Input Cells Highlighted in Yellow 125 # of females exposed 10 Car and truck expenses $0.00 23 Pension and profit-sharing plans $0.00 11 Chemicals $435.00 24a Rent or lease: Vehicles, machinery, equipment $850.00 12 Conservation expenses $0.00 24b Rent or lease: Other (land, animals, etc.) $8,000.00 13 Custom hire (machine work) $1,750.00 25 Repairs and maintenance $900.00 14 Depreciation and section 179 expense $16,020.00 26 Seeds and plants $6,000.00 15 Employee benefit programs $0.00 27 Storage and warehousing $250.00 16 Feed $30,946.00 28 Supplies $2,500.00 17 Fertilizers and lime $14,300.00 29 Taxes $350.00 18 Freight and trucking $540.00 30 Utilities $375.00 19 Gasoline, fuel, and oil $5,600.00 31 Veterinary, breeding, and medicine $2,000.00 20 Insurance (other than health) $0.00 32a Other expenses: 21a Interest: Mortgage $16,020.00 32b Other expenses: 21b Interest: Other $2,695.00 32c Other expenses: 22 Labor hired (less employment credits) $7,900.00 32d Other expenses: 33 Total expenses $117,431.00
Feed: 26% Depreciation: 14% Interest, Mortgage: 14% Fertilizer and Lime: 12%
Feed: $248 Depreciation: $128 Interest, Mortgage: $128 Fertilizer and Lime: $114
Feed: $85 Depreciation: $44 Interest, Mortgage: $44 Fertilizer and Lime: $39
$0.80 Ranch Expense Analysis, $/beef cow/day $0.70 $0.60 $0.50 $0.68 Feed: $0.68 Depreciation: $0.35 Interest, Mortgage: $0.35 Fertilizer and Lime: $0.31 $0.40 $0.30 $0.35 $0.31 $0.35 $0.20 $0.10 $0.00 Car and truck expenses $0.04 $0.00 $0.01 $0.00 Chemicals Conservation expenses Custom hire (machine work) $0.00 Employee benefit programs Depreciation and section 179 expense Feed Fertilizers and lime $0.01 Freight and trucking $0.12 Gasoline, fuel, and oil $0.00 Insurance (other than health) Interest: Mortgage $0.06 Interest: Other $0.17 Pension and profit-sharing plans Labor hired (less employment credits) $0.00 $0.02 Rent or lease: Vehicles, machinery, and $0.18 $0.02 Repairs and maintenance Other (land, animals, etc.) $0.13 Seeds and plants $0.01 Storage and warehousing $0.05 Supplies $0.04 $0.01 $0.01 $0.00 $0.00 $0.00 $0.00 Taxes Utilities Veterinary, breeding, and medicine Other expenses: Other expenses: Other expenses: Other expenses:
Estimating Cow-Calf Profitability and Breakeven Price Have you projected your 2018 Cow-Calf Profitability and Breakeven Feeder Calf Price???
Estimating Cow-Calf Profitability and Breakeven Price 7 Things We Need to Know Number of Beef Cows, head Total Cow-Calf Production Costs, $/year Total Cull Bull and Cow Revenue, $/year Weaning Percent, % Weaning Weight, lbs./calf Market Price Received, $/lb. Projected Value of Gain, $/lb.
Estimating Cow-Calf Profitability and Breakeven Price Chris Prevatt and Walt Prevatt Example Your Farm Number of Beef Cows, head Total Cow-Calf Production Costs, $/year Total Cull Bull and Cow Revenue, $/year Calf Production Costs Per Beef Cow, $/head Weaning Percent, % Weaning Weight, lbs./calf Market Price Received, $/lb. Projected Value of Gain, $/lb. 100 100 75,000 $69,700 15,000 $9,500 $600.00 $602.00 85% 85% 525 550 $1.55 $1.43 $0.80 $0.75 Estimated Profit/Loss Per Beef Cow, $/head Breakeven Price or UCOP, $/lb. Total Profit/Loss, $/year $91.69 $66.53 $1.34 $1.29 $9,168.75 $6,652.50
The Impact of Change on your Cow-Calf Operation What impact would a 1% change have on your operation? Calf Production Costs Per Beef Cow, $/head Weaning Percent, % Weaning Weight, lbs./calf Market Price Received, $/lb.
The Impact of Change on your Cow-Calf Operation Chris Prevatt and Walt Prevatt Number of Beef Cows, head Calf Production Costs Per Beef Cow, $/head Weaning Percent, % Weaning Weight, lbs./calf Market Price Received, $/lb. Your Farm Calculations Difference 100 $602.00 $595.98 -$6.02 85% 86% 1% 550 555.50 5.50 $1.43 $1.44 $0.01 Percentage Change (Improvement ) Improved Profitability for the Given % Change -1% Calf Production Costs Per Beef Cow, $/head 1% Weaning Percent, % 1% Weaning Weight, lbs./calf 1% Market Price Received, $/lb. Per Head $6.02 $7.87 $4.13 $6.69 100 head $602.00 $786.50 $412.50 $668.53
Characteristics of Profitable Ranches Economic studies have found tremendous differences between ranches
Characteristics of Profitable Ranches There is not one key success factor that can be managed directly and purely that will consistently lead to profitability in the cow-calf business.
Characteristics of Profitable Ranches Typically, high levels of profits are a function of: Low Levels of Investment Average Levels of Production Low Levels of Annual Costs Above Average Marketing
Summary Identify What Needs To Change Pick One or Two Areas to focus on this year. Choose areas where the greatest progress can be made. Set some goals for where you want to be and make a plan to get there. WRITE IT DOWN
Team Approach to Management Great Teams Work Together Family Extension Agents and Specialists Veterinarian Other Successful Ranchers Banker/Lender Accountant
TAKE HOME ADVICE FROM AN AG ECONOMIST Success in the Cow-Calf Business does not happen by accident. Doing what is easy is not normally the most profitable
the only truly sustainable competitive advantage is the ability to learn and adapt faster than your competition Jack Welch, CEO General Electric (1981-2000) How much are you spending on innovation? Where s your innovation budget?
Crunching the Numbers for Taxes and Analysis Chris Prevatt University of Florida, Range Cattle REC Extension Economist