Operating cash flow in drought
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Operating Cash Flow in Drought. By: Paul H Gutierrez Sponsored by: Quay County Cooperative Extension. Objectives today. Frame the challenge/opportunity Some Basics on Cow-Calf Profit Analysis Market “ lookout ” 101 Cash Flow Management during a drought: some considerations.

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Operating cash flow in drought

Operating Cash Flow in Drought

By: Paul H Gutierrez

Sponsored by: Quay County Cooperative Extension

College of Agriculture, Consumer and Environmental Sciences


Objectives today

Objectives today

Frame the challenge/opportunity

Some Basics on Cow-Calf Profit Analysis

Market “lookout” 101

Cash Flow Management during a drought: some considerations

College of Agriculture, Consumer and Environmental Sciences


Contact information

Contact Information

College of Agriculture, Consumer and Environmental Sciences

Paul Gutierrez

[email protected]

(575) 635-0218

NMSU: Drought Page

http://aces.nmsu.edu/drought/index.html


Framing the challenge the headlines

Framing the Challenge-The Headlines

“Drought accelerates cattle liquidation in southern plains”

“Cattle prices much lower as heat, drought continue”

“Hay, grass shortage could be widespread”

U.S. cattle herd fell to record low amid Plains drought, pricy corn”

College of Agriculture, Consumer and Environmental Sciences


Framing the challenge your challenge

Framing the Challenge-Your Challenge

Job #1. Maintain appropriate stocking rates and levels of forage utilization to avoid overstocking.

Maintain acceptable reproductive performance of the cow herd.

Maintain and manage the financial health of the business

College of Agriculture, Consumer and Environmental Sciences


Some genera recommendations

Some Genera Recommendations

  • Ongoing—evaluate range conditions

  • Ongoing—evaluate cow condition

  • Reduce forage needs/demands

    • Sell cows, early wean, lease pasture, supplement additional energy

  • Use water to help distribute cow

  • Cull—open cow, old cows, 2-year old producing cows, 3- year old producing cows, replacement heifers

College of Agriculture and Home Economics


Financial management and your drought management strategy

Financial Management and your Drought Management Strategy

  • It all starts with your Chart of Accounts, AKA Record Keeping

    • tax reporting;

    • preparing financial statements; and

    • completing enterprise analysis for drought management purposes.

College of Agriculture, Consumer and Environmental Sciences


Remember for record keeping purposes transaction occur in

Remember, for record keeping purposes, transaction occur in:

  • Three (3) Categories

    • operating revenue and expenses;

    • financing transactions involving borrowing or repayment of debt; and

    • capital asset purchases and sales.

College of Agriculture, Consumer and Environmental Sciences


Financial statement income statement

Financial Statement: Income Statement

Income Statement (think profitability)

Retained earnings = Net Income from operation – Capital gain/loss – Taxes – Family Living Withdrawals

College of Agriculture, Consumer and Environmental Sciences


Financial statements balance sheet

Financial Statements: Balance Sheet

  • Balance Sheet (think liquidity and solvency)

    The balance sheet is derived from the fundamental accounting equation: 

    Assets = Liabilities + Owner Equity, or 

    Owner Equity (Net Worth) = Assets – Liabilities

College of Agriculture, Consumer and Environmental Sciences


Financial statement cash flow drought management statement

Financial Statement: Cash Flow(Drought Management Statement)

Cash Flow Statement (think repayment capacity)

Cash flow statements can also serve as a means of determining credit needs and timing of repayment, provides a source of cash receipts reported in the income statement

College of Agriculture, Consumer and Environmental Sciences


The cow calf profit analysis

The Cow-Calf Profit Analysis

Profit or loss = Revenue – Expenses, or

Profit = (price x production) – expenses

Where:

  • Price = f(supply and demand)

  • Production = f(no. and weights)

  • Expenses = f(supply and demand-direct, indirect and interest exp.)

College of Agriculture, Consumer and Environmental Sciences


Some recent stats

Some Recent Stats

July 1, all cattle inventory 99.69 mil, down 1.4 percent

In OK, last two weeks-56% increase feeder cattle sales, 205% increase cow & bull sales

July 17, 32% of US pastures rated poor, TX no 1 cattle state, rated 94% poor to very poor

Good News! Export demand up 34%

College of Agriculture and Home Economics


Operating cash flow in drought

Livestock Marketing Information Center

Data Source: USDA-NASS


Operating cash flow in drought

Livestock Marketing Information Center

Data Source: USDA-NASS


Operating cash flow in drought

Livestock Marketing Information Center

Data Source: USDA-NASS


Operating cash flow in drought

Livestock Marketing Information Center

Data Source: USDA-AMS & USDA-NASS, Compiled & Analysis by LMIC


Operating cash flow in drought

Livestock Marketing Information Center

Data Source: USDA-ERS & USDA-FAS, Compiled & Analysis by LMIC


Operating cash flow in drought

Livestock Marketing Information Center

Data Source: USDA-ERS & USDA-FAS, Compiled & Analysis by LMIC


Operating cash flow in drought

Livestock Marketing Information Center

Data Source: USDA-ERS & USDA-FAS, Compiled & Analysis by LMIC


On the other side of the profit equation cost of production

On the other side of the profit equation—COST of Production

  • Market Fundamentals

    Supply and Demand

College of Agriculture and Home Economics


Operating cash flow in drought

Livestock Marketing Information Center

Data Source: USDA-NASS, Compiled & Forecasts by LMIC


Operating cash flow in drought

Livestock Marketing Information Center

Data Source: USDA-NASS, Compiled & Forecasts by LMIC


Operating cash flow in drought

Livestock Marketing Information Center

Data Source: USDA-NASS, Compiled & Forecasts by LMIC


Operating cash flow in drought

Livestock Marketing Information Center

Data Source: USDA-ERS, Compiled by LMIC


Operating cash flow in drought

Livestock Marketing Information Center

Data Source: USDA-NASS, Compiled & Forecasts by LMIC


Operating cash flow in drought

Livestock Marketing Information Center

Data Source: USDA-NASS, Compiled & Forecasts by LMIC


Operating cash flow in drought

Livestock Marketing Information Center

Data Source: USDA-NASS, Compiled & Analysis by LMIC


Operating cash flow in drought

Livestock Marketing Information Center

Data Source: USDA-NASS, Compiled & Analysis by LMIC


Operating cash flow in drought

Livestock Marketing Information Center

Data Source: USDA-NASS, Compiled & Analysis by LMIC


Operating cash flow in drought

Livestock Marketing Information Center

Data Source: USDA-AMS


Operating cash flow in drought

Livestock Marketing Information Center

Data Source: USDA-AMS, Compiled & Analysis by LMIC


Operating cash flow in drought

Livestock Marketing Information Center

Data Source: USDA-AMS, Compiled & Analysis by LMIC


Operating cash flow in drought

Livestock Marketing Information Center

Data Source: USDA-AMS, Compiled & Analysis by LMIC


Operating cash flow in drought

Livestock Marketing Information Center

Data Source: USDA-AMS


Operating cash flow in drought

Livestock Marketing Information Center

Data Source: USDA-AMS


Summary

Summary

  • Strong fundamentals:

    • Cow inventory down and decreasing

    • Historically small calf crop

    • No signs/opportunity of “real” herd build up

    • Feedlot placements/marketing strong

    • Export markets strong

College of Agriculture and Home Economics


Some other strong fundamental

Some “other” strong fundamental

Pasture conditions are poor to very poor

Feed stuff prices at record highs

Force sales of livestock pressuring market

Supplemental pasture and forage options regionally limited

Cost of production, in general, continue to increase

College of Agriculture and Home Economics


Unit cost of production what can you do to make a difference

Unit Cost of Production—What can you do to make a difference?

Profit = (Price x Production) – Expenses

Price or Unit Cost of Prod. = (Expenses)(Production)

Ex. $500/500 lbs = $1.00/lb

College of Agriculture, Consumer and Environmental Sciences


Profit per cow formula

Profit per Cow Formula

  • Profit or loss = (((%calf crop x weaning wt.) x price) + ((%cull lvstk sales x wt.) x price))-expenses/cow

  • For example:

    • 85% weaned calf crop (CC),

    • 500-lb (WW), @ $1.35/lb. (PCC).

    • 14% (CL), 1150-lb (CW), @$.65/lb. (PCL).

    • Total annual exp $525 per cow (ACE).

College of Agriculture, Consumer and Environmental Sciences


Plugging in the numbers

Plugging in the numbers

Profit or loss = (((%cc 85% x WW 500lbs) x PCC $1.35/lb.) + ((CL 14% x CW 1150lb) x PCL $.65/lb.) – ACE $525

= ((425lbs x $1.35/lb.) + (161lbs x $.65/lb.) - $525

= ($573.75 + $104.65) - $525

=$678.40 - $525

= $153.40/cow

College of Agriculture, Consumer and Environmental Sciences


Lets consider some what if

Lets consider some “what if”

Drought Sales of Livestock –25%

Early Weaning

College of Agriculture, Consumer and Environmental Sciences


Consider these scenarios

Consider these Scenarios

Scenario 1: Standing forage is inadequate and the decision is too traditional wean calves in late October—cows nutrient requirement not met

Scenario 2: Standing forage is inadequate and the decision is too traditional wean calves in late October—cows nutrient requirement met

Scenario 3: Standing forage is inadequate and the decision is too early wean calves July 30th and to sell as early weaned calves—cows nutrient requirement met

Scenario 4: Standing forage is inadequate and the decision is too early wean calves July 15th and to place calves in feedlot for approximately 112 days—market late October.

College of Agriculture and Home Economics


Tax options for drought sales

Tax options for Drought Sales

Code Section 451(e): Elect to postpone reporting taxable gain on the additional sales of any livestock for one year; or

Code Section 1033(e): Elect to postpone, and all together avoid, paying taxes on the gain from the sale of breeding stock if replaced within a specified time frame.

College of Agriculture and Home Economics


Contact information1

Contact Information

College of Agriculture, Consumer and Environmental Sciences

Paul Gutierrez

[email protected]

(575) 635-0218

NMSU: Drought Page

http://aces.nmsu.edu/drought/index.html


Now what

Now What?

College of Agriculture, Consumer and Environmental Sciences


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