Modern cow/calf operations are highly complex and the addition of a retained ownership phase after weaning further complicates analysis of the economics of multiple enterprises. With constantly changing input and commodity prices, evaluating “what if” propositions may need to be done frequently. Financial analysis to support decision-making requires information from both cash flow and profitability angles. While evaluating the economic effect that a change in even one area (marketing, feeding, stocking density, labor changes, etc.) has on the total operation could be extremely tedious and time consuming. Spreadsheet programs make analysis both simple and quick. RanchCalc is a spreadsheet designed at Oklahoma State University to assist the beef manager in planning and analysis.1 RanchCalc can be downloaded from http://agecon.okstate.edu/faculty/publications/3397.xlsm.
RanchCalc can be used to enter cow/calf and stocker information for an individual beef cattle operation. The program calculates net operating returns and annual cash flow for the ranch under different production-marketing alternatives. It is designed to assist in analyzing the economic dimensions of decisions and does not include “checks” on the reasonableness of production decisions such as the feed requirements. More detailed information on production, marketing and risk management in cow/calf operations is available in the Oklahoma Cooperative Extension Services’ circular E-913 Oklahoma Beef Cattle Manual (Lalman and Doye). RanchCalc example data are based on an Oklahoma spring-calving cow/calf operation with cows maintained on native range—the land base is a combination of rented and owned acres. Steer calves are retained after weaning for grazing on wheat pasture. Some heifer calves are saved for replacement heifers and others are sold at weaning. Yearling heifers use both native range and wheat pasture. This example will demonstrate the use of multiple types of pasture in a retained ownership operation.
Entering Data Into RanchCalc
This software is programmed in MS Excel 2007 or later versions of Excel. Substantial loss of functionality, run-time errors and calculation errors will likely occur if it is run in MS Excel 2003 or earlier version of Excel. Therefore, its use in MS Excel 2003 is not recommended. For the program to function properly, the user must allow the macro features of MS Excel. In MS Excel 2007 and later versions, the user is prompted with a warning just below the button bar that macros have been disabled. Click on the warning and enable macros.
The spreadsheet contains several worksheets for data entry. Worksheet tabs are: cows, heifers & bulls; calves; pastures; feed, vet & breeding cost; and overhead & interest. Data are entered by moving the cursor to a cell and entering the appropriate information. Values generated by the program are protected, so they cannot be accidentally overwritten and the equations erased. Cells for data entry will appear in yellow on the screen. Though the default data is only an example, if you want to preserve it, save a copy of the file on your computer’s hard drive before you begin customizing it for your operation. Figures are included in this article to illustrate screens in the spreadsheet.
Cows, Heifers & Bulls
In this worksheet, information is summarized in four tables: cow, heifer and bull inventory; breeding stock purchases; cull sales; and inventory (Figure 1). In cow, heifer, and bull inventory, the cow herd is represented by three classes: mature cows, 1st calf heifers, and yearling heifers—as these are the logical sorts to be made for optimum nutritional management. An additional column allows for the entry of raised and purchased bulls. Producers who raise replacement females or bulls enter the cost of raising females or bulls to the selected stage as its base value. For instance, a raised yearling heifer might have a base value of $850, a raised 1st calf heifer might have a base value of $1,000 and a raised cow might have a base value of $1,125. When the user enters the number of purchased head, a prompt to enter the purchase price per head and percent financed appear. Other loan terms—interest rate, loan terms, years remaining on the note, and payment frequency—are specified further down in the table.
Death loss is the percent of deaths expected for that class of livestock. Enter the weaning percentage expected for mature cows and 1st calf heifers separately. The number of calves weaned is calculated using the weaning percent with the number of cows and heifers in the herd (cow and heifer death losses are assumed to occur before calving). On average, a calf crop is expected to be one-half females and one-half males. The user specifies the number of steers weaned, and heifers weaned is the calculated remainder. The user enters the number of heifers retained for the breeding herd as this impacts the calf sales figures and ultimately the cash flow summary figures. A pop-up form requires the user to divide the heifers produced into three groups: heifers sold at weaning, heifers retained as stockers and heifers retained as replacements.
Initial principal is calculated based on the purchase price and percent financed entered at the top of the table. The loan terms—interest rate, loan term, years remaining on loan, payment frequency—are used to calculate total annual payments; total principal, current year; and total interest, current year. These numbers then flow automatically to the appropriate sections on the results worksheet.
In the breeding stock purchases table, the number of head and purchase prices for mature cows, 1st calf heifers, yearling heifers and bulls are entered for the year being planned or analyzed.
In the cull sales table, the number of head sold, average weight per head in pounds, average cost basis/base value and sale price ($/cwt) are specified for three classes of cattle: cull cows and 1st calf heifers, cull yearling heifers and cull bulls. The average cost basis/base value is purchase price minus accumulated depreciation for purchased breeding stock; for raised breeding stock, it is the base value of the animal (the cost of raising the animal to that stage, e.g. mature cow).2 Average cost basis is important because it impacts the net income calculation and profitability figures (net income is sales price less the average cost basis or base value). For cash flow calculations, the dollar value of sales per head, as well as the total for each class of cattle is calculated.
The inventory table summarizes changes in number of head in the breeding herd by class of cattle for the analysis period—listing the beginning inventory, purchased & retained, sales, death loss, net transfers, ending inventory and the change in number of head for the time period. Death loss is the beginning inventory multiplied by the percentage death loss. Net transfers shows the number of females that mature to the next stage. For example, yearling heifer transfers is the sum of the heifers retained from mature cows and first calf heifers minus the beginning inventory of yearling heifers that age to become 1st calf heifers. The final line in the table allows the user to track the ranch’s bull inventory.
It is anticipated that producers may retain their own calves as stockers, purchase stockers, or have a combination of retained and purchased stockers. The calves worksheet includes two tables: stocker inventory and calf and stocker sales (Figure 2). If stockers are kept, the number of head, percent financed, initial weight, initial price (purchase price for stockers, market price at weaning for retained stockers) is entered along with estimated average daily gain (ADG), death loss, and days owned. Producers retaining their own calves estimate average weight and price per hundredweight for calves at weaning and sell them to their stocker enterprise to permit economic analysis of this production activity. This can be thought of as an internal transfer between ranch enterprises. The sale price is required for the cow/calf enterprise and the purchase price is required for the stocker enterprise.
Two types of purchased stockers are allowed. The two types of stockers can be used to represent two qualities, two genders, two weights or two prices for stockers. Entering a zero in the initial inventory line will eliminate a stocker type in the analysis, permitting quick evaluation of strategies with and without one or more types. For example, entering a zero for stocker 1 or stocker 2 (these labels can be changed) will remove the type from all later cash flow and profitability calculations. Using the specified percent financed and interest rate, loan values are calculated assuming the loan will be repaid when calves are sold.
Calf and stocker sales are calculated once the weight is specified for calves sold at weaning and the sale prices are specified for all classes of calves. The number of stocker steers and heifers sold and their sale weights are calculated using the number of stockers, expected death loss, daily gain and length of ownership. Heifer calves retained as breeding replacements are not included in sales values but are included in income calculations.
The pastures worksheet includes six tables: owned pasture information, rented pasture information, two pasture allocation tables (optional), pasture cash expense and pasture rent and overhead allocation (Figure 3). In addition to Native, Bermuda and Wheat pasture, users can specify two additional types of owned and/or rented pasture land. For owned pasture land, enter the label (for example, Old World Bluestem or Fescue) in the top row of owned pasture information, followed by the number of acres, percent financed, purchase price and taxes per acre. The amount financed per acre and original loan principal will be calculated. Payments per year on the land loan are calculated using the interest rate, payment frequency, loan term and years remaining on loan specified by the user.
In rented pasture information, enter the number of acres and the annual rent per acre or be sure that acres = 0 for all types of pasture where no land is rented.
In pasture allocation–head grazed on each pasture type, enter stocking rate information for all classes of cattle and pasture used. Cattle can use a mixture of the five pastures. The number of cattle of each class should be entered for each pasture type. Be sure all cattle are allocated to a pasture by studying the head remaining to allocate row at the bottom of this table. Note that if a specific group of cattle is rotated through several types of pastures the head remaining to allocate row may show a negative number. For example, if 100 retained stockers graze out wheat pasture and later are put on summer native pasture, you would enter 100 head in both the Native and Wheat row. Land requirements for the bulls are assumed to be included in the land provided for the cow herd.
In pasture allocation–acres per head, the total of all rented and owned land by pasture type is shown at the left side of the table. In the body of the table, stocking rates (acres per head) are specified for the different types of cattle on alternative forages. If the excess/deficit acres at the right side of this table are high, cattle numbers, stocking rates or acreage may need to be adjusted. Be sure to delete any stocking rate numbers remaining from previous analysis for classes of animal or pasture that are no longer relevant.
Applicable cash costs per acre for fertilizer and lime, tillage, seeding, weed control, and other are entered in the pasture cash expense table under each pasture type. Total cash cost per acre and cost per farm are calculated.
Feed, Vet and Breeding Costs
Two tables are included in this worksheet: hay and feed costs per head and veterinary and miscellaneous expenses (Figure 4). In hay and feed costs per head, the user can enter up to eight feeds or hays. In the example, cubes and hay are included along with salt/minerals. The labels for types of feed can be changed, as can the cost per unit, feeding rate in pounds per head per day and the total number of days fed. The total cost of each feed type for each class of cattle is calculated. If hay is purchased, the delivered price should be entered; if hay is raised, enter the estimated total cost of the home-grown hay. (Don’t double count expenses if hay is taken off pasture where pasture expenses are included in the earlier table.)
Cash costs per head for pest control, vet costs, hired hauling, marketing, ad valorem taxes and other expenses are entered in veterinary and miscellaneous expense. Note: costs such as hauling and marketing are affected by retention plans. Total cash cost per head and for the operation are calculated.
Other sources of revenue from the ranching operation may be specified in this worksheet as shown in the table in Figure 5. Several examples are shown in the table. Since a proportion cannot be allocated to the cow herd or stocker enterprise, the total revenue represents an amount devoted to the entire ranch.
Overhead and Interest
Four tables are included in this worksheet for data entry: machinery, equipment and facilities; labor and overhead allocation; operating note information; and other overhead costs (Figure 6). The terms of financing plus annual ownership and maintenance costs for vehicles, equipment, facilities, fences and buildings are entered in the first table. A total value for machinery and equipment plus a total value for working facilities, fences, buildings can be specified. Annual payments on outstanding loans are calculated using the interest rates and loan terms specified. Depreciation costs are calculated based on the difference between purchase price and salvage value, divided by years of useful life. The opportunity cost of capital (the cost of having money invested in these assets as opposed to investing it elsewhere) is the interest rate times average investment, where average investment is calculated using the average of purchase price and salvage value.
The cost of hired labor and value of family and own labor along with any remaining miscellaneous expenses for the entire ranch for the year are entered in the labor and overhead allocation table. Costs could include legal fees, insurance, consulting, business-related travel, seminars, computer software, etc. Also, enter the percent of time that machinery and equipment and working facilities, fences, buildings are used by the cow herd. Note: the total percent may be less than 100 percent if there are other enterprises (for instance, crops or other livestock) to which a portion of the expenses should be allocated.
Operating note information is partitioned between the cow herd and stockers by entering the percent of operating capital borrowed for each class of cattle and the average number of months the capital is borrowed. Interest rates for each category of loan may be entered.
The other overhead cost table facilitates calculation of fixed costs for other capital assets, namely breeding livestock and land. Depreciation costs for purchased mature cows are calculated using the difference between purchase price and salvage value, divided by years of useful life. No depreciation is calculated for raised livestock as their ownership costs are reflected in operating costs and, for the same reason, depreciation is not calculated for younger livestock purchased.
Opportunity cost on investment is the dollar amount of foregone returns from not investing elsewhere and is calculated by averaging investment over time and multiplying it by an interest rate. The average investment over time is equal to the purchase price plus salvage value divided by two. Interest on average investment is entered as a percent and represents the rate of return the producer might have received if the funds had been invested elsewhere.
Results are summarized in three tables: cow herd cash flow and profitability analysis, stocker cash flow and profitability analysis and whole farm cashflow and profitability analysis (Figure 7). The cash flow column highlights cash sources and uses, including principal and interest payments on any loans included in the analysis.
In the profitability column, cash and non-cash income and expenses are included, while principal payments are excluded. Noncash income includes the value of raised heifers retained for the breeding herd, plus the increase in value of females retained as they mature to the cow stage. Noncash costs include depreciation, death losses and the opportunity cost associated with funds invested in fixed assets including breeding livestock, machinery, equipment, vehicles, buildings, facilities and land. The total of cash and noncash expenses are subtracted from total receipts to estimate annual returns to owned capital, management and risk. Note: interest on term debt (borrowed money) is included in opportunity cost on investment.
Spreadsheets offer tremendous flexibility for users, allowing quick analysis of complex management options. RanchCalc can be used to evaluate economic aspects of the cow/calf enterprise, stocker enterprise or a combination of both. The spreadsheet is designed to capture and summarize key information impacting both cash flow and profitability. Once the base case is defined, a number of alternative scenarios can be easily assessed. Users may explore alternative production assumptions, price assumptions, lending conditions, etc. and see how results change for each ranch enterprise.
Lalman, D. and D. Doye “Oklahoma Beef Cattle Manual.” 7th edition. Oklahoma State University. September 2015.
OSU Enterprise Budget software. agecon.okstate.edu/budgets.
1 Software and fact sheet originally developed by Keith Lusby, former OSU Beef Cattle Specialist, and Odell Walker, OSU Agricultural Economics professor emeritus. Enterprise budget software may also be of interest to users (see agecon.okstate.edu/budgets). The enterprise budgets provide more in-depth analysis of individual components of production: cow-calf, stocker, perennial forage, hay, etc.
2 For more information, see AGEC-323, Valuation of Raised Breeding Livestock, http://factsheets.okstate.edu/documents/agec-323-valuation-of-raised-breeding-livestock/
Extension Farm Management Specialist
Eric A. DeVuyst
Extension Farm Management Specialist
Extension Beef Cattle Specialist