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Operating Cash Flow in Drought

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

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  1. Operating Cash Flow in Drought By: Paul H Gutierrez Sponsored by: Quay County Cooperative Extension College of Agriculture, Consumer and Environmental Sciences

  2. 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

  3. Contact Information College of Agriculture, Consumer and Environmental Sciences Paul Gutierrez pgutierrez@nmsu.edu (575) 635-0218 NMSU: Drought Page http://aces.nmsu.edu/drought/index.html

  4. 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

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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

  12. 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

  13. 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

  14. Livestock Marketing Information Center Data Source: USDA-NASS

  15. Livestock Marketing Information Center Data Source: USDA-NASS

  16. Livestock Marketing Information Center Data Source: USDA-NASS

  17. Livestock Marketing Information Center Data Source: USDA-AMS & USDA-NASS, Compiled & Analysis by LMIC

  18. Livestock Marketing Information Center Data Source: USDA-ERS & USDA-FAS, Compiled & Analysis by LMIC

  19. Livestock Marketing Information Center Data Source: USDA-ERS & USDA-FAS, Compiled & Analysis by LMIC

  20. Livestock Marketing Information Center Data Source: USDA-ERS & USDA-FAS, Compiled & Analysis by LMIC

  21. On the other side of the profit equation—COST of Production • Market Fundamentals Supply and Demand College of Agriculture and Home Economics

  22. Livestock Marketing Information Center Data Source: USDA-NASS, Compiled & Forecasts by LMIC

  23. Livestock Marketing Information Center Data Source: USDA-NASS, Compiled & Forecasts by LMIC

  24. Livestock Marketing Information Center Data Source: USDA-NASS, Compiled & Forecasts by LMIC

  25. Livestock Marketing Information Center Data Source: USDA-ERS, Compiled by LMIC

  26. Livestock Marketing Information Center Data Source: USDA-NASS, Compiled & Forecasts by LMIC

  27. Livestock Marketing Information Center Data Source: USDA-NASS, Compiled & Forecasts by LMIC

  28. Livestock Marketing Information Center Data Source: USDA-NASS, Compiled & Analysis by LMIC

  29. Livestock Marketing Information Center Data Source: USDA-NASS, Compiled & Analysis by LMIC

  30. Livestock Marketing Information Center Data Source: USDA-NASS, Compiled & Analysis by LMIC

  31. Livestock Marketing Information Center Data Source: USDA-AMS

  32. Livestock Marketing Information Center Data Source: USDA-AMS, Compiled & Analysis by LMIC

  33. Livestock Marketing Information Center Data Source: USDA-AMS, Compiled & Analysis by LMIC

  34. Livestock Marketing Information Center Data Source: USDA-AMS, Compiled & Analysis by LMIC

  35. Livestock Marketing Information Center Data Source: USDA-AMS

  36. Livestock Marketing Information Center Data Source: USDA-AMS

  37. 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

  38. 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

  39. 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

  40. 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

  41. 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

  42. Lets consider some “what if” Drought Sales of Livestock –25% Early Weaning College of Agriculture, Consumer and Environmental Sciences

  43. 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

  44. 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

  45. Contact Information College of Agriculture, Consumer and Environmental Sciences Paul Gutierrez pgutierrez@nmsu.edu (575) 635-0218 NMSU: Drought Page http://aces.nmsu.edu/drought/index.html

  46. Now What? College of Agriculture, Consumer and Environmental Sciences

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