Calculate Cost to Carry

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Calculate Cost to Carry

Post by MO-Ruminants » Mon Apr 29, 2019 10:24 am

What is the preferred way of calculating "Cost to Carry"?

Perhaps my terminology is wrong, but by "Cost to Carry" I am differentiating from "Cow Maintenance Cost".

Example: (don't get too caught up in the numbers, example only)

Joe maintains a herd of 100 cows. Annual direct costs and fixed costs are $50,000. His "Cow Maintenance Cost" is $500.

Bob controls 500 acres. He has just sold one hundred 500# heifers, and retained their steer mates. Current markets tell him bred cows are a buy. He is considering buying bred cows to utilize his forage and selling the pairs when forage is gone. To do a proper cost analysis on the bred cows, and to see if another class might be a better buy, he needs to know his "Cost to Carry" the animals.


Must Bob's "Cost to Carry" always be adjusted to account for the current number and class of animals on his place, or is there another method he can use to establish a flat "Cost to Carry" to be used in his marketing decisions?



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Re: Calculate Cost to Carry

Post by Caustic Burno » Mon Apr 29, 2019 11:07 am

I figure it cost a 1.50 a day to maintain a cow.
My figures usually come in lower.
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Re: Calculate Cost to Carry

Post by Stocker Steve » Mon Apr 29, 2019 1:10 pm

Yes
No

I prefer to calculate a cost per day for grazing on standing forage, and for wintering on stored feed, for figurin on cows. They are quite different numbers - - and having both allows you to do some what if estimates on changing stocking rates or changing length of grazing season or ... So for example if you add too many cows and then have a shorter grazing season and thus have to buy more hay - - your cost to carry has gone up. :o

If you start comparing different classes of cattle - - I think you need to access how many acres have the appropriate forage quality first, then compare income per acre. So for example you could end up comparing the per acre income from 1 pair vs. 1.5 bred heifers vs. 2.0 stockers...
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Re: Calculate Cost to Carry

Post by MO-Ruminants » Mon Apr 29, 2019 2:03 pm

I prefer to calculate a cost per day for grazing on standing forage and for wintering on stored feed


Very helpful, thanks. Would you elaborate on your method for calculating carrying cost per day for grazing on standing forage?

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Re: Calculate Cost to Carry

Post by Brute 23 » Mon Apr 29, 2019 2:43 pm

Depends on what you are calculating and what you want to see. Personally I like to see the costs allocated out so I can apply it as needed for the situation.
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Re: Calculate Cost to Carry

Post by snoopdog » Mon Apr 29, 2019 7:28 pm

I like the income per acre calculation the best, it gives more room to be flexible.
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Re: Calculate Cost to Carry

Post by Stocker Steve » Mon Apr 29, 2019 8:50 pm

MO-Ruminants Would you elaborate on your method for calculating carrying cost per day for grazing on standing forage? [/quote wrote:
Whether you own or rent - - you should be valuing the pasture based on the local market price. There are many ways to get to a value number:
1) Local rent price per acre per season divided by cow days per acre (very cheap in NE MN till you have to factor for wolf kills...)
2) Value of standing hay times 25 to 35% divided by cow days per acre (could be a big cost number for decent hay ground)
3) $/month/cow divided by 30 days
4)

Then you should add in mineral and travel and trucking and labor and insurance and operating interest and marketing and breeding fees and vet supplies and death loss and

*** I asked a cost to carry guru why he was not popular in my area. He shared that his methods did not work well here because the forage costs were high, so a BTO like me should consider buying cattle and then shipping them to an out of state lease. :cowboy: ***
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Re: Calculate Cost to Carry

Post by MO-Ruminants » Tue Apr 30, 2019 9:31 am

Whether you own or rent - - you should be valuing the pasture based on the local market price. There are many ways to get to a value number:


Admittedly, I may not even fully understand my own question...but your answer feels like it is close to the solution.

Bob is back, and he has a new quandary. His current inventory is fifty 600# steers. Current markets are undervaluing bred heifers. It is June, and Bob has grass. Bob also has cash, and is led to make a move. For the sake of this example, let's assume Bob would like to purchase the bred heifers, calve them and sell the pairs. He will have standing forage throughout, growing or stockpiled.

Suppose the prevailing lease price in Bob's county is $50, and that he expects 100 cow days/acre from his land.

Am I reading that Bob can now assign a pasture charge of $.50/head ($50 / 100) to the bred heifer enterprise?

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Re: Calculate Cost to Carry

Post by Stocker Steve » Tue Apr 30, 2019 9:48 am

Sort of. Still have to also add all those darn costs like mineral and ... to the 50 cents per day for grass.

So what is Bob' total cost to carry?
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Re: Calculate Cost to Carry

Post by HDRider » Tue Apr 30, 2019 11:02 am

I thought carrying costs was all operating expenses, land costs, labor and depreciation expense.
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Dun said, "You gotta be flexible. Do whatever you have to do for the best results within your limitations."

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Re: Calculate Cost to Carry

Post by HDRider » Tue Apr 30, 2019 11:03 am

snoopdog wrote:
Mon Apr 29, 2019 7:28 pm
I like the income per acre calculation the best, it gives more room to be flexible.
How do you know profit per acre if you don't know carrying costs?
bball wrote: "The juice wasn't worth the squeeze."
Dun said, "You gotta be flexible. Do whatever you have to do for the best results within your limitations."

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Re: Calculate Cost to Carry

Post by MO-Ruminants » Tue Apr 30, 2019 12:13 pm

Sort of. Still have to also add all those darn costs like mineral and ... to the 50 cents per day for grass.

So what is Bob' total cost to carry?
Bob will be moving the heifers to fresh forage daily. The heifers will cost him $1000. He will be buying at the local sale barn and selling them to a commercial cowman neighbor. He expects to own the animals 120 days.

Bob's cost to carry the animals may look like this: (sample numbers only, little thought given)

Pasture Charge $.50
Labor/management - $.5
Mineral/Protein/Supplement - $1
Depreciation on equipment & facilities - $0 This gets applied to all animals, not just the heifers. Bob's not sure how to include this in the analysis, so he doesn't.
Animal depreciation - $0
Interest - $.14 Bob will use cash, but wants to be fair in his analysis. ($1000 x 5% / 365)
Death loss - $.17 ($1000x2%/120)
Vet - $.10
Marketing/Transportation $.15
Fuel & misc. $.10

It costs Bob $2.66/day to carry the bred heifers. ($319.20 for 120 days)

Nobody really knows what the value of the heifer pairs will be in 120 days, so Bob does the only thing he can, and checks this week's price on heifer pairs. They are selling on average for $1350. After paying himself for his labor and management, Bob can expect a $30.80 profit per head. ($1350-$1319.20=$30.80) (3% ROI)

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Re: Calculate Cost to Carry

Post by Stocker Steve » Tue Apr 30, 2019 1:30 pm

HDRider wrote:
Tue Apr 30, 2019 11:03 am
snoopdog wrote:
Mon Apr 29, 2019 7:28 pm
I like the income per acre calculation the best, it gives more room to be flexible.
How do you know profit per acre if you don't know carrying costs?
net income
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Re: Calculate Cost to Carry

Post by Stocker Steve » Tue Apr 30, 2019 1:36 pm

MO-Ruminants (3% ROI) [/quote wrote:
ROI is hard in production ag. Too many overpriced assets. The RMC stars don't own as much as most. They lease cows and or land and try to buy their hay.
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Re: Calculate Cost to Carry

Post by gcreekrch » Tue Apr 30, 2019 3:07 pm

It seems some overthink things that are inconsequencial.

If you are spending money on infrastructure, your cows are in good shape, your own cupboards are full and you need a creative accountant to keep you from paying taxes, you are likely showing a profit.
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