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Beginners question about profit

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Ewassall

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Please excuse the possible ignorance that this question will reveal, but I'm new to the site, and fairly new to the cattle world.

Generally speaking, when people are talking about a specific "yearly profit" "profit per cattle" or "per head", what exactly is their definition of "profit"?

Is it simply the amount of money received for selling the cattle minus the amount of money they put into the cattle?

Or does it include other bills such as.... gas for the tractor? upkeep of the fences and cross fences? the original purchase price of the tractor? mortgage for the ranch and property itself? yearly taxes? etc...

Again, I apologize if this is an overly ignorant question, and I appreciate your time.

Thanks
 

novatech

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Profit=All expenses should be deducted.
Figure it the same as if you were filling out a profit or loss statement on IRS taxes.
 

cypressfarms

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It is simple in that the only true way to know how your doing is to take:

All income farm related and deduct all expenses farm related. This means diesel for the tractor, paying grandma to work the cows, etc. Anything and everything to do with the farm. Last year I was between $100 and $150 profit per moma cow. Some years a little better, some years a little worse - but you never will get rich - at least I don't know how, unless your reporting profit/loss like AIG.
 
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Ewassall

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Thank you both for your responses.

Cypress: Can I ask you how many head of cattle you run? I am under the impression that (among many other things) this is one of the major differences as far as profit, because it changes how many cattle your spreading the cost out among.

Thanks again to both of you, for your patience in answering my question without making me feel like a fool for not already knowing.
 

grannysoo

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You'll hear a lot of different answers on how much profit can be made. Some will give you a high $$$, while others lose money every year.

I don't think that you can make any profit with "a few" cows. You've got to have enough cows to spread the expenses around between them.

You should do real accounting, where each and every expense is charged to the proper place. Everything from diesel fuel to fence supplies should be charged to them cows.

It's possible to make money, but unless you do Enron accounting, you're not going to get rich doing this.
 

Running Arrow Bill

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From an accounting standpoint:

Overhead Expenses (Direct and Indirect)
Operating Expenses (Day to day expenses for EVERYTHING related to costs to raise cattle)

As a VERY rough rule of thumb (varies with one's operation): Overhead = 50%. Operating = 50%.

Develop a Chart of Accounts and use this as basis to determine costs of one's operation.

Having a very good CPA: Priceless.
 

talldog

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grannysoo":3p4udf0m said:
You'll hear a lot of different answers on how much profit can be made. Some will give you a high $$$, while others lose money every year.

I don't think that you can make any profit with "a few" cows. You've got to have enough cows to spread the expenses around between them.

You should do real accounting, where each and every expense is charged to the proper place. Everything from diesel fuel to fence supplies should be charged to them cows.

It's possible to make money, but unless you do Enron accounting, you're not going to get rich doing this.
I've always said---If cattle aren't a pleasure for you , find some other endeavor. There should be a profit, but that shouldn't be your only objective. Alot of things contribute to your profit or loss ! Good Luck and do your Homework !!!!! :tiphat:
 

Caustic Burno

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When it come to cows no matter if you have one or a hundred the money is made on the front end not the back.
You have no control of the buying market all you can control is input cost last year it cost me a 1.35 per day to upkeep a cow or 492 dollars a year. You have to know your input/upkeep cost or you will never know how much you are making or losing. Forty to fifty percent of you cost is going to be winter feed inputs, this is a major input cost in fertilizer fuels upkeep of equipment etc.associated with hay production even if you purchase the hay you are paying these bills. You can reduce some winter inputs in planting winter pasture's clovers to return N to the soil saving on fertilizers. Winter pastures is another discussion.
 

HerefordSire

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Profit is the amount one is liable for taxes. There are many uses of the word profit on these boards. The largest difference I see in profit between producers, is some of us have land paid off and some of us don't. For example, I owe 15 more years after paying for 5 years. If I were a second generation farmer, my land would likely be paid off thereby increasing my tax liability all other things being equal. The other main difference I see, is there are a few of us that are niche marketers such that they are more likely to dictate the top line, where as most of us are sale barn bid bucklers.
 

xbred

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I believe you when you say you average $492.00 per hd. per yr....but that seems like a lot to me...$250.00-$270.00 a yr. is plenty for my cattle...
I do not include labor...or permanent upgrades to the farm (fence, wells, gates, barns, ect...) I buy hay 3 bales per hd. per yr. ($25.00 for 5x6)..1/2 acre rye grass per pair...($165.00 per acre)....supplemental feed (tubs/pellets)..($35.00 per pair), summer grass fertilizer ($25.00 per pair)...fuel/repair (last year $16.00 per pair)...meds...$30.00 per hd. i graze rye grass Dec. thru mid May...hay and supplement when grass is catching up...creep a few hiefers and reg. bulls....work cows twice a year ..calves 3 times a season..precondition calves ( I don't include Precondition cost in cow cost)
 

Caustic Burno

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xbred":2z3vseuf said:
I believe you when you say you average $492.00 per hd. per yr....but that seems like a lot to me...$250.00-$270.00 a yr. is plenty for my cattle...
I do not include labor...or permanent upgrades to the farm (fence, wells, gates, barns, ect...) I buy hay 3 bales per hd. per yr. ($25.00 for 5x6)..1/2 acre rye grass per pair...($165.00 per acre)....supplemental feed (tubs/pellets)..($35.00 per pair), summer grass fertilizer ($25.00 per pair)...fuel/repair (last year $16.00 per pair)...meds...$30.00 per hd. i graze rye grass Dec. thru mid May...hay and supplement when grass is catching up...creep a few hiefers and reg. bulls....work cows twice a year ..calves 3 times a season..precondition calves ( I don't include Precondition cost in cow cost)

Upgrades have to be charged to the cow if they are for the upkeep of the cow, fences, stock ponds wells etc, these items are not free. Preconditioning has to be charged to the cow as well, your product is the calf every penny spent on the cow or calf reduce the bottom line of the calf until sold. The cow generates no income other than the calf. Just like if you are running x number of cows and have a 90% calf crop the remaining calf crop has to cover the cost of all the cows or you are in the red.
If you are getting 5x6's for 25 bucks you had better kiss the guy who is selling it, I have 30 bucks a roll in 4x5's this year .
 

Ryder

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Ewassall":1egcjwao said:
Please excuse the possible ignorance that this question will reveal, but I'm new to the site, and fairly new to the cattle world.

Generally speaking, when people are talking about a specific "yearly profit" "profit per cattle" or "per head", what exactly is their definition of "profit"?

Is it simply the amount of money received for selling the cattle minus the amount of money they put into the cattle?

Or does it include other bills such as.... gas for the tractor? upkeep of the fences and cross fences? the original purchase price of the tractor? mortgage for the ranch and property itself? yearly taxes? etc...

Again, I apologize if this is an overly ignorant question, and I appreciate your time.

Thanks
You ask a very good question. Responses are also good.
But what the word "profit" means depends on who is doing the talking. What it means to an account is one thing. What a particular cowman means by it may be entirely different. Just depends. So be careful and take everything with a grain, or whole box, of salt. ;-)
 

Alberta farmer

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Besides the feed costs and all related maitenance and production costs you really need to figure a return on your investment in the cow? If you pay $1000 for a cow that $1000 came from somewhere and it does have a cost, whether you borrowed it from the bank or took it out of your savings account.
Also you need to figure depreciation of that cow asset? If you have $1000 in the cow and after ten years she is only worth $600 your asset has depreciated $400 or $40 a year.
If you don't include those costs you are only fooling yourself.
 

Alberta farmer

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Further on this: If you own the land or are still paying for it there is still a cost? Say the acre you own is worth $3000. You borrow the money from the bank at 5%. You have an interest cost of $150/acre.
If you own that $3000 acre what could you get in return if you had the $3000 invested in something else? I would suggest you should be able to find something close to 5%? Therefore it is still costing you $150/acre.
Of course we can justify paying the $150 interest cost per year if land is appreciating at a decent rate...not so pretty if land is depreciating in value!
 

talldog

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Alberta farmer":4529xoa9 said:
Besides the feed costs and all related maitenance and production costs you really need to figure a return on your investment in the cow? If you pay $1000 for a cow that $1000 came from somewhere and it does have a cost, whether you borrowed it from the bank or took it out of your savings account.
Also you need to figure depreciation of that cow asset? If you have $1000 in the cow and after ten years she is only worth $600 your asset has depreciated $400 or $40 a year.
If you don't include those costs you are only fooling yourself.
Well Said !! :tiphat:
 
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Ewassall

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This is all such great feedback. And I find myself understanding and agreeing with what most of you are saying.

I am certainly not getting into cattle for profit by any means, but I am hoping to have enough profit to sustain the family.

Here's a question: what percentage of you have a CPA? Does anyone do it themselves, or is that just foolish?
 

Douglas

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I think all of this is way too complicated for a small time guy starting out. You have accounting profit, tax profit, and economic profit. These are measured differently and have different purposes, all of which are very valid. For me as a part time farmer I look at things a little differently. Basically I consider it a profit if my checking account has more money with the cows than without. For example the property taxes on my farm would be there regardless so I don’t consider that part of my cost but I do use it to reduce my profit for tax purposes. Same with interest on the farm debt. The land payment I am making now was a decision I made 10 years ago, to by the neighbors farm, and has nothing to do with my cattle operation now. Since I will never sell no matter what, that purchase is irrelevant to what I do now. Now if I were going to purchase new land specifically to expand I would include the taxes and interest in my projections on if the new land would be profitable. Once I figure my profit, I compare it to my opportunity cost of renting the land out and see which is the best.

I know this way of looking at things will result in more people raising cattle than would otherwise and will increase the supply of cattle above where it would be if everyone looked at profit the same way. I could also understand if the guys doing this for a living have some resentment against those of us who may be losing money with a more traditional calculation but keep farming. But it is a free country thankfully, for now at least.
 

cypressfarms

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Alberta farmer":276f7hcf said:
Further on this: If you own the land or are still paying for it there is still a cost? Say the acre you own is worth $3000. You borrow the money from the bank at 5%. You have an interest cost of $150/acre.
If you own that $3000 acre what could you get in return if you had the $3000 invested in something else? I would suggest you should be able to find something close to 5%? Therefore it is still costing you $150/acre.
Of course we can justify paying the $150 interest cost per year if land is appreciating at a decent rate...not so pretty if land is depreciating in value!


This is called "opportunity loss" by economists. It is a real loss, if you choose to do something with the land that is less profitable than other alternatives. Everyone's making this much too difficult; profit is plain and simple = subtract your total farm costs (everything!) from the total revenue taken in. If this is negative, uh oh.
 

Brute 23

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Profit should be what ever your income is minus your expences. It will never be the same across the board. Too many people operating differently. SOme inherit land, some consider land a seperate investments from cattle, some paid cash so they have no intrest to factor in... ect.

The modern cattle man needs to be wheelin and dealin to knock out any costs they can.
 

Brandonm22

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Don't worry about opportunity costs, the value of your labor, land depreciation, etc. That stuff is all well and good; but the numbers you need to stay on top of probably with a daily ledger (preferably computerized) are the production costs of your cattle operation. You or your accountant will absolutely need this information (save all the receipts) at the end of the year to do your taxes.

If you have never filled one out before I like to have one page (my spreadsheets let me have multiple pages per file) titled Cash Costs.
A list of cash costs would include:
purchased feed
purchased hay
hired labor (if you paid your cousins $50 to help run up cows record that as "day labor")
diesal used in the cattle operation
fertilizer used on pastures and hay fields (if you bundle the hay and cattle enterprises together)
vaccines
minerals
hauling
ear tags
insecticides,
advertising,
herbicides,
wire and posts (used in fence REPAIRS),
repairs on equipment used in the cattle biz,
repairs on barns and buildings used in the cattle biz,
utilities (hopefully the barn's have their own power meter),
professional associations (like Cattleman's Assn, Angus Assn., Farmer's Federation.....do NOT deduct any contributions to industry PACs),
veterinary costs,
property taxes (do not deduct the house property taxes as a business expense....on a small operation the accountant MAY put all the property taxes on the schedule A rather than the schedule F....you pay him too figure out which way to go with that)
and miscellaneous (everything I forgot).

You also want to fill out form 4562 Part V to calculate the mileage you put on your vehicles as part of your ranch business. Keeping a log in your truck is the only way to be accurate. A large ranch has business and personal vehicles and the two never mix roles; but most of us never get quite that big. A truck that does ONLY ranch business you might want to treat as farm equipment and depreciate and deduct ALL the expenses.

You should have a second page listing all the equipment you have purchased, the farm buildings contructed, the wire and the posts you bought for fence CONSTRUCTION, and all the breeding stock you have purchased. You need the date purchased and the purchase price. When you dispose of it you need to record the disposal date (for livestock that could be the date of death). You need this information for you and your accountant to fill out the rest of Form 4562 and calculate your deducatable depreciation expense which also goes on Schedule F.

Total expenses includes all the cash costs, the depreciation expense, AND the interest expense you pay on money borrowed (for land, operating loans, equipment, and business trucks)
 

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