Calculate Cost to Carry

[MO-Ruminants]

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?

 

[Caustic Burno]

I figure it cost a 1.50 a day to maintain a cow.
My figures usually come in lower.

 

[Stocker Steve]

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.

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...

 

[MO-Ruminants]

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?

 

[Brute 23]

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.

 

[snoopdog]

I like the income per acre calculation the best, it gives more room to be flexible.

 

[Stocker Steve]

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: ***

 

[MO-Ruminants]

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?

 

[Stocker Steve]

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?

 

[HDRider]

I thought carrying costs was all operating expenses, land costs, labor and depreciation expense.

 

[HDRider]

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?

 

[MO-Ruminants]

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)

 

[Stocker Steve]

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

 

[Stocker Steve]

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.

 

[gcreekrch]

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.

 

[HDRider]

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

You need to know your cost to know your profit.

 

[snoopdog]

How do you know profit per acre if you don't know carrying costs?

net income

You need to know your cost to know your profit.

Yes, thats always a given, but operations change, from cow/calf, to stockers, or to hay production etc. So, cost and gross changes.

 

[MO-Ruminants]

I believe my question should have been "What is the preferred way to calculate Pasture Charge"?

I am able to calculate direct and fixed costs, but was unsure of how to assign a per head pasture charge.

If one finds oneself with two cows on 500 acres for a few weeks, it seems unfair to charge them the entire pasture expense for those weeks. It's not their fault that everything else was sold and replacements weren't purchased yet.

Then again, as Gcreek so eloquently stated, it is true that some overthink these things. I believe someone once called it "educated beyond one's intellect"

 

[JParrott]

I want to preface this with "I could be wrong".

Assigned costs per acre / number of head * stocking rate / 365 = daily pasture charge.

As an example - say it's $200 an acre per year in fertilizer, lime, and seed. Divide that $200 into the number of head of cattle you run (say 50) and that gives you a dollar amount of $4. Multiply that times the stocking rate you run (number of acres per cow or pair) - in northern Missouri make it 2.5 - and that equals $10. Divide that by 365 days and it costs about $0.03 a day per cow to live on that pasture.

Your assigned costs to the pasture are up to you to determine and I assume will probably include more than just fertilizer, lime, and seed.

Grandpa and Dad both told me not to be a cattle rancher. They told me to be a grass farmer and harvest it with cattle.

 

[gcreekrch]

I believe my question should have been "What is the preferred way to calculate Pasture Charge"?

I am able to calculate direct and fixed costs, but was unsure of how to assign a per head pasture charge.

If one finds oneself with two cows on 500 acres for a few weeks, it seems unfair to charge them the entire pasture expense for those weeks. It's not their fault that everything else was sold and replacements weren't purchased yet.

Then again, as Gcreek so eloquently stated, it is true that some overthink these things. I believe someone once called it "educated beyond one's intellect"

Easiest way to calculate pasture charge is to ask several who rent pasture how much they would charge you to pasture some cattle. Take an average...………..


It really isn't rocket science!