Economics | Forage | Horticulture | Livestock | Soils | Wildlife

How do I figure the actual cost per pound of nitrogen fertilizer?
Assuming the fertilizer value is based solely on nitrogen (N), take the dollars per ton and divide by the pounds of N in that ton. Fertilizer analysis is given on a percent basis so 82-0-0 (anhydrous ammonia) has 1640 lbs of N per ton, 46-0-0 (urea) has 920 lbs of N per ton, 34-0-0 (ammonium nitrate) has 680 lbs N per ton, 32-0-0 (UAN liquid) has 640 lbs per ton, etc.

For example:
• $500 per ton 82-0-0 is 500 divided by 1640, which equals $0.30 per pound of actual N;
• $460 per ton 46-0-0 is 460 divided by 920, which equals $0.50 per pound of actual N;
• $440 per ton 34-0-0 is 440 divided by 680, which equals $0.64 per pound of actual N; and
• $300 per ton 32-0-0 is 300 divided by 640, which equals $0.46.

What information do I need to keep?
I would never encourage an individual to keep records just for the sake of having records. I would recommend a person keep records on information that creates the opportunity to make sound management decisions. Naturally, this includes records of all income, expenses, capital sales and capital purchases. How can a person improve the efficiency of their operation if they do not know how much they are spending and for what items/areas the money is being spent? Also, a person cannot calculate a profit margin for a particular enterprise if they don't keep this type of information (e.g.; did I make money on this load of steers?). Other pieces of information that are useful in making future management decisions are production records. Knowing which cows have calves each year, or that a particular field typically produces 20 bushels of wheat can be extremely useful when evaluating options that will yield the most money.
For example, if a person calculates the expected costs of growing wheat to be $100/ac and the expected harvest price to be $3.50/bu, then based on historical production levels (20 bushel yield) this person will not make money ($3.50 * 20 = $70/ac). Also, knowing which cows produce larger calves each year will let you know which cows not to cull if forced to de-stock due to drought conditions. A person can get as detailed as they want to with their records, but should only record information that will be used to help make sound management decisions.

What is a fair price for a pasture lease?
A good lease is where the lessor and lessee both feel like they received a good deal. The price for pasture lease will vary based upon the type of the forage, quality of the forage, abundance of forage per acre, time length of the lease and if the leaser has to supply anything in addition to just the forage. OSU conducts surveys each year to see what individuals are paying for pasture leases. The link below will take you to the current bulletin they have on pasture leases. From the survey, you can see the prices range from $2 to $40 per acre. It is important that the lease clearly describes the agreement between both parties. It should address what each side is responsible for in case of unforeseen circumstances (i.e. fire and drought). The integrity of the pasture will be the priority of the lessor, and guidelines need to be clearly stated to uphold the quality of pasture (i.e., to prevent over-grazing).

http://pods.dasnr.okstate.edu/docushare/dsweb/Get/Document-2812/CR-216web04-05.pdf

Tax consequences of selling cattle because of the drought?
In the event a producer is forced to sell livestock because of drought, and the number of head is in excess of normal business practices, there are some tax provisions to defer gains. The tax provisions only apply to livestock sold in excess of normal business practices. The tax provisions depend on the classification of livestock, which are broken into two groups. The first is draft, breeding or dairy animals, which must be replaced within two years. This would be deferring the capital gains tax that would be incurred when the basis of the livestock is less than the sale price. The two-year period is based on the end of the tax year the livestock were sold. When your area is eligible for federal assistance, the terms change to four years. Those animals that are sold would need to be replaced with livestock used for the same purpose (i.e., beef cows sold, beef cows purchased or dairy cows sold, dairy cows purchased). The funds from the sale of the livestock must be spent on the same number of head and for the same amount of dollars or more. The new livestock will have the same basis as the livestock that was sold, plus any amount that was spent in excess of the original sale value. See I.R.C. 1033 (e) or contact us for more details concerning this issue.

All livestock are allowed to have the income postponed for one year if the area is designated eligible for federal assistance (www.fema.gov). The other requirements are that the primary business must be farming (? of gross revenue from farming), must use the cash method of accounting, be able to show that livestock would normally sell in the following year and weather-related conditions are the reason for the early sale. Remember, this is only the animals that are sold in excess of normal business practices. For more information on this election, look at I.R.C. Sec 451 (e) or contact us.

What is preconditioning/back-grounding?
In the past, most cow-calf operators simply stripped the calves off the cows and sent them to town during weaning. Today, more and more producers are "preconditioning" or "back-grounding" their newly weaned calves before they send them to the auction barn. Before we discuss whether or not you should do it, let's define preconditioning/back-grounding.
Generally, preconditioning refers to a management program dealing with freshly weaned calves. Weaning is one of the most stressful events that occurs in a calf's life, and good management can minimize the negative affects associated with this time. During the preconditioning phase, calves are trained to eat out of a bunk, de-wormed, vaccinated, and dehorned (if they were not dehorned at spring working). Research has shown that this phase should last at least 45 days. It is important to have the proper facilities to handle freshly weaned calves as well as the management capabilities. For more details, contact a livestock specialist or look in the Oklahoma State Beef Cattle Manual.

Should I precondition my calves?
Whether or not to precondition calves is typically an economical issue. Is there value in putting additional costs (feed, medicine, labor, interest) into the calves, or should you strip and sell? Research has shown there is value in calves that have been preconditioned, and the value typically shows up in higher average daily gain, greater carcass characteristics, lower morbidity and lower mortality in the later growing phases. This translates into buyers willing to pay more for cattle that have been preconditioned because value has been added to the animal.

How much more are they willing to pay for preconditioned cattle? In a recent study by Troxel, calves in Arkansas sale barns that were announced as "preconditioned" sold for about $4/hundredweight higher than healthy calves of unknown management. Jim Kelly of Superior livestock was quoted in the Bovine Health Watch magazine saying they have seen "calves bring $7 to $8 per hundredweight more than calves that are not vaccinated and weaned." He also said, "Ten years ago, fewer than 5 percent of the calves consigned to Superior were preconditioned, compared to more than 50 percent today." The market is willing to pay a premium for calves that have been preconditioned, but it is up to each producer to look at his or her cost structure to determine if it will be a profitable scenario. Market risk can also play a factor in making the decision – is the market going to be the same, lower, or higher 45 days from now? In the fall, October is usually the worst month to sell because everyone else is weaning and selling. From an economist's view, it is simply the market dealing with supply and demand. So, preconditioning for 45 days will not only be worth more money per cwt, but you could also see a stronger price due to less supply. In 2004 and 2005, some producers were making an additional $50(+)/head for preconditioning calves for 45(+) days.

Bottom Line: The market is willing to pay more for preconditioned calves. However, there is never a black-and-white, yes-or-no economic answer to give to every producer every year. Each producer needs to evaluate whether or not they are capable of managing the calves. If the previous criterion is met, then they need to examine their cost structure to see if there are margins on paper before preconditioning.

What affects the selling price of your calves?
Everything ranchers decide to do or not do probably has an effect on the selling price of the calves they produce. There have been multiple studies that have shown the value in uniform (sex, weight, frame, muscling and color), properly managed, process-verified calves. The most recent of these studies was by Troxel, et al. in 2006 where 15 Arkansas livestock auction markets were used to evaluate how specific information affected the selling price for more than 100,000 head of calves. The study found that if a producer had enough head to have draft lots with six or more head in each, he or she would receive a higher price as opposed to selling singles. The average price for calves selling as singles was $117.26/hundredweight versus $122.61/cwt for lots with six or more calves. Order buyers like to buy in truckload lots, so it is worth more to them to be able to purchase a couple of large lots to fill the truck versus the risk in being able to purchase a lot of small drafts to get enough for a truckload. It shows the importance of having a defined calving season with a bull battery of similar genetics. The value of castrating bull calves was worth an average of $6.27/cwt. Calves with horns were discounted by $3.70/cwt when compared to polled calves. Dehorning calves early (when you can remove the horn bud) is ideal. If the calves are too large to dehorn, the horns should be tipped back so the blunt end is between the size of a quarter and a half dollar. Preconditioned calves sold for $122.36/cwt, which was more than healthy calves of unknown management ($118.21/cwt). It is recommended that you become a Beef Quality Assurance (BQA) certified producer, so buyers know the cattle have been processed correctly. It is also important to let the commission company or auctioneer know what has been done to the calves. That way, buyers can use that information in determining what they should pay. Information is power, and the more information you provide to a buyer, the fewer unknowns/risks the buyer has. This generally translates into higher prices.

Reference:
T.R. Troxel, et al. "Management factors affecting selling prices of Arkansas beef calves." J. Anim. Sci. Vol. 84. Suppl. 1.

T.R. Troxel, et al. "Impact of the phenotypic expression of calf genetics on the selling price of Arkansas beef calves." J. Anim. Sci. Vol. 84. Suppl. 1.

What is the difference between Quicken and QuickBooks?
Quicken and QuickBooks both are software programs produced by Intuit. The major difference between them is that Quicken is a single-entry accounting program, and QuickBooks is a double-entry accounting program. The accounting industry only recognizes a double-entry accounting system. A single-entry system is exactly what it sounds like – a single entry is all that is entered to track a transaction. Double-entry is the credit/debit system that is taught in accounting classes. For every entry, there is an offsetting entry made to track the transaction. For example, the sale of a product would be a credit (-) to inventory and a debit (+) to cash or account receivables. In a single-entry system, the deposit would be the only entry.

The advantage QuickBooks has over Quicken is the statements it can generate. QuickBooks can track inventory, produce customer receipts, purchase orders, customer statements and payroll. QuickBooks can be set up to be used as a cash or accrual accounting system, whereas Quicken is a cash system. An individual can also make adjustments to accounts through journal entries in QuickBooks.

That being said, typical farmers and ranchers can meet all their accounting needs with Quicken. Producers who have a payroll and/or send invoices would probably need to step up to QuickBooks to meet their accounting needs. As far as price, Quicken costs around $50 and QuickBooks is around $200.

Where and how should I market my cattle?
Naturally, you should choose the marketing option that will maximize profit. However, producers often are content with simply marketing their cattle at the closest sale barn. If you look at historical data from sale barns in Oklahoma you will see that Oklahoma National Stockyards in Oklahoma City (Oklahoma City) and Oklahoma City West (El Reno) tend to have the highest price per hundredweight (cwt). This is because there are more buyers and sellers in these two markets. That is very important to price discovery.

Can you afford the freight to send cattle to Oklahoma City? Typically, if you can put together a truckload of calves, you can more than justify the additional freight. It is important to look at the market trends of the sales to make sure that there has been a large enough spread in the price to justify the freight. There are times when you will see a $5 to $10/cwt price difference between Oklahoma City sales and some of the smaller sale barns. If you have 85 head of calves that average 550 pounds, and there is a $7/cwt price difference between your closest sale barn and Oklahoma City, you are giving up $2,975 of revenue by marketing at the closest auction. Let's assume you are 120 miles from the Oklahoma National Stockyards, and the current trucking rate is $4/loaded mile. The cost of shipping the truckload of calves would be $480. You would then have to subtract the cost to take them to the local auction (including a value for you time). Then you can compare the additional revenue with the additional cost.

Another option is video sales and forward contracting the sale. It can be a great way to try to take advantage of a market signal and lock in a future sale price and weight. It is important to understand the ins and outs of these methods of marketing cattle. Also, knowing the exact weight of the cattle is crucial to avoid price hits due to the price/weight slide system. One advantage of these methods is eliminating the shrink component of the sale, since it is usually a fixed percent (example: 3 percent) based on the load-out weight.

USDA's Agricultural Marketing Service Web site is a great place to compare different auctions from week to week.
http://www.ams.usda.gov/lsmnpubs/cfauction.htm