RANCHING Business
ing relationship with the packer so carcass data can be collected. Plus, because commercial feedyards deal in bulk
quantities, they generally can obtain feed more cheaply than individuals. Retaining ownership of cattle also has cash fl ow and
tax implications. Cash fl ow can be especially tricky for the fi rst year that producers are transitioning to retained ownership. “In addition to not having income from selling calves
in the fall, producers must buy feed, increasing the cash outfl ow,” he says. “With delayed income and increased expenses, it is likely that debt will remain unpaid lon- ger than normal.” Because the cattle are collateral for the loan, a pro-
ducer’s fi nancial risk may increase, he says. It is impor- tant that the lender not only be aware of a producer’s plan to retain ownership, but the lender must see the benefi t in it. Feeding calves one year and not the next can com-
plicate income tax management. “Producers who operate on a cash accounting basis
and fi nd themselves switching from a retained owner- ship program to selling both calves and fed cattle in the same tax year may have some problems,” Homeyer says. “It’s important to work with a tax professional and to plan ahead.” He continues, “Retained ownership, like every-
thing else in the cattle business, has opportunities and challenges. The best way to determine whether or not it makes sense for your operation is to put a pencil to it.”
Editor’s Note: This is the eleventh in a 12-part series
focusing on using partial budgets to answer questions in a technique commonly known as “penciling it out.” Because Texas and Oklahoma are so diverse and each ranch is unique, the series was not designed to provide a 1-size-fi ts-all answer. Instead it was created to help producers become familiar with a handy tool that can be used to strengthen the bottom line. The series has been developed in collaboration with Carl Homeyer, state ag economist for the USDA Natural Resources Conservation Service (NRCS), Temple. Homeyer earned his bachelor’s degree in Range Science and his master’s degree in land economics and real estate from Texas A&M University. Before joining the NRCS in 2009, Homeyer operated his family’s Burleson County ranch, which also includes broiler houses, while owning and running several small businesses.
tscra.org November 2013 The Cattleman 51
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