Gather the Pertinent Numbers for Your Ranch
cal to the business. This may be an owner, partner or another employee without whom the business may cease to operate.” Burrough agrees that for busi-
nesspeople, owners and key em- ployees, life insurance is worth con- sidering. When conferring with younger clients, Burrough might recommend whole-life insurance policies rather than term-life poli- cies, because they are comparatively less expensive for younger buyers. “It can really be a key piece in
your estate planning. We encourage our younger producers to inves- tigate life insurance options and strategies. I was encouraged to start buying insurance when it was cheap for me, when I was young, so now I talk with many of our younger producers to say it’s a way to put money aside. We all need a better way to save money. “There are 3 things you can do
with risk,” Burrough says. “You can self-insure, share the risk or trans- fer that risk. I think it helps any rancher to sit down and go through this exercise. Evaluate the assets on your balance sheet. We all know there are weather risks, production risks, fraud risks and market risks. Are any of those critical? Should you share the risk or transfer some or all of it? Look back at what almost hap-
pened in 2015 and think about how an accident would have affected your business. Then come up with a plan to handle that accident and the repercussions. I hope you will never have to put that plan into ef- fect, but it’s good to have thought it through and not be taken by com- plete surprise.”
If you are considering running some stocker cattle on your land in 2016, here are some numbers you will want to keep up with to make sure you are mov- ing in a profi table direction. According to Bryan Nichols, livestock consultant with the Noble Foundation, a stocker operator has to have a rock-solid grasp of all the pertinent numbers to be effective, including break-even, cost of gain and value of gain.
Break-even A break-even is the sale price ($ per hundred pounds/cwt) at which the owner of the cattle does not make or lose money. In the stocker business, there are actually 2 break-even points an operator should consider, Nichols says. The fi rst comes before a calf is purchased. “One of the biggest considerations is buying cattle at the right price so that producers can hit their projected end point,” he says. “It is a matter of pro- ducers asking, ‘If I want to make X-dollars per head, what can I pay for an animal and still make money?’ “They have to calculate backward from their endpoint to fi nd the answer. The key is being honest about the cattle’s current value, the real costs associated with the cattle, and the cattle’s future value,” he says. The second break-even is associated with the sale price. Producers must know how much money they have invested in getting the calf to the sale weight and what price it has to make to recover those costs.
Cost of gain Cost of gain is the amount of money spent to put additional weight on a calf divided by the total weight gain. “What an operator includes in a measure of cost of gain can be different de- pending on the operation,” Nichols says. “You have to include everything that is necessary for your specifi c operation.” Obvious costs include medicine, feed (either grazing or purchased feedstuffs), and labor. Other costs can include op- portunity cost, facilities cost, equipment payments, loan interest and salary. “The goal is to put as much weight on as effi ciently as possible, while keeping the cost as low as possible,” Nichols says. A small reduction in cost of gain can make a big difference. For example, if an operator can lower the cost of gain from $.60 per pound to $.55 per pound on a calf that gains 300 pounds, the operator will make an additional $15 per head. It may not sound like much, but on 1,000 head, it is an additional $15,000.
Value of Gain Value of gain is the amount of money the market is paying for each additional pound of weight on an animal. For instance, if a 500-pound steer is going to bring $1,500 and a 600-pound steer is going to bring $1,600, the difference between them is $100. Divide the difference in value by the difference in weight, which in this case is $100/100 pounds. The value of gain is $1 per pound. “If the value of gain is greater than the cost of gain, then an operator is making money on that animal,” Nichols says.
72 The Cattleman January 2016
thecattlemanmagazine.com
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