After making the decision to do a cost-and-return analysis (CRA) on your ranch, the next step is using an analysis tool to determine the production and financial performance of your cow-calf operation.
Many states or regions offer programs producers can use to conduct a CRA. Two such programs are the Integrated Resource Management Standard Performance Analysis (IRM-SPA), available at minimum cost through various state Extension programs, and IRM-Financial and Reproductive Management System (IRM-FARMS). The latter is a fee-based system provided by Harlan Hughes, North Dakota State University (NDSU) professor emeritus.
All these programs are built off the original SPA program developed in the 1990s by USDA and what was then the National Cattlemen's Association (NCA), Hughes says. The impetus was the 1980s farm financial crisis that raised a cry from producers to USDA for development of a standardized, performance-based management tool that could help producers prepare for the next downturn.
Subsequently, a committee of NCA members and Extension personnel was formed to develop SPA guidelines.
“The program was developed in three or four years but it took a decade to put the program in place and get the data base built,” Hughes says.
“The reason SPA was initiated was to standardize how both the production and cost, or financial information, was put together,” says Jim McGrann. Head of the IRM-SPA program used in the Texas, New Mexico and Oklahoma area, McGrann is a Texas A&M University (TAMU) Extension economist.
IRM By Region
Today, a few different regional variations on IRM-SPA exist. In addition to the TAMU program, there's the SPA-EZ program administered by Eddie Hamilton, DVM, of South Dakota State University. In Iowa and Illinois, Iowa State University's Daryl Strohbehn administers that regional program. All these programs are administered by Extension and are either free or offered at a minimal charge.
Meanwhile, Hughes administered the Northern Plains' IRM program at NDSU until his retirement five years ago. When NDSU opted to discontinue the program upon Hughes' retirement, Hughes took it over as a private enterprise and offers the program on a fee basis under the name of IRM-FARMS from his home in Laramie, WY.
Hughes says his decade in IRM work demonstrated to him that one assessment system doesn't fit all operations. In his program he offers three levels of management analysis — silver, gold and platinum.
The silver system is a flat $100 fee and is designed to introduce beef farmers and ranchers to the concept of measuring economic efficiency. The gold system is his “workhorse” system for enhancing ranchers' economic efficiency.
While the silver and gold levels focus solely on the cow-calf profit center, the platinum level's focus also includes analysis on the farming enterprise. “It's designed for beef cow managers already utilizing financial statements to manage their total farm or ranch business,” Hughes says.
“All these regional IRM software packages are similar in that they all reflect back to the original SPA guidelines,” Hughes says. “They all have a slightly different implementation but all use the same guidelines.”
All these programs allow producers to compare their operations to others in that particular region by using regional benchmark data developed by program administrators, he adds.
McGrann says most producers have the key information to do a SPA, but one of the information requirements may surprise them.
“On the production side, the reproduction analysis is based on exposed cows,” McGrann says. “That information is extremely important to the whole process. That is why we wanted a standardization — because numbers can be manipulated through what you select.”
On the financial side of the program, a full-cost analysis is conducted. McGrann says doing the full-cost analysis rather than just cash costs is important because depreciation and compensation to the owner, labor and management isn't included in just a cash-cost analysis.
In explaining why a cash-cost analysis isn't done, McGrann says, “You don't have a comparative basis between an owner/operator type operation and something like a corporate kind of structure where the owner and manager would actually be paid a salary.”
“The focus is on determining what the cost is of producing a hundredweight of weaned calf,” he adds.
In Texas, Oklahoma and New Mexico, producers can attend workshops where they put their data into the program. They then participate in a one-on-one analysis to determine areas where performance could be improved.
“Participants are then given a report card to show how their operation compares to the operations in the database,” McGrann says.
A Look At FINPACK
Meanwhile, FINPACK® is a computerized farm financial planning and analysis software system developed by the University of Minnesota's Extension Center for Farm Financial Management. It's not designed for recordkeeping or accounting purposes, but uses that information to generate reports to help producers evaluate their financial situation and improve management on the farm or ranch.
“I think it's a great tool for a farmer or rancher of any size,” says Dale Enerson, a North Dakota Farmers Union economist and former adult management instructor at Stanley, ND. As an instructor, he's helped more than 300 producers with their CRAs using FINPACK software.
To receive an analysis in FINPACK, producers need to provide a complete set of income and expense data for the operating year and inventory of all assets and liabilities at the beginning and end of the year.
“We're accounting not only for the cash income and expenses but the accrual changes,” Enerson says. The reason to include all this information is that if a few of the calves are retained from one year to the next and then sold with the following year's calf crop, the cash income will vary from year to year.
“If you do a good job of allocating costs and expenses to those various units, you come up with a very accurate analysis of the true cost of production and other such key figures,” Enerson adds.
“The valuable part of having this data is to sit down with an individual producer and review with him where his operation ranks within each of these various farm management groupings,” he says.
For producers in Minnesota, North Dakota and South Dakota, Enerson says FINPACK is generally available by enrolling via local adult farm management programs. A personalized version of the software is also available directly from the University of Minnesota's Center for Farm Financial Management.
For more information on SPA, visit www.agecoext.tamu.edu/spa or call McGrann at 979/845-1861. For information on IRM-FARMS, contact Hughes at 701/238-9607 or [email protected]. For information on FINPACK, visit www.cffm.umn.edu, www.state.nd.us/cte/continuing-ed/programs/farm-manage/ or call 612/625-1964.
Dan Kniffen, Penn State University Extension beef specialist, describes the SPA-EZ as a primer program to a full-blown SPA analysis.
“SPA-EZ includes the production aspects of a SPA analysis but has a very limited financial analysis,” Kniffen says. “It was basically designed as a program that would allow producers to cut their teeth on the SPA concept for a year or two, after which they'd hopefully graduate to a SPA analysis.”
Kniffen was the National Cattlemen's Beef Association's (NCBA's) IRM staff person in the late 1980s and early 1990s. He, along with veterinarian Eddie Hamilton of South Dakota State University, developed the SPA-EZ concept.
He says the information in a SPA-EZ analysis is as accurate as in a full SPA analysis, it just doesn't have the same level of detail.
“The thing we learned was that ranchers tended to struggle with their inventory numbers. SPA-EZ was supposed to warm them up to being able to gather that sort of information. Feeling comfortable with that information, they'd have the necessary skills to begin selecting some of the other information needed,” he says.
The SPA worksheets are available on NCBA's IRM Web page at: http://www.beefusa.org/dsp/dsp_locationContent.cfm?locationId=1611.
Ranching For Profit
Dave Pratt of Ranch Management Consultants Inc., Fairfield, CA, operates the Ranching For Profit School and Executive Link programs. A holistic management approach, Pratt's Ranching for Profit schools are held at various locations each fall and winter.
It's a comprehensive training session that integrates production principles of land and livestock management with economic, finance and business principles. The course addresses time management and people and family issues (including management succession).
The course helps participants develop an action plan to implement the curriculum lessons designed to improve their business and their land. The school's small-group approach offers constant interaction with direct application to each individual's situation.
The follow-up service offered through the Executive Link Program helps provide the support, structure and accountability needed to carry out the desired changes. The program's ProfitProbe™ software records the business's economic, financial, production and personal data by measuring key performance indicators. The software also establishes benchmarks for the most profitable businesses in similar areas as a guide to competitiveness and the impact of management changes.
The cost of the school is $1,995 and includes unlimited consultative follow-up. Previous participants can retake the course for $100.
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