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The Break-Even Budget Tool is helpful in making cattle marketing decisions.
October 12, 2015
Ever wish you had the oft-mentioned crystal ball to tell you when to market your calves, rather than pushing a pencil after the fact to see if you made the right decision? Making prudent marketing decisions is crucial for cow-calf producers, because selling the annual calf crop is often the majority of the operation’s income. And those decisions are often the most difficult choices a rancher makes.
“For producers, deciding when to sell their livestock is very challenging,” says Bridger Feuz, livestock marketing specialist and area educator, University of Wyoming (UW) Extension. Often, this challenge causes producers to stay with the status quo and market calves historically at weaning time because it appears to be the most straight-forward strategy, he explains.
“In some years, during weaning [October-November for Wyoming producers], calf prices are at their highest,” he says, “but this is not always the case.” Markets are unpredictable and influenced by many factors beyond a producer’s control.
“The complexity of marketing decisions and impact on profitability needs to be proactively assessed,” says the marketing specialist. While breakeven analysis tools have been used by producers as an approach to determine their calf marketing window, Feuz saw the need for a more robust analysis able to serve the wide variety of costs cow-calf producers experience annually. As a result, Feuz created a Break-Even Budget Tool as part of a suite of marketing and management online ranch tools he developed. “What makes the Break-Even Budget Tool unique is the way it uses a partial budget approach to capture all of a producer’s changing costs, and returns to calculate a final breakeven,” says Feuz. Other management tools either try to anticipate different cost categories or lump them in one category, like cost per pound of gain — they are useful for a quick approach or an approach where cost per pound of gain is a readily calculated number in feedlots or backgrounding.
However, because of the nature of the cow-calf business, producers often do not have a readily calculated number for cost per pound of gain. The UW Break-Even Budget Tool allows producers to list all costs associated with their marketing decision. As is the case with all measurement calculations, they are only as accurate as the information entered, cautions Feuz.
When using the Break-Even Budget Tool to analyze a ranch’s status, Feuz identified four questions he believes producers should ask when they are looking at changes in their operation. “The questions will enhance the ability to accurately calculate impacts of the potential change,” he says. The four questions are:
What new or additional costs will be incurred?
What current costs will be reduced or eliminated?
What new or additional income will be received?
What current income will be reduced or eliminated?
More than 250 producers across Wyoming and Montana participated in workshops over the past year where they received hands-on training on the UW financial ranching tools. Vance Broadbent of Evanston, Wyo., has worked with Feuz for five years. “I am always looking to improve things on the ranch and be as cost-effective as we can. Using the Break-Even Budget Tool fits that need,” he says.
Broadbent, ranch manager of JRB LLC and Broadbent Land & Resources, attended one of these workshops to learn how to use this online tool for his ranch. Due to changes occurring on the ranch he manages, Broadbent went straight to the breakeven and partial budgeting tools to analyze whether to increase or decrease cow herd numbers, and make decisions on land use options for the desert ground where he runs cattle.
“I have conducted a breakeven analysis for the ranch on my own, but the comprehensiveness of the Break-Even Budget Tool, which includes the newly developed partial budget, provides me with a lot more information than my analysis and helps me measure areas I needed to better manage,” says Broadbent.
The Break-Even Budget Tool has been well-accepted by the financial industry in Wyoming and surrounding states. Matt Hirschi, who worked six years for Western Ag Credit, often used the Break-Even Budget Tool, and later the partial budget component, because he found it so user-friendly to his ranch clients. “Many of the ranchers I worked with had an approximate idea where they were at with their operations, but when I would meet with them and input their numbers in the partial budget, these budgets very clearly demonstrated to the producers where they were at in their production and profitability,” he says.
“Producers ultimately make the final decision on what they are going to do,” says Hirschi. “When making key decisions, seeing the pros and cons in the partial budget and breakeven was very helpful to the ranchers.”
“I tell producers the way they are currently marketing their calves may be the best decision, or it may not,” says Feuz. “I encourage them to determine this by being an active marketer, not a passive marketer. A passive marketer is one who markets calves when it is traditional and convenient; an active marketer utilizes tools [such as this breakeven tool] to make active decisions in an attempt to increase profitability of the ranch. Even if selling your calves at weaning ends up being the right decision, actively seeking out alternatives will make you a better ranch manager.”
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