Farm Management Minute: Skewed numbers

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Farm Forum

2014 was an exciting year for most cattle producers; but now that 2014 is complete, what does your operation’s data show you? Here are a few figures that are being miscalculated in some initial analysis reports.

If LFP (Livestock Forage Loss) or LIP (Livestock Indemnity Program) payments were collected in 2014, based upon losses from 2012 and 2013, this will reflect an inaccurate profit per cow for 2014. Yes, the income was received in 2014, but it was actually a disaster relief payment from those prior year’s losses. In your livestock enterprise analysis these payments likely need to be “rolled” back to the appropriate year that was affected. For example: The 2012 drought event reduced your forage, but did you have to buy hay in 2012 or 2013 to sustain the herd? Or, if you had to sell down cows, the reduction in forage obviously affected 2013 calf production. Did the 2013 death loss attribute to 2013’s income, or 2014 depending on when you may intended to sell the cattle. Once again, these concerns I address are not meant to imply tax related consequences, but rather how you measure your own livestock enterprises over multiple years.

Another area in which some concerns have been addressed is depreciation on machinery and livestock. Make sure depreciation is taken off the cost but not always the market value of the equipment. Your 10 year old machine may have a market value much higher than the initial cost less normal depreciation. Still, valuing assets conservatively is the safest practice.

Along that same line of thought is that cattlemen should track in detail the age of the cull animal when it is sold. Cost versus market value in livestock intermediate assets is where this will come into play. Back in November and December of 2014, you could have paid $3300 for a bred heifer. Last week I watched the top heifers bring $2700. Already we have a $600 decrease in value within 2 months. The $3300 value is what you will have to authenticate on your balance sheet for the life of that heifer. That is also the value you will have to work with in order to show profitability over the life of that animal while it is in your herd. We suggest that purchased breeding livestock be documented separately from raised breeding livestock on your balance sheet.

In the S.D. Farm/Ranch Management Program these are just of a few of the different situations we encounter while working with our clients. If you have any questions you can call the S.D. Center for Farm/Ranch Management at 1-800-MTI-1969 or contact David Koupal at 605 995-7193 or email David.Koupal@mitchelltech.edu.