The Cattle Business

Livestock Update, January 1997

Bill McKinnon, Animal and Poultry Sciences

It is the start of a new year and the time for new beginnings. Many cattle producers, as they are beginning to work on their tax returns, are vowing that, "This year I am going to do a better job of record keeping and run my operation in a more businesslike fashion." Certainly the times dictate that operators do a better job of identifying areas where costs can be controlled.

The nationally recognized SPA (Standardized Performance Analysis) -EZ provides an organized approach to determining the costs of production. SPA-EZ consists of a three-page worksheet. The worksheet provides a step by step pathway to help the producer calculate what it costs him to keep a cow or raise a pound of calf. No computers are needed, just a pencil, calculator, and some basic pieces of farm records. The effort will help the owner become more aware of the economic and financial condition and relationships within the operation.

The real power in using any analysis program comes when the results are compared against previous years' performance or with other cow/calf producers. An option for those producers who wish, is that they can become part of a Virginia aggregate. Working together with the National Cattlemen's Beef Association and Cattle-Fax, the Virginia Tech Department of Animal and Poultry Science will develop a Virginia aggregate of SPA-EZ analysis information. Those submitting a copy of their SPA-EZ data will be pooled with other Virginia operations to create average production and economic measures. The aggregate information will be distributed back to those farms submitting data. This process will assist managers in determining strengths and weaknesses of their cow/calf business compared to other Virginia operations. Individual farm data is kept strictly confidential.

Whether the individual farm SPA-EZ data is included in a Virginia aggregate or not, the process of cost calculation will be a learning exercise for the cow/calf operator. The completion of the SPA-EZ worksheets requires some basic pieces of information to make the task relatively painless:

Current year's tax return
Depreciation schedules
Beginning of the year financial balance sheet
End of year financial balance sheet
Cow inventory records
Basic cow production information(weaning weight, etc.)

A copy of the SPA-EZ form plus instructions is available by contacting Bill McKinnon, 368 Litton Reaves Hall, Virginia Tech, Blacksburg, VA 24061-0306, or (540) 231-9160.

If you do not want to perform a SPA-EZ analysis of the operation, at least spend some time using your tax return as a management tool. Yes, the numbers for the cow/calf operator will not be very pretty this year, but they can still provide us some useful information. If nothing else, rank and add up the top five cash expenses (exclude depreciation). Calculate what percentage they make up of the total expenses. It will probably be over 60%. The reason for identifying the top five expenses is that there is the area to target in controlling costs. Scrutinize each of these five areas for ways to lower costs without sacrificing herd performance.

No doubt, some of the top five will be related to feed production. Vow this year that the operation will do a more cost effective job at producing, harvesting, storing, and feeding the year's feed production. For most operations this is particularly critical in the area of hay production. By the way, write down the date that everyday hay feeding to the cows began. Plan to make the date later next year by better utilizing stockpiled forages and let the cows feed themselves.

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