Friday, May 21, 2010

I'll Be Out Next Week

I will be out of the office next week 5/24-5/28 and will not be able to post new material.

Check back on the 31st for new posts.

If you have any feedback on what I have posted in the newsletter or anything you would like to see discussed, send me a note at

See you in a week!!

Wednesday, May 19, 2010

Average Daily Gain vs. Gain per Acre

One of the concepts of the economics of grass cattle that is typically over-looked is understanding the difference between average daily gain (ADG) and gain per acre (G/A). I know you all understand the definition of each so I won't repeat it here but the practical application of this concept is important to potentially boosting profits.

Average daily gain has been so engrained in our minds as the most important metric of grass cattle production that we contextualize every aspect in terms of ADG. If Steer Group 1 has a higher ADG than Steer Group 2, then clearly Steer Group 1 has outperformed Steer Group 2, right? And if Steer Group 1 has a higher ADG than Steer Group 2, then clearly Steer Group 1 is more profitable than Steer Group 2, right?

I am going to challenge your conventional thinking on this.

Let's take a look:

Let's say for example that I have two, 300 acre pastures that are stocked at 2 acres/steer.

In pasture 1, we will graze 150 steers in a season-long system from May 15 to October 15th.

We buy these cattle weighing 500# for $135/cwt. for a total investment of $101,250.

In pasture 2, we will use a double stocking system that grazes twice the number of animals for half the season. So the stocking rate is still 2 acres/steer.

So we will graze 300 steers for 75 days on pasture 2 from May 15 to August 1.

We also will buy these cattle weighing 500# for 135/cwt. for a total investment of $101,250.

Research has shown that ADG in pasture 1 will be about 15% less than ADG in pasture 2 because later in the summer, pasture quality will decline substantially. So in a season-long system, half the time steers are grazing the forage quality is pretty good and the other half of the season, forage quality is not so good. Whereas, in the double stocked system when forage quality declines, steers are pulled and sold.

So we will estimate that ADG in pasture 1 will be 1.8 lb/day and in pasture 2 ADG will be 2.1 lb/day.

Over the 150 days of grazing in pasture 1, steers will gain 270# for a final weight of 770# and we'll sell those steers at today’s price of $116/cwt for a gross return of $133,980.

Over the 75 days of grazing in pasture 2, steers will gain 157.5# for a final weight of 657# and we'll sell those steers at today’s price of $126/cwt for a gross return of $248,346.

We’ll assume $50/hd for operating costs.

When we look at net return for each pasture, it will look like this:

If you make this comparison by only looking at ADG, it looks like pasture 1 in the season-long system should have outperformed pasture 2 by quite a bit; and it did on production of beef basis.

But in reality, pasture 2 out performed pasture 1 by 18% on a net profit basis, even though pasture 2 gained 41% less weight per head.

How can that be??

It is a function of gain/acre. Even though steers in pasture 2 gained less total weight per head than steers in pasture 1, there were twice as many of them in pasture 2 so the total return on the gain per acre and therefore, net profit is more for pasture 2.

The other thing to consider is the inherent price slide in the cash market which you will capture with more animals that weigh less.

So your Return on the Gain/Acre is:

Pasture 1: $186.88

Pasture 2: 195.84

Sounds too good to be true?? It is simply taking advantage of the principal of return on G/A rather than return on ADG.

Monday, May 17, 2010

This Week In Grass Cattle

Quite a bit of ground has been lost in the futures market since last week. However, breakevens are still in the black on the SEP '10 with most weight classes of calves.

Look for the futures market to continue to slide this week as the market looks anxiously at the European economy and the fact that the seasonal demand has reached its peak (or is close to it).

It is hard to say if the cash market will respond accordingly. I expect it will to some degree the question is will we have an over-reaction in the cash market this week? I expect there will be for the most part, but I don't think it will be a blood bath.

I would be looking for some really under-valued cattle in the market this week as we could easily see a $5/cwt slide in the cash market from last week in response to the sagging futures.


Market Reaction Scenario #1

Buy steers, medium 1 675# @ $120.00
Lock 'em in on the board for SEP 10 @ $112.05
Run on grass for 120 days @ $0.72/day
Allow $20/hd for operating costs
Sell 903# in September
Breakeven $101.48
Profit $95.41/hd less basis and commissions.

Market Reaction Scenario #2

Buy steers, medium 1 755# @ $116.00

Sell 959# in September
Breakeven $102.41
Profit $92.35/hd less basis and commissions.

Market Reaction Scenario #3

Buy steers, medium 1 830# @ $107.00
Sell 986# in September
Breakeven $100.86
Profit $110.31/hd less basis and commissions.

If there is not a reaction in the cash market we could be looking at this:

No Market Reaction Scenario #1:

Buy steers, medium 1 675# @ $126.00
Lock 'em in on the board for SEP 10 @ $112.05
Run on grass for 120 days @ $0.72/day
Allow $20/hd for operating costs
Sell 903# in September
Breakeven $105.96
Profit $54.91/hd less basis and commissions.

No Market Reaction Scenario #2:

Buy steers, medium 1 755# @ $122.00

Sell 959# in September
Breakeven $107.14
Profit $47.05/hd less basis and commissions.

No Market Reaction Scenario #3:

Buy steers, medium 1 830# @ $114.00
Sell 986# in September
Breakeven $106.75
Profit $52.21/hd less basis and commissions.

If the cash market over reacts this week, look for some good deals and substantial potential profits if you can get them locked in to the SEP '10.

If the cash does not react much to the losses on the futures board, margins will be a little tighter than last week.

Friday, May 14, 2010

What Does Grass Really Cost?

I think most cattlemen have come to realize that grass is not free, by any stretch of the imagination. Especially if you have tried to rent grass in the northern plains in the last several years. The increase in grass rental (and land value) has been increasing at a rate of 15-22% per year over the last several years. This drastic increase in value and associated rental rates has outpaced the rest of the country by at least 20%.

That being said, most operators still have no idea what grass truly costs a cow outfit (or stockers for that matter).

Digging into the SDSU Cow-calf Business Report from 2008, this data set can give us at least average costs of grass. You can view the entire report at:

Look under the "Enterprise Analysis" tab on the left, select "Cow-calf Business Reports"

Again, a couple of things to remember:

1) These are only averages, some grass is cheaper, some is more expensive depending on where you are.

2) This data set is heavily influenced by eastern South Dakota operators.


This table shows the average cost of grass on deeded acres on an acre and AUM basis.

You can see that the average cost of deeded pasture runs about $23.57 per acre and $20.49 per AUM.

If you translate that into cost/pair/day it equals about $0.95/pair/day and $0.58/steer/day.

…and if that didn’t make you just about vomit, take a look at the average cost of rented pasture…

Here you can see that the average cost of rented pasture is running about $44.62 per acre or about $38.80 per AUM.

If you translate that into cost/pair/day it equals about $1.81/pair/day and $1.03/steer/day.

I think a lot of guys assume that the cash rental rate is the cost of the grass, but that isn’t true because there are a lot of other costs associated with running cows on rented grass. On average the cash rent on grass in this data set is only about $26 per AUM, but there are a lot of other costs that go along with it.

The good news is that the 2008 costs are down slightly from 2007 and it looks like 2009 costs will be down from 2008.

It wasn’t but 8 years ago that I rented pasture for a set of cows and I thought the $0.35/pair/day it cost me at the time was highway robbery. I guess those days are gone.

Believe it or not, $20 AUM grass does pencil and so does $40 AUM grass. The major point here is that a person wonders how in the heck can an operator rent grass and make it pay? Let’s look:

If an operator runs 80% of his cows on deeded ground that on average costs him $20.49/AUM and runs the other 20% on rented ground that runs $38.80/AUM. The average cost of his grass spread over the whole herd is still only $24.15/AUM, which pencils pretty nicely, especially if he had to sell the other 20% if he could rent the grass.

The cost of the really expensive rented grass is dispersed over 100% of the herd, 80% of which were running on deeded ground that costs half as much to graze.

This concept is what is running the value of ag real estate through the roof. So the big can get bigger and the young can’t get in the door.

Thursday, May 13, 2010

This Week in Grass Cattle

It looks like on the averages, some ground has been gained on grass cattle this week. Overall, the cash market on lightweights has strengthened compared to a relatively steady SEP 10 futures market. The cash market on the heavier weights however, seems to have retreated a bit from the SEP 10 futures setting some nice potential profits from these weight classes of cattle.

Let's take a look...

Aberdeen, SD May 12, 2010

Buy steers, medium 1 675# @ $125.00
Lock 'em in on the board for SEP 10 @ $114.92
Run on grass for 120 days @ $0.72/day
Allow $20/hd for operating costs
Sell 903# in September
Breakeven $105.22
Profit $87.57/hd less basis and commissions.

Yankton, SD May 12, 2010

Buy steers, medium 1 755# @ $121.00

Sell 959# in September
Breakeven $106.35
Profit $82.13/hd less basis and commissions.

Aberdeen, SD May 12, 2010

Buy steers, medium 1 830# @ $113.00
Sell 986# in September
Breakeven $105.91
Profit $88.81/hd less basis and commissions.

Looks to me like the heavier weight cattle are a little under valued in the market right now as opposed to last week and now might be a good time to pick some up. The opportunity to lock in reasonable profits on all weight classes looks pretty good right now.

Wednesday, May 12, 2010

The Cost of Grazing and Haying Annual Forages

Last week I posted some very general stuff on annual forages, which is the first time I have done that in the last several years. I haven't recommended annuals for forage in the last couple of years simply because rising fertilizer costs had wiped out most or all of the saving associated with these forage types.

Now, as you are aware, the price of ferilizer has come down by over half which has made these types of forages very feasible and cost effective again.

Last summer, when I was able to lock in fertilizer for about $450/T, we established some non-replicated demonstration trials with BMR Forage Sorghum and Piper Sudangrass to look at cost of production, grazing performance, and cost of gain.

We also established Hybrid Pearl Millet to look at cost of production and cost per ton of hay. We did not graze the Hybrid Pearl Millet.

It is critical to first understand the BMR trait in forage sorghums before we look at this analysis. Traditionally, warm-season annual forages such as sudangrass have been extremely high yielding forages, but typically aren't that useful for grazing situations due to poor quality, poor digestibility, and lots and lots of wastage in grazing situations.

Then the sorghum hybrids were developed which generally were a little leafier, better quality and better digestibility, but comparatively, they are more useful for raw yield than forage quality.

More recently the BMR trait in sorghums has been refined to create a forage sorghum with high digestibility, high forage quality and outstanding animal performance. However, total yield of sorghums that contain the BMR trait tend to yield less than conventional varieties. But the questions still remained, how cost effective are forages that contain the BMR trait?

Well, let's take a look...


Table 1 shows the cost profile of establishing the BMR forage sorghum, the cattle performance, and the cost of the gain on the steers.

Typically you can expect a little closer to 5 tons of yield/acre on this variety of forage sorghum, but with the cool temps and untimely rainfall at Miller last summer, yield suffered a bit. But eventhough yields were down, cattle still gained 2.37 lb/day. If you compare that to the cost of production of forage, you get a cost of gain of $0.65 per pound of gain. If you are looking to put cheap gain on calves, this BMR forage sorghum will get the job done.

Now if you are more interested in cost in terms of cow feed where gain doesn't matter all that much, this demostration shows that you could put cows on this sorghum in the late summer/fall and feed them for about $0.31/head/day. Not bad!!

Table 2 shows the same demonstration and analysis only using Piper sudangrass.

The cost of production for sudangrass is amazingly cheap with a cost per ton of $11.56 and cost per AUM of $4.52. However, our demonstration shows that Piper sudangrass isn't all that effective for grazing growing steers. Even though the cost of production is really cheap, the gain on those calves was pretty poor. As I said before, sudangrass has lots of yield but pretty low forage quality and with a cost of gain for calves of $1.01 per pound of gain, sudangrass might not be the best choice for growing cattle.

Cows on the other hand are another matter altogether. When we aren't that concerned about gain, we could feed a group of cows for about $0.21/head per day. WOW! That is probabaly cheaper than grass for a lot of guys.

Table 3 shows the cost of production for a hybrid pearl millet crop in our demonstration. This analysis includes the cost of cutting and baling. Again, we didn't graze the millet so I don't have any cattle performance data for you.

But it any event, the millet yielded about 4.5 tons/acre with a cost of production of $23.88 per ton. Pretty reasonable when you consider that the average cost of producing a ton of grass hay in eastern SD runs about $70/ton!! That's a lot more than I thought it was, but that is what my database shows.

Theoretically, if you turned cows out on this hybrid pearl millet you could feed them for about $0.43/head/day.

I think these demonstrations show that these types of forages have all kinds of uses and the type of forage you should plant really depends on what you want to use it for. Some work good for hay, some for growing calves, and I think all of them are good feed stock for cows...and talk about a reasonable cost!!

Letter to the Editor

An excellent letter to the editor regarding NCBA's proposed changes to how check-off dollars are handled.

You'll have to copy this link and paste it into your browser...sorry for the inconvenience.

Tuesday, May 11, 2010

The Cost of Home-Raised Replacements

We were discussing the value of replacement females in the market place the other day and I got to thinking, I should have posted the eastern South Dakota average cost of production of replacement heifers before posting that analysis. Well, maybe it doesn't make that much difference.

Anyway, I am the Director of the South Dakota Integrated Resource Management Program for at SDSU. Every year our team holds workshops where producers can come and learn the fundamentals of analyzing records they keep in their business. The results are then formulated into a database and published as the SDSU Cow Calf Business Report every year, usually in June.

The only thing a person has to be aware of when viewing this database is that 1) These are merely averages over a wide variety of producers and 2) The database is composed of largely eastern South Dakota operations.

Nonetheless, it is still interesting and useful to know where your operations falls in relation to averages. So let's take a look at the average cost of replacement heifers for 2008 (the 2009 Cow Calf Business Report won't be published until June of 2010).

Considering our analysis of heifer values in the market place last week, I think this data is very disturbing and actually quite frightening when the average cost of developing a commercial replacement heifer is not too much less than values we indicated weren't very profitable in the NPV analysis.

I think there is a tremendous need to look at new, lower-cost strategies for developing these replacements as the investment into a new replacement is nearly more than the return she can generate in her lifetime. Now that's not to say that it costs everybody $1023 to develop a heifer. There certainly are some outfits that are doing it for substantially less, however there are a large number that are developing replacements for substantialy more than $1023.

I think one of the biggest concerns managers face in terms of heifer development but rarely address is fertility. Especially fertility indicators when heifers are selected and bred for the first time. I have theory on the predictability of a young heifers productive economic efficiency based on estrus cycling during her first breeding season. My theories aren't as earth shattering as E=mc2 or the laws of thermodynamics, but they are interesting and I think are worth researching. I'll explain in more detail in the next few days.

Monday, May 10, 2010

Financial Reform??

A little bit on the Financial Reform Bill that is current being entertained by the Congress....

This piece of legislation looks like it is a slam dunk to be passed, it is really just a matter of what actually ends up the bill and what doesn't as Republicans have basically conceded on blocking the bill.

Granted, this bill is laregly aimed at large finanical institutions and the types of financing and risk protection measures they use, however, as a surprise to one, our Congress has yet again failed to recognize that the large institutions and the small ones are intrinsically linked and that regulating one type regulates all types, whether they meant to or not. I'll spare you the Friedman essay on the effects of government regulation on economic productivity.

Here are a few of key points that will likely have a major bearing on ag (or at least I feel like complaining about)...

1)Section 1012 - The creation of yet another government agency. This Homeland Securty type behemoth will be tabbed The Bureau of Consumer Financial Protection. This in and of itself comes as no surprise as Democratic led governments love to create new Bureau's, Offices, Agencies and the like.

In fact, the creation of this office on the surface appears to be relatively benign. However, when you read the fine print you will soon realize that something is amiss as this new Bureau will not be housed amongst the annuls of already existing government agencies but with in the FEDERAL RESERVE!!!

Now you might ask yourself, Eric, why did you write FEDERAL RESERVE in capital letters? Let me explain in no uncertain terms: the FEDERAL RESERVE cannot, by law, be audited, controlled, or legislated by the U.S. Congress.

You guessed it, if the U.S. Congress has no authority over the Fed, and if the Bureau of Consumer Financial Protection is housed within the Fed, then our government will have efectively created a government agency that is not overseen by the government that created it and the people that make up that government have absolutely no say on how it is run...I smell a skunk.

2) Derivatives - Much negative press has been given to the financial instrument called the derivative. How in all of its evil, it has created this financial catastrophe and it should be abolished immediately.

First of all, I think derivatives are one of the most ingenious financial inventions of the 20th and to this point in the 21st century, hence the Nobel Prize for the gents that created it. No instrument has put more lendable cash in the hands of banks to lend to people with such minimized risk...ever. The fact that some did not take the personal responsibility to not borrow more than they could afford to pay back is really beside the point.

Abolsihing the derivative would send us back to pre-1990 levels of financing. Some regulation as to how the derivative can be used may be in order, but abolishing it is not.

3)Separation of Banking and Trading - This section of the bill "The Volcker Rule" really is out of line in my opinion. To keep a very long explanation short, financial instituation trade investments back and forth amongst themselves to mitigate investment risk...sort of a a farmer hedges crops and a cattlemen hedges cattle. This rule would disallow firms from trading investments with the intent of the all knowing government "to reduce risk in the central financial system" well it will reduce risk alright, because if investment banks can't hedge risk, they aren't going to participate. Or at least they won't be nearly as aggressive at stimulating economic productivity.

Saturday, May 8, 2010

Value of Replacements Females

It is always interesting to me to assess the value of replacement females in the market place to see how that translates into profit in the business. In recent times it seems, replacement females are grossly over valued in the market place and I often wonder how guys can pencil what they pay for heifers, young cows, middle aged cows and so on.

So every two weeks or so I go through the sale reports and see what different classes of replacement females are bringing and do a net present value analysis to see how over valued or under valued they are in market place based on my best estimations of future productivity and financial efficiency.

The NPV analysis takes into consideration that the value of a dollar today is less at some point in the future. So as we look at the value of a replacement female today and extrpolate out her financial productivity into the future, we must take into consideration that we make these extrapolations in todays value, which is more than that same value will be at that point in the future. Therefore we must discount todays values to represent what those values will be in the future.

That's a really wordy expanation for an analysis that is really simple. In these analyses, we will discount at 7% and use a base cow cost/lb of weaned calf of $421.39with an annual 1.5% increase. The base cow cost we are using is based on the SDSU IRM database average for South Dakota. You can view the IRM database report in the 2009 SDSU Cow-Calf Business Report which can be viewed on my website

Let's look at the latest....

April, 2010

Buy bred heifers, pay $1150/hd

Assume 8 years of productive life with an average net weaning wt. of 542#

We will assume that the avg. price for calves in this weight range over the next 8 years will run about $1.20/lb.

We'll discount the net returns at 7%.

We will value this heifer as a cull cow in 8 years at $650.

Lifetime Net Return = $113.65/hd

Breakeven Cost = $1250/hd

So in other words, if you buy heifers right now for $1250 or more, those heifers will either breakeven or bleed a lot of red over the 8 years of her life.

If these heifers are bought for less than $1250, they will net a positive return over their productive life.

I'd say these heifers are valued about right.

But what about young cows you might ask?

Let's look...

Buy 3-4 year old young cows, pay $1210/hd

Assume 6 years of productive life with an average net weaning wt. of 542#

We will assume that the avg. price for calves in this weight range over the next 6 years will run about $1.20/lb.

We'll discount the net returns at 7%.

We will value this heifer as a cull cow in 6 years at $650.

Lifetime Net Return = <$41.16>/hd

Breakeven Cost = $1170/hd

This set of 4 year old cows are going lose $41.16/hd over their productive life. They are simply over-valued at the market place. This analysis shows that 4 year old cows need to be bought at less than $1170/hd to turn a profit over their lifetime.

Buy 6 year old cows, pay $1190/hd

Assume 4 years of productive life with an average net weaning wt. of 542#

We will assume that the avg. price for calves in this weight range over the next 5 years will run about $1.20/lb.

We'll discount the net returns at 7%.

We will value this heifer as a cull cow in 6 years at $650.

Lifetime Net Return = <$281.68>/hd

Breakeven Cost = $910/hd

This set of 6 year old cows are going lose $281.68/hd over their productive life. They are simply over-valued at the market place. This analysis shows that 6 year old cows need to be bought at less than $910/hd to turn a profit over their lifetime.

There are always over-valued items and under-valued items in any market place. With these types of analyses, we hopefully can find the under-valued and turn them into profit.

Friday, May 7, 2010

Is There Some Money in Grass Cattle this Year?

Maybe, let's take a look:

Scenario #1

Bales at Huron, SD

Buy steers, medium 1 640# @ $126.75
Lock 'em in on the board for SEP 10 @ $114.65
Run on grass for 120 days @ $0.56/day
Allow $20/hd for operating costs
Sell 870# in September
Breakeven $105.71
Profit $77.56/hd less basis and commissions.

Scenario #2
Ft. Pierre, SD

Buy steers, medium 1 740# @ $122.50
Sell 968#
Breakeven $104.63
Profit $96.91/hd less basis and commissions

Scenario #3
Aberdeen, SD

Buy steers, medium 1 775# @ $119.25
Sell 931#
Breakeven $110.69
Profit $36.80/hd less basis and commissions.

After tracking this for the last couple of weeks it appears that guys may want to stay away from the heavies (>8 wt). There seems to be a heavy demand for these heavier cattle which has erased a large portion of the slide you might expect.

Judging from the cost breakevens on these examples above, guys shouldn't get into grass cattle unprotected either. This fall, I expect unprotected grass cattle will be lucky to break even.

Thursday, May 6, 2010

Federal Reserve Declines Change in Prime Rate

Monday the Federal Reserve reported (as it does weekly at the prime rate remains unchaged at approximately 3.25%. However, if the European financial crisis escalates and China continues relatively slow economic growth, look for the Fed to nudge towards at least a 1/4 point increase at the next meeting sometime in May.

Health care law's massive, hidden tax change

A paperwork nightmare looms on the horizon from the new Health Care Bill. This has very real implications for all U.S. small businesses, including family farms and ranches. Take a look at yesterdays article from CNNMoney.

NEW YORK ( -- An all-but-overlooked provision of the health reform law is threatening to swamp U.S. businesses with a flood of new tax paperwork.
Section 9006 of the health care bill -- just a few lines buried in the 2,409-page document -- mandates that beginning in 2012 all companies will have to issue 1099 tax forms not just to contract workers but to any individual or corporation from which they buy more than $600 in goods or services in a tax year.
The stealth change radically alters the nature of 1099s and means businesses will have to issue millions of new tax documents each year.
Right now, the IRS Form 1099 is used to document income for individual workers other than wages and salaries. Freelancers receive them each year from their clients, and businesses issue them to the independent contractors they hire.
But under the new rules, if a freelance designer buys a new iMac from the Apple Store, they'll have to send Apple a 1099. A laundromat that buys soap each week from a local distributor will have to send the supplier a 1099 at the end of the year tallying up their purchases.
The bill makes two key changes to how 1099s are used. First, it expands their scope by using them to track payments not only for services but also for tangible goods. Plus, it requires that 1099s be issued not just to individuals, but also to corporations.
Taken together, the two seemingly small changes will require millions of additional forms to be sent out.
"It's a pretty heavy administrative burden," particularly for small businesses without large in-house accounting staffs, says Bill Rys, tax counsel for the National Federation of Independent Businesses.
Eliminating the goods exemption could launch an avalanche of paperwork, he says: "If you cater a lunch for other businesses every Wednesday, say, that's a lot of information to keep track of throughout the year."
The paper trail
Why did these tax code revisions get included in a health-care reform bill? Welcome to Washington. The idea seems to be that using 1099 forms to capture unreported income will generate more government revenue and help offset the cost of the health bill. A Democratic aide for the Senate Finance Committee, which authored the changes, defended the move.
"Information reporting improves tax compliance without raising taxes on small businesses," the aide said. "Health care reform includes more than $35 billion in tax cuts for small businesses ... indicating that during these tough economic times, Congress is delivering the tax breaks small businesses need to thrive." The new rules could drastically alter the tax-reporting landscape by spotlighting payments that previously went unreported. Freelancers and other independent operators typically write off stacks of business expenses; having to issue tax paperwork documenting each of them could cut down on fraudulent deductions.
More significantly, the 1099 trail would expose payments to small operators that might now be going unreported. If you buy a computer for your business from a major chain retailer, the seller almost certainly documents the revenue. But if you buy it from Tim's Computer Shack down the street, Tim might not report and pay taxes on his income from the sale. The IRS estimates that the federal government loses more than $300 billion each year in tax revenue on income that goes unreported. Using 1099s to document millions of transactions that now go untracked is one way to begin to close the gap.
While all but unnoticed at the time -- a Pennsylvania business group issued the first warning last October as the idea emerged in draft Senate legislation -- the 1099 rule changes began sparking attention in the blogosphere in the last week. The libertarian Cato Institute called it a "costly, anti-business nightmare"; Rep. Dan Lungren, R-Calif., introduced legislation last week that would repeal the new 1099 requirements.
The notion of mailing a tax form to Costco or Staples each year to document purchases may seem absurd to small business owners, but that's not the worst of it, tax experts say.
Marianne Couch, a principal with the Cokala Tax Group in Michigan and former chair of a citizen advisory group to the IRS on small business and self-employed tax issues, thinks the bigger headache will be data collection: gathering names and taxpayer identification numbers for every payee and vendor that you do business with.
But she also sees a silver lining in the new law. Her firm already recommends collecting tax data on all vendors, since the IRS requires that you have it on hand at the time of the transaction, not just at tax-filing time. And eliminating the corporate and goods exemptions at least means that businesses will no longer have to pour over every transaction to determine if it needs a 1099. The new rule is simpler: If it crosses the $600 threshold, it's in."There are probably going to be some hiccups along the way, because systems will need to be redesigned," says Couch. "But overall I believe it will make compliance on the payor end a lot more streamlined and easier."
In any case, the final impact of the law won't be known until the IRS issues its regulations on the new law, which aren't expected to arrive until sometime next year. The IRS has not yet commented on when it will release regulations or schedule public hearings, and an agency spokesman was unsure when it will do so. The new requirements kick in January 1, 2012.

Wednesday, May 5, 2010

Annual Forages

Summer Annual Forages
Temperatures are warming, the days are getting longer, it’s nearing the end of spring so it must be time to start thinking about planting summer annual forages. Summer annual forage crops like sudangrass, millets, cane, and sorghum-sudan hybrids are grasses that grow well when the weather gets hot, sunlight intensity is high, and moisture is less abundant. These types of forages can be an excellent solution to the “summer slump” in forage yields and quality we so often see in the northern Great Plains region for haying and grazing as a result of our predominately cool-season vegetation.

There are however, a few key management tips to remember as you consider establishing and utilizing summer annual forages: 1) Don’t plant summer annual forages too early. Wait until soil temperature will remain above 65 to 70 degrees. This will be in early- to mid-June in most cases. Exposing young seedlings to cool air (<50 degrees) or soil temperatures can permanently stunt growth, greatly reducing potential forage yield; 2) Sudangrass, one of the more popular annual forage species, produces a compound called prussic acid. Prussic acid is a hydrogen cyanide compound and is toxic to livestock when ingested.
To manage prussic acid poisoning problems, allow sudangrass to grow taller than 18 inches before grazing or haying it. Typically the prussic acid is diluted to non-toxic levels once the plant has grown taller than this height; 3) Summer annual forage species tend to be aggressive nitrate accumulators, especially in dry soil conditions. Livestock that consume these forages, either through grazing or hay, can be subjected to nitrate poisoning if not managed properly. A manager should always have summer annual forages tested for nitrate levels before grazing or haying. If nitrate levels are a problem, haying is likely the better alternative. Although the hay is still toxic in terms of nitrate levels, it can be ground and diluted into other forage stocks to minimize nitrate concentrations in livestock diets.

Grazing annual forages with high nitrate levels is not generally a good idea, however, if a manager is going to graze these forages, strip graze these fields and move animals frequently enough that they don’t consume the lower one-third of the stalk where the highest nitrate concentrations typically occur.

Copyright ©. 2007. SDSU and Eric M. Mousel. All rights reserved.

How Does Calving Season Affect Cow Costs in Eastern South Dakota?

Here is a little teaser from some data I pulled out of the SDSU IRM database. A full write up will appear in the 2011 SDSU Beef Research Report.

Note: Click on the table to make it bigger.

How Does Calving Season Affect Cow Costs in Eastern South Dakota?

A Production and Financial Comparison of Four Calving Dates for Beef Cows in Eastern South Dakota from 2002-2009.

Eric Mousel, Range Livestock Specialist, South Dakota State University

The amount of harvested and purchased feeds required to maintain a cow herd in eastern South Dakota is related in part; to calving date. Cows calving during the dormant season cause lactation to occur when range and pasture forage are not available and therefore need to be fed supplemental energy and protein. The majority of the difference in total annual cow cost is in the difference in the amount of supplemental feeds fed before summer grass is available. The unknown question is, ‘how much does total annual cow cost vary between different calving seasons’? The objective of this research was to use the South Dakota Integrated Resource Management (IRM) Database to compare the production and economic efficiencies of the four major calving seasons that are found in eastern South Dakota.

Materials and Methods
Data collected from cow-calf producers in eastern South Dakota who participated in the SDSU-IRM-SPA program were used in this study. Additional data was collected through individual consultation. Data were collected for the 2002 through 2008 calendar years; data were from the cow-calf enterprise only. All production data, regardless of source, were collected using the SPA system, in accordance with the SPA guidelines, developed by the IRM Coordinating Committee of the National Cattlemen’s Beef Association. Financial data was collected using the SPA system, in accordance with SPA guidelines; information was collected from IRS Schedule F to calculate Operating Expense Ratio (OER). The OER is defined as the proportion of gross revenue used to cover operating expenses. The ratio was calculated as follows:

Operating Expense Ratio = Total Operating Expense – Interest Expense – Depreciation Expense/
Value of Farm Production

Where Value of Farm Production is defined as Gross Income minus the value of purchased feeder livestock and purchased feed.

Calf cost breakeven was calculated as follows:

Calf Cost Breakeven = Total Cow Cost/
Pounds of Calf Weaned per Cow Exposed

Return on Assets (ROA) was calculated as follows:

ROA = Net Farm Income + Interest Paid – Labor and Management + Capital Gains/
Total Farm Assets

Each herd represented one observation which resulted in a final database of 178 production and financial observations. Calving dates were categorized as 1) January-February (49 observations), 2) March-April (71 observations), 3) May-June (30 observations), and 4) August and September (29 observations). Producers who were involved with the program more than 1 yr may be included multiple times. Operations ranged from 47 to 1,125 cows.

Results and Discussion Points

Weaning weight
Calves born in JAN-FEB were 7% heavier than calves born in MAR-APR.
Calves born in MAR-APR were 24% heavier than calves born in MAY-JUN.
Calves born in AUG-SEP were 15% heavier than calves born in MAY-JUN.

Total Cow Cost
Total Cow Cost was lowest for the MAY-JUN calving cows.
Total Cow Cost for MAY-JUN calving cows was 30% lower than JAN-FEB, 23% lower than MAR-APR, and 29% lower than AUG-SEP.

Cow Feed Cost and Percent Feed Cost
MAY-JUN calving cows had the lowest Cow Feed Cost and the lowest percent feed cost.
AUG-SEP calving cows had the highest Cow Feed Cost and the highest percent feed cost.

Calf Cost Breakeven
Calf Cost Breakeven for MAY-JUN calving cows was 9.1% lower than JAN-FEB, 3.2% lower than MAR-APR, and 16.8% lower than AUG-SEP.

Return on Assets
Return on Assets was for MAY-JUN calving cows were 44% higher than JAN-FEB, 29% higher than MAR-APR, and 66% higher than AUG-SEP.

We've Moved

New editions of The South Dakota Rancher Newsletter have been pretty scarce since 2008. Unfortunately, things change and the newsletter had to take a little hiatus to make room for new responsibilities. However, I think I am in a position now to continue publishing the newsletter on a monthly basis so you can stop sending hate mail referencing the absence of new material.

Additionally, the SDR will no longer be available in paper copy. I have decided to go to a blog format which hopefully will cut down on hassle and increase time to think up new stuff. At some point I may go to a full website, but I think there needs to be around 2,500 readers before that cost and hassle can be justfied and readership was only about 65% of that in 2007. So this will have to do for now.

So enjoy the new format, material, etc.

As always, if you have comments, send them my way, the good, the bad, and keep the ugly to a minimum.