• TABLE OF CONTENTS
HIDE
 Front Cover
 Summary
 Introduction
 Definition of terms
 Synthesized ranch
 Expenses
 Allocation of cost between lamb...
 Effect of production changes on...
 Owning versus leasing land
 Acknowledgement
 Back Cover






Title: Cost of producing lamb and wool on the Edwards Plateau sheep ranches
CITATION PAGE IMAGE ZOOMABLE PAGE TEXT
Full Citation
STANDARD VIEW MARC VIEW
Permanent Link: http://ufdc.ufl.edu/UF00055300/00001
 Material Information
Title: Cost of producing lamb and wool on the Edwards Plateau sheep ranches
Physical Description: 6 p. : ; 28 cm.
Language: English
Creator: Hildebrand, Peter E.
Texas Agricultural Experiment Station
Publisher: Texas Agricultural Experiment Station
Place of Publication: College Station Tex
Publication Date: 1961
 Subjects
Subject: Lambs -- Economic aspects   ( lcsh )
Wool -- Economic aspects   ( lcsh )
Genre: government publication (state, provincial, terriorial, dependent)   ( marcgt )
non-fiction   ( marcgt )
 Notes
Statement of Responsibility: Peter E. Hildebrand.
General Note: "MP-553."
General Note: Caption title.
Funding: Electronic resources created as part of a prototype UF Institutional Repository and Faculty Papers project by the University of Florida.
 Record Information
Bibliographic ID: UF00055300
Volume ID: VID00001
Source Institution: University of Florida
Holding Location: University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: oclc - 10943736

Table of Contents
    Front Cover
        Page 1
    Summary
        Page 2
    Introduction
        Page 3
    Definition of terms
        Page 3
    Synthesized ranch
        Page 3
    Expenses
        Page 4
    Allocation of cost between lamb and wool
        Page 5
    Effect of production changes on unit costs
        Page 5
    Owning versus leasing land
        Page 5
    Acknowledgement
        Page 6
    Back Cover
        Page 7
Full Text

















Cost of Producing lamb and Wool


On the Edwards Plateau Sheep Ranches


.:


* 1 1Y~F; -.~Z


:~~

































summary

A preliminary survey was conducted in the spring
of 1961 to determine the cost of producing lamb and wool
on a selected area of the Edwards Plateau for 1960. A
ranch model was synthesized, based on information ob-
tained from the ranchmen as well as published and
unpublished data.
A total cost of $13.85 per ewe was determined for
the synthesized ranch. Based on the method used to
allocate costs between lamb and wool-relative expected
gross revenues, the cost per pound of lamb was estimated
at 16.0 cents, and the cost of producing a pound of wool
was 59.1 cents. Costs varied, depending on the amount
of production and on whether the ranch was owned out-
right or leased, or partially mortgaged.





contents

Summary........---...........------.----------------- 2
Introduction.................------------- ------------- 3
Definition of Term s.-...--..........----. .-------------- 3
Synthesized Ranch.................. .....------- ---... -----. 3
Expenses...................--------------------------------- 4
Allocation of Cost between Lamb and Wool..---........ 5
Effect of Production Changes on Unit Costs-----................... 5
Owning versus Leasing Land.-.....-............. ......---------- 5
Acknowledgments ......---......--- ... .. ..--------....... 6











Cost of Producing Lamb and Wool

On the Edwards Plateau Sheep Ranches

Peter E. Hildebrand, Formerly Assistant Professor
Department of Agricultural Economics and Sociology


LAMB AND WOOL are two of the major sources of
income on the Edwards Plateau of Texas. Many
of the ranches which raise sheep in this area also
have cattle and Angora goats as major sources of
income. On ranches with more than one type of
livestock, it is not a simple matter to determine the
cost of producing each single product. This report
explains some of the major problems encountered
and gives the estimated cost of producing lamb and
wool for a selected area of the Plateau.

DEFINITION OF TERMS
Expenses can be separated into those which
represent an actual cash outlay-cash expenses-and
those which require no actual cash outlay-noncash
expenses. Depreciation and interest on the equity
in the business are common noncash expenses, but
both are important components of total cost. How-
ever, these two items would be excluded in determin-
ing cash expenses for a single year.
A distinction between direct costs and joint costs
must be made in computing the costs of producing
one commodity when two or more are produced.
All costs are direct costs for a ranch producing only
a single ranch product, such as feeder calves. A ranch
having both cattle and sheep has some direct costs
and some joint costs. A direct cost is chargeable to
one type of livestock, such as shearing costs on the
sheep and cattle ranch. Costs which cannot be allo-
cated in such a way are joint costs. Full-time hired
labor and costs associated with land are examples of
joint costs.
Two types of joint costs exist on ranches running
both cattle and sheep. Some costs are joint between
sheep and cattle, and most costs allocated to sheep
are joint between lamb and wool.
The allocation of joint costs between types of
livestock or between separate products is a difficult
problem. In this study, when there was no other
basis, joint costs were allocated between classes of
livestock on an animal unit basis. For example, on
a ranch where three-fourths of the animal units were
sheep and one-fourth were cattle, 75 percent of the
cost of land (either lease cost or interest) was charged
to sheep and 25 percent to cattle. Because the pro-
portion of lamb and wool produced is not variable
in the sense that relative livestock numbers are vari-


able, it becomes virtually impossible to allocate the
joint costs to wool or to lamb by any reliable pro-
cedure. Several methods.are available for allocating
joint costs between two such products, but any one
of them is, at best, an arbitrary method.1 In this
report, the costs were allocated on the basis of the
relative expected gross revenues from lamb and wool.

SYNTHESIZED RANCH
Based on the information obtained from the
ranch survey and other published and unpublished
information, a ranch was synthesized as being repre-
sentative of the present situation of ranches on the
Edwards Plateau included in the study. The size
of the ranch is given in Table 1.
Information was obtained from ranches which
varied from 5 sections to almost 30 sections of land.
Of the ranches that had goats, the percentage of
animal units of goats varied from 9 to 31 percent.
Sheep made up 55 to 95 percent of the animal units,
and cattle, which were reported on all ranches, com-
prised 5 to 30 percent of the animal units of live-
stock. Spanish goats and horses made up the largest
part of the other livestock reported.
The average range condition classification of
the ranches included in the study varied from poor
to low-fair. The stocking rate varied from 36 to
42 animal units per section in the northwestern part
of the Edwards Plateau to 77 animal units per section
in the southeastern portion. For purposes of this
study, the synthesized ranch has a general range con-
dition of low-fair. With a stocking rate of 40 animal
units per section on a low-fair range, a reasonable
approximation of conditions in the northwestern area
of the Edwards Plateau is achieved.
One animal unit is composed of 5 sheep, so the
ranch model has 2,000 head of sheep. On an average,
about 80 percent of the herd will be ewes; 17.5 per-
cent, yearling replacements; 2.5 percent, bucks. Thus,
the herd of sheep on the synthesized ranch is com-
posed of 1,600 ewes, 350 yearlings and 50 bucks.
There are 32 ewes per buck, and the rate of ewe
replacement is slightly more than 20 percent each
year. Using these sheep numbers, one animal unit

'For a more complete discussion of allocating joint costs, one of
several references is: Wantrup, S. V., "Economics of Joint Costs
in Agriculture," Journal of Farm Economics, November 1941.











Cost of Producing Lamb and Wool

On the Edwards Plateau Sheep Ranches

Peter E. Hildebrand, Formerly Assistant Professor
Department of Agricultural Economics and Sociology


LAMB AND WOOL are two of the major sources of
income on the Edwards Plateau of Texas. Many
of the ranches which raise sheep in this area also
have cattle and Angora goats as major sources of
income. On ranches with more than one type of
livestock, it is not a simple matter to determine the
cost of producing each single product. This report
explains some of the major problems encountered
and gives the estimated cost of producing lamb and
wool for a selected area of the Plateau.

DEFINITION OF TERMS
Expenses can be separated into those which
represent an actual cash outlay-cash expenses-and
those which require no actual cash outlay-noncash
expenses. Depreciation and interest on the equity
in the business are common noncash expenses, but
both are important components of total cost. How-
ever, these two items would be excluded in determin-
ing cash expenses for a single year.
A distinction between direct costs and joint costs
must be made in computing the costs of producing
one commodity when two or more are produced.
All costs are direct costs for a ranch producing only
a single ranch product, such as feeder calves. A ranch
having both cattle and sheep has some direct costs
and some joint costs. A direct cost is chargeable to
one type of livestock, such as shearing costs on the
sheep and cattle ranch. Costs which cannot be allo-
cated in such a way are joint costs. Full-time hired
labor and costs associated with land are examples of
joint costs.
Two types of joint costs exist on ranches running
both cattle and sheep. Some costs are joint between
sheep and cattle, and most costs allocated to sheep
are joint between lamb and wool.
The allocation of joint costs between types of
livestock or between separate products is a difficult
problem. In this study, when there was no other
basis, joint costs were allocated between classes of
livestock on an animal unit basis. For example, on
a ranch where three-fourths of the animal units were
sheep and one-fourth were cattle, 75 percent of the
cost of land (either lease cost or interest) was charged
to sheep and 25 percent to cattle. Because the pro-
portion of lamb and wool produced is not variable
in the sense that relative livestock numbers are vari-


able, it becomes virtually impossible to allocate the
joint costs to wool or to lamb by any reliable pro-
cedure. Several methods.are available for allocating
joint costs between two such products, but any one
of them is, at best, an arbitrary method.1 In this
report, the costs were allocated on the basis of the
relative expected gross revenues from lamb and wool.

SYNTHESIZED RANCH
Based on the information obtained from the
ranch survey and other published and unpublished
information, a ranch was synthesized as being repre-
sentative of the present situation of ranches on the
Edwards Plateau included in the study. The size
of the ranch is given in Table 1.
Information was obtained from ranches which
varied from 5 sections to almost 30 sections of land.
Of the ranches that had goats, the percentage of
animal units of goats varied from 9 to 31 percent.
Sheep made up 55 to 95 percent of the animal units,
and cattle, which were reported on all ranches, com-
prised 5 to 30 percent of the animal units of live-
stock. Spanish goats and horses made up the largest
part of the other livestock reported.
The average range condition classification of
the ranches included in the study varied from poor
to low-fair. The stocking rate varied from 36 to
42 animal units per section in the northwestern part
of the Edwards Plateau to 77 animal units per section
in the southeastern portion. For purposes of this
study, the synthesized ranch has a general range con-
dition of low-fair. With a stocking rate of 40 animal
units per section on a low-fair range, a reasonable
approximation of conditions in the northwestern area
of the Edwards Plateau is achieved.
One animal unit is composed of 5 sheep, so the
ranch model has 2,000 head of sheep. On an average,
about 80 percent of the herd will be ewes; 17.5 per-
cent, yearling replacements; 2.5 percent, bucks. Thus,
the herd of sheep on the synthesized ranch is com-
posed of 1,600 ewes, 350 yearlings and 50 bucks.
There are 32 ewes per buck, and the rate of ewe
replacement is slightly more than 20 percent each
year. Using these sheep numbers, one animal unit

'For a more complete discussion of allocating joint costs, one of
several references is: Wantrup, S. V., "Economics of Joint Costs
in Agriculture," Journal of Farm Economics, November 1941.











Cost of Producing Lamb and Wool

On the Edwards Plateau Sheep Ranches

Peter E. Hildebrand, Formerly Assistant Professor
Department of Agricultural Economics and Sociology


LAMB AND WOOL are two of the major sources of
income on the Edwards Plateau of Texas. Many
of the ranches which raise sheep in this area also
have cattle and Angora goats as major sources of
income. On ranches with more than one type of
livestock, it is not a simple matter to determine the
cost of producing each single product. This report
explains some of the major problems encountered
and gives the estimated cost of producing lamb and
wool for a selected area of the Plateau.

DEFINITION OF TERMS
Expenses can be separated into those which
represent an actual cash outlay-cash expenses-and
those which require no actual cash outlay-noncash
expenses. Depreciation and interest on the equity
in the business are common noncash expenses, but
both are important components of total cost. How-
ever, these two items would be excluded in determin-
ing cash expenses for a single year.
A distinction between direct costs and joint costs
must be made in computing the costs of producing
one commodity when two or more are produced.
All costs are direct costs for a ranch producing only
a single ranch product, such as feeder calves. A ranch
having both cattle and sheep has some direct costs
and some joint costs. A direct cost is chargeable to
one type of livestock, such as shearing costs on the
sheep and cattle ranch. Costs which cannot be allo-
cated in such a way are joint costs. Full-time hired
labor and costs associated with land are examples of
joint costs.
Two types of joint costs exist on ranches running
both cattle and sheep. Some costs are joint between
sheep and cattle, and most costs allocated to sheep
are joint between lamb and wool.
The allocation of joint costs between types of
livestock or between separate products is a difficult
problem. In this study, when there was no other
basis, joint costs were allocated between classes of
livestock on an animal unit basis. For example, on
a ranch where three-fourths of the animal units were
sheep and one-fourth were cattle, 75 percent of the
cost of land (either lease cost or interest) was charged
to sheep and 25 percent to cattle. Because the pro-
portion of lamb and wool produced is not variable
in the sense that relative livestock numbers are vari-


able, it becomes virtually impossible to allocate the
joint costs to wool or to lamb by any reliable pro-
cedure. Several methods.are available for allocating
joint costs between two such products, but any one
of them is, at best, an arbitrary method.1 In this
report, the costs were allocated on the basis of the
relative expected gross revenues from lamb and wool.

SYNTHESIZED RANCH
Based on the information obtained from the
ranch survey and other published and unpublished
information, a ranch was synthesized as being repre-
sentative of the present situation of ranches on the
Edwards Plateau included in the study. The size
of the ranch is given in Table 1.
Information was obtained from ranches which
varied from 5 sections to almost 30 sections of land.
Of the ranches that had goats, the percentage of
animal units of goats varied from 9 to 31 percent.
Sheep made up 55 to 95 percent of the animal units,
and cattle, which were reported on all ranches, com-
prised 5 to 30 percent of the animal units of live-
stock. Spanish goats and horses made up the largest
part of the other livestock reported.
The average range condition classification of
the ranches included in the study varied from poor
to low-fair. The stocking rate varied from 36 to
42 animal units per section in the northwestern part
of the Edwards Plateau to 77 animal units per section
in the southeastern portion. For purposes of this
study, the synthesized ranch has a general range con-
dition of low-fair. With a stocking rate of 40 animal
units per section on a low-fair range, a reasonable
approximation of conditions in the northwestern area
of the Edwards Plateau is achieved.
One animal unit is composed of 5 sheep, so the
ranch model has 2,000 head of sheep. On an average,
about 80 percent of the herd will be ewes; 17.5 per-
cent, yearling replacements; 2.5 percent, bucks. Thus,
the herd of sheep on the synthesized ranch is com-
posed of 1,600 ewes, 350 yearlings and 50 bucks.
There are 32 ewes per buck, and the rate of ewe
replacement is slightly more than 20 percent each
year. Using these sheep numbers, one animal unit

'For a more complete discussion of allocating joint costs, one of
several references is: Wantrup, S. V., "Economics of Joint Costs
in Agriculture," Journal of Farm Economics, November 1941.









TABLE 1. SIZE OF RANCH
Item Unit Amount

Rangeland Acres 11,520
Cropland Acres 0
Sheep Animal units 400
Goats Animal units 100
Cattle Animal units 200
Other livestock Animal units 20
Stocking rate per section Animal units 40


is composed of 4 ewes, seven-eighths yearling replace-
ments and one-eighth buck.

EXPENSES
Feed represents a major cost item for many ranch
operations. The feed cost per animal unit of sheep
on the surveyed ranches ranged from $1.87 to $4.44
per animal unit or from 47 cents to $1.11 per ewe,
Table 2. The cost per ewe is equal to the total cost
divided by 1,600 or cost per animal unit divided
by 4. The cost per head is total cost divided by 2,000
or cost per animal unit divided by 5. Thus, the cost
per ewe is greater than the cost per head. For the
synthesized ranch, the range condition was considered
to be slightly above average, and the stocking rate
was not considered to be as heavy as the heaviest
stocking rate in the area. Therefore, $4 was con-
sidered to be the feed cost per animal unit of sheep.
Labor cost was allocated among cattle, sheep and
goats on an animal unit basis except in those cases
where the operator estimated the proportion of time
actually spent working each class of livestock. The
estimates for sheep were close to the percentage
animal unit figure but slightly higher in all cases.
Therefore, the percent of the total labor charge
allocated to sheep slightly exceeds the percent animal
units of sheep on the ranch. Sheep represent 57
percent of the animal units, but 61 percent of the
total labor charge was allocated to them. The total

TABLE 2. EXPENSES ALLOCATED TO SHEEP FOR
LEASED RANCH
Range of values Amount used in model
per animal unit Per Per Total
Item on ranches animal ewe
surveyed unit

- Dollars - -
Feed 1.87- 4.44 4.00 1.00 1,600
Hired labor 4.52- 6.57 6.54 1.64 2,617
Depreciation 2.11- 2.46 2.40 .60 958
Interest on
equipment at 6% .28- .49 .36 .09 136
Interest on
livestock at 6% 3.36 .84 1,344
Herd replacement cost 11.16 2.79 4,466
Land lease 9.92 -18.00 16.40 4.10 6,566
Other cash expenses 8.34-13.18 11.16 2.79 4,470
Total 55.38 13.85 22,157


labor charge (including groceries) for the ranches in
the sample ranged from $4.80 to $6.50 per animal
unit. A charge of $6 was used for the synthesized
ranch, so a total of $2,617 was allocated to sheep.
Depreciation and interest on the investment in
equipment were both allocated to sheep on the basis
of the percentage of animal units represented by
sheep. Other cash expenses include direct expenses,
which have been allocated on the basis of the live-
stock on which they were used, and joint expenses,
which were allocated on the basis of the proportional
number of animal units.
The average capital investment in sheep was con-
sidered to be $56 per animal unit. Replacement
yearlings on the surveyed ranches were bought (and
sold) for $15 to $20 per head, and cull ewes were
sold for around $5. Cull bucks were worth about
$8 each. If bucks were purchased for $40, their
average value would be $24. The average value of
ewes was $10, and the value of yearlings was $15. The
total investment in sheep, then, is $22,450, or approxi-
mately $56 per animal unit.
If the ewe death loss is 5.6 percent and 240 ewes
are culled each year, 330 replacements are required
annually. There are 330 yearlings available after
taking into account a death loss (including additional
culling) of 5.7 percent. Since 350 yearlings were
saved and their value on the market is at least $15,
the total value of replacements is $5,250. The cull
ewes were worth $5 and brought $1,200, leaving a
ewe replacement cost of $5,250 minus $1,200, or
$4,050.
When replacing one-fourth of the bucks (12 head)
each year, the total cost at $40 each is $480. If 4 die
and 8 are sold at $8, the net cost of buck replacement
is $416. Thus, the total net cost of breeding herd
replacement is $4,466 ($4,050 for ewes and $416 for
bucks).
The largest single expense is the charge for land
use. In the case of a leased ranch, and many ranches
in the area are leased in part, this is a cash expense.
A common lease price in the area represented by
this model was $1 per acre. The amount of improve-
ment depreciation which was assumed by the operator
varied from lease to lease. The lease cost per animal
unit on the ranches surveyed showed a wide variation
due in part to the price of the lease and in part to
the rate of stocking on the lease. On the synthesized
ranch a lease charge of $1 per acre was used. The
amount of lease cost thus allocated to sheep represents
29.6 percent of the total sheep cost.
The total expenses allocated to sheep are shown
in Table 2. Based on a lease cost of $1 per acre,
a stocking rate of 40 animal units per section and
a 6 percent interest charge on the investment in
livestock and equipment, the total expenses allocated
to sheep were $22,157, or $13.85 per ewe ($55.38 per
animal unit).








TABLE 3. EFFECT ON UNIT COST AND NET RETURN
AT VARIOUS LEVELS OF PRODUCTION

Item Unit Values in Values in situations
model A B C

Lamb crop Percent 80 80 90 70
Lamb weight Pounds 65 65 65 65
Wool per head Pounds 7.5 9.0 7.5 7.0
Return
per ewe Dollars 15.12 16.29 16.18 13.56
Cost per ewe Dollars 13.85 13.85 13.85 13.85
Net return
per ewe Dollars 1.27 2.44 2.33 -.29
Cost per
pound lamb Cents 16.0 16.0 14.2 18.2
Cost per
pound wool Cents 59.1 49.2 59.1 63.3


ALLOCATION OF COST BETWEEN
LAMB AND WOOL

It has been necessary in the course of allocating
certain expense items to make arbitrary decisions
concerning the proportion of any item to allocate
to sheep. In most cases the decision involved a
logical procedure. When cost is broken down further
into cost of lamb and cost of wool, it is necessary
to make additional arbitrary decisions concerning cost
allocation, and the basis for some decisions is not
readily evident.
The joint costs between lamb and wool will be
allocated according to relative expected gross reve-
nues. An average wool clip of 7.5 pounds per sheep
is 37.5 pounds of wool per animal unit or 9.4 pounds
of wool produced per ewe in the breeding herd. At
a price of 63.5 cents per pound, there is $5.97 worth
of wool produced per ewe. Considering an 80 per-
cent lamb crop and a 65-pound average lamb weight,
208 pounds of lamb were produced per animal unit,
or 52 pounds per ewe. At a price of 17.6 cents a
pound, $9.15 worth of lamb per ewe is produced.
The total value of lamb and wool produced per ewe,
or total expected revenue is then $15.12. The prices
used are the average prices received by Texas farm-
ers and ranchmen for 1952-60 for lamb and 1955-59
for wool.
On this basis, the income from lamb is 60 per-
cent of the total expected revenue from the sale of
lamb and wool. This figure varies depending on the
wool crop, the percentage lamb crop and weight of
the lambs produced. Also, a variation in the relative
prices of lamb and wool affects the percent of income
produced from each. A change in one of these factors,
therefore, changes the relative amount of cost allo-
cated to lamb and wool. It will be assumed, however,
that lamb produces 60 percent of the income of the
sheep operation. Thus, 60 percent of the cost allo-
cated to sheep will be allocated further to the pro-


duction of lamb. Likewise, 40 percent of the cost
will be allocated to wool.

By allocating 60 percent of $22,157 to lamb,
$13,294 is considered to be the total cost of produc-
ing 83,200 pounds of lamb. The cost of producing
1 pound of lamb is, then, 16.0 cents. Similarly, $8,863
is allocated to the production of 15,000 pounds of
wool, or a cost of 59.1 cents per pound.

EFFECT OF PRODUCTION CHANGES
ON UNIT COSTS
The effect of production levels on the cost of
lamb and wool per pound and on net return is shown
in Table 3. These figures are based on a constant
cost of $13.85 per ewe, which would not necessarily
be an accurate assumption. Higher or lower average
production over a period of years almost always re-
flects higher or lower costs. However, for any given
year, lamb crop, lamb weight and wool crop can vary
considerably because of environmental conditions be-
yond the control of the ranchman. This table was
set up to illustrate the effect these changes can have
on unit costs rather than to indicate costs which
would be expected on the average with higher or
lower production.

Although the cost per ewe is the same in each
case, the cost per pound of wool decreases as the
amount of wool produced increases. Also, the cost
of producing lamb decreases as the percent lamb crop
increases. (The same would be true of an increase
in the weight of the lamb.) The opposite situation,
of course, is also true. That is, if the percent lamb
crop decreases or the amount of wool produced
decreases, the cost of production increases.

OWNING VERSUS LEASING LAND
Where land is leased, the cost of the lease is a
cash expense. When a ranch is owned outright, a
lease expense is not incurred, but interest on the

TABLE 4. EXPENSES ALLOCATED TO SHEEP,
OWNED LAND

Item Per animal Per ewe Total
unit

- Dollars - -
Feed 4.00 1.00 1600
Hired labor 6.54 1.64 2617
Depreciation 4.80 1.20 1916
Interest on equipment, 6% .36 .09 136
Interest on livestock, 6% 3.36 .84 1344
Herd replacement cost 11.16 2.79 4466
Interest on land, 4%' 46.08 11.52 18432
Other cash expenses2 15.48 3.87 6198
Total 91.78 22.95 36709

'Land valued at $40 per acre = $460,800.
'Including a tax of $.15 per acre.








TABLE 3. EFFECT ON UNIT COST AND NET RETURN
AT VARIOUS LEVELS OF PRODUCTION

Item Unit Values in Values in situations
model A B C

Lamb crop Percent 80 80 90 70
Lamb weight Pounds 65 65 65 65
Wool per head Pounds 7.5 9.0 7.5 7.0
Return
per ewe Dollars 15.12 16.29 16.18 13.56
Cost per ewe Dollars 13.85 13.85 13.85 13.85
Net return
per ewe Dollars 1.27 2.44 2.33 -.29
Cost per
pound lamb Cents 16.0 16.0 14.2 18.2
Cost per
pound wool Cents 59.1 49.2 59.1 63.3


ALLOCATION OF COST BETWEEN
LAMB AND WOOL

It has been necessary in the course of allocating
certain expense items to make arbitrary decisions
concerning the proportion of any item to allocate
to sheep. In most cases the decision involved a
logical procedure. When cost is broken down further
into cost of lamb and cost of wool, it is necessary
to make additional arbitrary decisions concerning cost
allocation, and the basis for some decisions is not
readily evident.
The joint costs between lamb and wool will be
allocated according to relative expected gross reve-
nues. An average wool clip of 7.5 pounds per sheep
is 37.5 pounds of wool per animal unit or 9.4 pounds
of wool produced per ewe in the breeding herd. At
a price of 63.5 cents per pound, there is $5.97 worth
of wool produced per ewe. Considering an 80 per-
cent lamb crop and a 65-pound average lamb weight,
208 pounds of lamb were produced per animal unit,
or 52 pounds per ewe. At a price of 17.6 cents a
pound, $9.15 worth of lamb per ewe is produced.
The total value of lamb and wool produced per ewe,
or total expected revenue is then $15.12. The prices
used are the average prices received by Texas farm-
ers and ranchmen for 1952-60 for lamb and 1955-59
for wool.
On this basis, the income from lamb is 60 per-
cent of the total expected revenue from the sale of
lamb and wool. This figure varies depending on the
wool crop, the percentage lamb crop and weight of
the lambs produced. Also, a variation in the relative
prices of lamb and wool affects the percent of income
produced from each. A change in one of these factors,
therefore, changes the relative amount of cost allo-
cated to lamb and wool. It will be assumed, however,
that lamb produces 60 percent of the income of the
sheep operation. Thus, 60 percent of the cost allo-
cated to sheep will be allocated further to the pro-


duction of lamb. Likewise, 40 percent of the cost
will be allocated to wool.

By allocating 60 percent of $22,157 to lamb,
$13,294 is considered to be the total cost of produc-
ing 83,200 pounds of lamb. The cost of producing
1 pound of lamb is, then, 16.0 cents. Similarly, $8,863
is allocated to the production of 15,000 pounds of
wool, or a cost of 59.1 cents per pound.

EFFECT OF PRODUCTION CHANGES
ON UNIT COSTS
The effect of production levels on the cost of
lamb and wool per pound and on net return is shown
in Table 3. These figures are based on a constant
cost of $13.85 per ewe, which would not necessarily
be an accurate assumption. Higher or lower average
production over a period of years almost always re-
flects higher or lower costs. However, for any given
year, lamb crop, lamb weight and wool crop can vary
considerably because of environmental conditions be-
yond the control of the ranchman. This table was
set up to illustrate the effect these changes can have
on unit costs rather than to indicate costs which
would be expected on the average with higher or
lower production.

Although the cost per ewe is the same in each
case, the cost per pound of wool decreases as the
amount of wool produced increases. Also, the cost
of producing lamb decreases as the percent lamb crop
increases. (The same would be true of an increase
in the weight of the lamb.) The opposite situation,
of course, is also true. That is, if the percent lamb
crop decreases or the amount of wool produced
decreases, the cost of production increases.

OWNING VERSUS LEASING LAND
Where land is leased, the cost of the lease is a
cash expense. When a ranch is owned outright, a
lease expense is not incurred, but interest on the

TABLE 4. EXPENSES ALLOCATED TO SHEEP,
OWNED LAND

Item Per animal Per ewe Total
unit

- Dollars - -
Feed 4.00 1.00 1600
Hired labor 6.54 1.64 2617
Depreciation 4.80 1.20 1916
Interest on equipment, 6% .36 .09 136
Interest on livestock, 6% 3.36 .84 1344
Herd replacement cost 11.16 2.79 4466
Interest on land, 4%' 46.08 11.52 18432
Other cash expenses2 15.48 3.87 6198
Total 91.78 22.95 36709

'Land valued at $40 per acre = $460,800.
'Including a tax of $.15 per acre.








TABLE 3. EFFECT ON UNIT COST AND NET RETURN
AT VARIOUS LEVELS OF PRODUCTION

Item Unit Values in Values in situations
model A B C

Lamb crop Percent 80 80 90 70
Lamb weight Pounds 65 65 65 65
Wool per head Pounds 7.5 9.0 7.5 7.0
Return
per ewe Dollars 15.12 16.29 16.18 13.56
Cost per ewe Dollars 13.85 13.85 13.85 13.85
Net return
per ewe Dollars 1.27 2.44 2.33 -.29
Cost per
pound lamb Cents 16.0 16.0 14.2 18.2
Cost per
pound wool Cents 59.1 49.2 59.1 63.3


ALLOCATION OF COST BETWEEN
LAMB AND WOOL

It has been necessary in the course of allocating
certain expense items to make arbitrary decisions
concerning the proportion of any item to allocate
to sheep. In most cases the decision involved a
logical procedure. When cost is broken down further
into cost of lamb and cost of wool, it is necessary
to make additional arbitrary decisions concerning cost
allocation, and the basis for some decisions is not
readily evident.
The joint costs between lamb and wool will be
allocated according to relative expected gross reve-
nues. An average wool clip of 7.5 pounds per sheep
is 37.5 pounds of wool per animal unit or 9.4 pounds
of wool produced per ewe in the breeding herd. At
a price of 63.5 cents per pound, there is $5.97 worth
of wool produced per ewe. Considering an 80 per-
cent lamb crop and a 65-pound average lamb weight,
208 pounds of lamb were produced per animal unit,
or 52 pounds per ewe. At a price of 17.6 cents a
pound, $9.15 worth of lamb per ewe is produced.
The total value of lamb and wool produced per ewe,
or total expected revenue is then $15.12. The prices
used are the average prices received by Texas farm-
ers and ranchmen for 1952-60 for lamb and 1955-59
for wool.
On this basis, the income from lamb is 60 per-
cent of the total expected revenue from the sale of
lamb and wool. This figure varies depending on the
wool crop, the percentage lamb crop and weight of
the lambs produced. Also, a variation in the relative
prices of lamb and wool affects the percent of income
produced from each. A change in one of these factors,
therefore, changes the relative amount of cost allo-
cated to lamb and wool. It will be assumed, however,
that lamb produces 60 percent of the income of the
sheep operation. Thus, 60 percent of the cost allo-
cated to sheep will be allocated further to the pro-


duction of lamb. Likewise, 40 percent of the cost
will be allocated to wool.

By allocating 60 percent of $22,157 to lamb,
$13,294 is considered to be the total cost of produc-
ing 83,200 pounds of lamb. The cost of producing
1 pound of lamb is, then, 16.0 cents. Similarly, $8,863
is allocated to the production of 15,000 pounds of
wool, or a cost of 59.1 cents per pound.

EFFECT OF PRODUCTION CHANGES
ON UNIT COSTS
The effect of production levels on the cost of
lamb and wool per pound and on net return is shown
in Table 3. These figures are based on a constant
cost of $13.85 per ewe, which would not necessarily
be an accurate assumption. Higher or lower average
production over a period of years almost always re-
flects higher or lower costs. However, for any given
year, lamb crop, lamb weight and wool crop can vary
considerably because of environmental conditions be-
yond the control of the ranchman. This table was
set up to illustrate the effect these changes can have
on unit costs rather than to indicate costs which
would be expected on the average with higher or
lower production.

Although the cost per ewe is the same in each
case, the cost per pound of wool decreases as the
amount of wool produced increases. Also, the cost
of producing lamb decreases as the percent lamb crop
increases. (The same would be true of an increase
in the weight of the lamb.) The opposite situation,
of course, is also true. That is, if the percent lamb
crop decreases or the amount of wool produced
decreases, the cost of production increases.

OWNING VERSUS LEASING LAND
Where land is leased, the cost of the lease is a
cash expense. When a ranch is owned outright, a
lease expense is not incurred, but interest on the

TABLE 4. EXPENSES ALLOCATED TO SHEEP,
OWNED LAND

Item Per animal Per ewe Total
unit

- Dollars - -
Feed 4.00 1.00 1600
Hired labor 6.54 1.64 2617
Depreciation 4.80 1.20 1916
Interest on equipment, 6% .36 .09 136
Interest on livestock, 6% 3.36 .84 1344
Herd replacement cost 11.16 2.79 4466
Interest on land, 4%' 46.08 11.52 18432
Other cash expenses2 15.48 3.87 6198
Total 91.78 22.95 36709

'Land valued at $40 per acre = $460,800.
'Including a tax of $.15 per acre.









investment in land becomes a cost which should be
taken into consideration when determining the total
cost of the operation. Interest is not a cash expense
but is an opportunity cost when the land is not
mortgaged and no interest is paid on the outstanding
debt.
When making the cost estimates on the basis of
a leased ranch, it is not necessary to estimate the
value of the land. It is necessary when considering
the ranch from the standpoint of an owner. To use
the value which the present owner paid for the land
is frequently unrealistic. This value would be too
low for land purchased many years ago; if a ranch
were inherited, the price would be zero. For a ranch
recently purchased, the value would reflect market
pressures on price other than earning value and would
be too high. Since it is necessary to compromise, a
conservative estimate of the market value of land
of the type being used for the synthesized ranch
would be $40 per acre.
The expenses allocated to sheep when all land
is owned are shown in Table 4.

In line with the differences observed between
leased ranches and owned ranches, depreciation has
been doubled. Interest on the land is charged at
4 percent, and other cash expenses include a tax of
15 cents per acre on land. The expenses for an
owned ranch are 66 percent greater than the expenses
for a leased ranch, even though a conservative esti-
mate of land value and a conservative interest rate
were considered. If the ranch is debt free, however,
$19,912 interest could be deducted, leaving a total
of $16,797 or $10.50 per ewe cash expenses plus
depreciation, Table 5.

The $10.50 cash expense, plus depreciation for
land owned clear, compares with $12.92 for a ranch


TABLE 5. EXPENSES PER EWE, LEASED, OWNED AND
MORTGAGED LAND

Owned land
Item Leased land Mortgage on
$1 per acre 35% of
mortgage land value

Feed 1.00 1.00 1.00
Hired labor 1.64 1.64 1.64
Herd replacement 2.79 2.79 2.79
Land lease 4.10
Interest on land 4.03
Other cash expenses 2.79 3.87 3.87
Total cash expenses 12.32 9.30 13.33
Depreciation .60 1.20 1.20
Interest on equipment .09 .09 .09
Interest on livestock .84 .84 .84
Interest on equity in land 11.52 7.49
Total expenses 13.85 22.95 22.95


leased at $1 per acre and $14.53 cash expense plus
depreciation for land having a mortgage amounting
to 35 percent of the land value. If, for the same
land, the lease price were $1.50 per acre, the cash
expense, plus depreciation for a leased ranch, would
be $14.97 per ewe rather than $12.92. The expenses
for the leased ranch, then, would exceed those for
a mortgaged ranch by 39 cents rather than being
$1.61 less.

ACKNOWLEDGMENTS
The author acknowledges the assistance of the
ranchmen who cooperated in furnishing the informa-
tion for this study; Robert H. Kensing, extension
area farm management specialist and James A. Gray,
extension animal husbandman, San Angelo, Texas;
and Leo B. Merrill, associate range management,
Substation No. 14, Sonora, Texas, who reviewed
earlier drafts of the manuscript.














-






TAU. WSTATIOKI
TU* P *.B LA TOmES
AI S-


Location of field research units of the Texas
Agricultural Experiment Station and cooperating
agencies


ORGANIZATION


OPERATION


Research results are carried to Texas farmers,
ranchmen and homemakers by county agents
and specialists of the Texas Agricultural Ex-
tension Service


State-wide Research





The Texas Agricultural Experiment Station
is the public agricultural research agency
of the State of Texas, and is one of the
parts of the A&M College of Texas.


IN THE MAIN STATION, with headquarters at College Station, are 13 subject-
matter departments, 3 service departments, 3 regulatory services and the
administrative staff. Located out in the major agricultural areas of Texas are
20 substations and 10 field laboratories. In addition, there are 13 cooperating
stations owned by other agencies. Cooperating agencies include the Texas
Forest Service, Game and Fish Commission of Texas, Texas Prison System,
U. S. Department of Agriculture, University of Texas, Texas Technological
College, Texas College of Arts and Industries and the King Ranch. Some
experiments are conducted on farms and ranches and in rural homes.

THE TEXAS STATION is conducting about 450 active research projects, grouped
in 25 programs, which include all phases of agriculture in Texas. Among
these are:
Conservation and improvement of soil Beef cattle
Conservation and use of water Dairy cattle
Grasses and legumes Sheep and goats
Grain crops Swine
Cotton and other fiber crops Chickens and turkeys
Vegetable crops Animal diseases and parasites
Citrus and other subtropical fruits Fish and game
Fruits and nuts Farm and ranch engineering
Oil seed crops Farm and ranch business
Ornamental plants Marketing agricultural products
Brush and weeds Rural home economics
Insects Rural agricultural economics
Plant diseases
Two additional programs are maintenance and upkeep, and central services.


iJoday6 ReIearct 36 tomorrow Progress


AGRICULTURAL RESEARCH seeks the WHATS, the
WHYS, the WHENS, the WHERE and the HOWS of
hundreds of problems which confront operators of farms
and ranches, and the many industries depending on
or serving agriculture. Workers of the Main Station
and the field units of the Texas Agricultural Experi-
ment Station seek diligently to find solutions to these
problems.




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