Citation |

- Permanent Link:
- https://ufdc.ufl.edu/UF00027785/00001
## Material Information- Title:
- Cow arithmetic
- Creator:
- Anderson, Charles L., 1927-1976
Holt, John, 1936- - Place of Publication:
- Gainesville, Fla.
- Publisher:
- Dept. of Agricultural Economics, University of Florida
- Publication Date:
- 1970
- Language:
- English
- Physical Description:
- 39 p. : ; 28 cm.
## Subjects- Subjects / Keywords:
- Cattle trade -- Florida ( lcsh )
Beef cattle -- Breeding -- Economic aspects -- Florida ( lcsh ) - Genre:
- non-fiction ( marcgt )
## Notes- General Note:
- "April 1970."
- Funding:
- Florida Historical Agriculture and Rural Life
- General Note:
- Agricultural Economics Report - University of Florida. Agricultural Experiment Stations ; no. 7
- Statement of Responsibility:
- Charles L. Anderson and John Holt.
## Record Information- Source Institution:
- Marston Science Library, George A. Smathers Libraries, University of Florida
- Holding Location:
- Florida Agricultural Experiment Station, Florida Cooperative Extension Service, Florida Department of Agriculture and Consumer Services, and the Engineering and Industrial Experiment Station; Institute for Food and Agricultural Services (IFAS), University of Florida
- Rights Management:
- All applicable rights reserved by the source institution and holding location.
- Resource Identifier:
- 024355513 ( ALEPH )
21028332 ( OCLC ) AHP0347 ( NOTIS )
## UFDC Membership |

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Ag. Econ. Report 7 April 1970 F7".-3. Cow Arithmetic Department of Agricultural Economics Florida Cooperative Extenson Service Institute of Food and Agricultural Sciences University of Florida, Gainesville Charles L. Anderson John Holt .-r COW ARITHMETIC *b by Charles L. Anderson and John Holt TABLE OF CONTENTS Topic Introduction . . . Determining the Calf Crop and Its Value. Calculating Percent Calf Crop . Determining Total Value of Calves . Inventory Values . . . Calculating Feed Costs . . Feed Cost Per Cow . . Feed Cost Per Pound of Beef . Cwt. vs. Ton. . .. . Fertilizer With Different Analyses. Stocking Rates . . . Selling Wisely . . .. Calculating Shrinkage . Figuring Trucking Costs . . Credit Sources . . . Figuring Loan Costs . . Answers to Problems. Page . . . 10 . . 11 . . . .2 . 1 5 . . 1 . . . 11 . . . 12 . . . 13 . . . 15 . . . 17 . .. . 18 . . . 18 . . . 22 S. . 27 . . . 32 . . . . .. 34 Cow Arithmetic Charles L. Anderson and John Holt INTRODUCTION Any man would like to "be his own boss". If he can't own his own ranch, at least he would like to become a manager. Any success- ful manager sets certain goals for himself and his operation. For example, he sets income goals based on the amount of money needed by his family and required to run the ranch. He also sets production goals for the number of calves he needs to produce on the ranch based on proper pasture use. To improve the ranch and to reach his goals, the manager has to make many decisions. He has to decide how much money to borrow, how many calves his ranch can produce and how and when to sell them. All these decisions require some "figuring". This publication was designed to be used as an instruction manual to introduce vocational agricultural students and 4-H club members to some management techniques. We show how to make many bf the calculations which managers use to help them make their day to day decisions. Because managing money is so important in operating a ranch or managing a home, we have included a section on credit. This section introduces the topic of where to get money and how to determine what it costs. The examples and problems are based on managing a beef cattle opera- tion, but these same methods are used in managing any enterprise. Examples are given in the text with a minimum explanation of why these approaches to solving problems are used. The problems will show why these calcula- tions are a necessary part of management. Answers to the problems are provided in the last section. DETERMINING THE CALF CROP AND ITS VALUE Q The sale of calves is the major source of income on most ranches. This section first shows how to calculate the percent calf crop and then how to determine the total value of the calves sold. Calculating Percent Calf Crop The arithmetic involved in determining the percent calf crop is very simple. You take the number of calves raised and divide this number by the number of cows available for calving. For example, suppose there are 700 calves raised, and 1000 cows were available for calving. You would arrive at the percent calf crop as follows: 700 calves raised 700 calve raied .70 or 70% calf crop. 1000 cows available Where most people make an error in calculating the percent calf crop is in arriving at the number of cows that are available for calving. For instance, if you had 950 cows and bred heifers in the herd at the begin- ning of the year, and you pregnancy tested this herd and found 150 head open and sold them, you would not use the remaining 800 head as the number of cows available for calving. You would use the original 950 head, for they were all exposed to the bull and were intended to be the brood herd. You can see that if you used the 800 remaining cows and heifers, you would overstate or calculate a higher percent calf crop than you actually 3 haJ. n'r inxs.'nce if you r.aied 600 head of calves this year, your pericue calf crop would be: 600 calves raised S.63 or 63% calf crop, 950 cows available it w.o)Ui not be: 600 calves raised 600 calves raised -.75 or 75% calf crop. 800 cows available On the other hand, if you had previously cut out some old cows for sale and had kept them in an effort to fatten them before selling, you would not include them as cows available for calving. True, you may have exposed these cows to the bull in an effort to breed them so that thea would fatten faster, but they were not intended for brood cows. If your cow inventory looked like this: A. 300 head Beginning inventory of cows B. 100 Bred heifers transferred to herd C. 400 head Total Supply D. "I Open cows sold :E. 30 Beef cows sold F. 3 Cows died ,.. 317 Ending inventory of cows H. 4U Head Total Disposition the number of cowa available for calving would be 370. This would be calcuLaced by the following procedure. A. .i3(1 Head in beginning inventory 5. fTCO Head of bred heifers 400 Head E. 'r! Head of beaf cows sold 370 -Head Availabil for Calving i-jr.ltce th.at we have added the number of bred heifers to the beginning inventory of cVuw and have subtracted the number of beef cows which were oriclin.il intended for sale. We have not subtracted the number of open cows sold nor the cows which died. If there were 250 calves raised this year, the percent calf crop would be: 250 calves raised = .675 or 68% 370 cows available Problems in Calculating Percent Calf Crop 1. Calculate the percent calf crop if you had 100 calves and 150 cows available for calving. 2. Calculate the percent calf crop if you sold 100 calves and kept 20 calves for replacements when there were 200 cows in the herd. 3. Calculate the percent calf crop with 300 cows in beginning inventory, 50 beef cows sold, 2 cows died, 150 calves sold and 50 calves saved as replacements. 4. Calculate the percent calf crop from the following: 300 cows in beginning inventory, 45 bred heifers added to herd, 30 open cows sold, 40 beef cows sold, 3 cows died, 160 calves sold and 30 heifer calves saved as replacements. Determining Total Value of Calves What is total value? It is the weight of the calves multiplied by the price received per pound. In other words, the amount of money that we receive from selling calves (or other cattle). Why calculate the value of the calf crop? We do this to find out how much money our cows will bring us in a year's time. Also because (a) we have debts to pay such as rent, and (b) we must make this money last for awhile. The money needs to last because we only sell calves once a year, and we buy things all year long. If we had 100 cows and they produced 80 calves weighing 400 pounds each and we sold them for $25 per hundredweight, how much money would we have? 5 40' pound calves 32,000 pounds x 80 calves $.25 dollars/pound 32,000 pounds to be sold 160000 64000 $8,000.00 total value of calves Problems 1. What if 80 calves sold for different prices for the steers and heifers? What would be the total value of the calf crop if we had: 45 steers 35 heifers 400 pound steers 350 pound heifers calf price: (a) steers = $27/cwt. (b) heifers = $25/cwt. 2. If you had a 200 cow herd and they had a 75% calf crop: (a) How , many calves would you have? (b) If the calves weighed 400 pounds and sold for $30 per hundredweight, what would be the total value of the calf crop? INVENTORY VALUES A manager must know the value of the things he is managing (some- times called assets); both for income taxes and to measure the growth of che ranch from one year to the next. He must have an inventory to do both of these things. An inventory is a list of the value of all ii assets and liabilities at a specified date. The manager takes an inven- tory ac the beginning and end of a yaar. For our example, we are going to average beginning and ending values to obtain an average value for the year, Before doing this, though, we must determine the values of i individuals in the herd. Growing atock snould be valued as close to market price as possible; however, breeding otock should be valued at an average v-ilue for the qual- ity of the cows in the herd over a period of several years. This same __iii4 "-- r '` -L C-F~- ._ ~--- iS_C-l-yg~Li9~--f;i1~Lr~~T __Z~~r~=;il-;;;c4c~ L~=5~~ ~-Vi* I method should be used when placing a value on bulls in the breeding herd. This means that growing stock (calves, heifers, steers and young bulls) will come close to reflecting market conditions, and breeding stock will remain at a fairly stable value -- changed only to reflect a change in quality. Suppose at the beginning of the year you had saved 50 head of year-old heifers from the past years calf crop, you intended to use them as replacements in the breeding herd. These heifers averaged 500 pounds at the beginning of the year, and this type of heifer was selling at the market for 25 a pound. 50 head X 500 lbs. X $.25 = $6,250. Let's follow this group of heifers through the year and record the transactions which occurred to arrive at a value at the end of the year. You sold 5 of these heifers and 1 died, which would leave 44 heifers on hand at the end of the year. These heifers had gained 200 pounds during the year, and heifers like them were selling for 234 a pound at the market. The value of these heifers at the end of the year would be: 44 head X 70 lbs. X $.23 = $7,084. The average value for your inventory of this group of heifers for the year would be calculated by adding their value at the beginning of the year plus the value at the end of the year and dividing the sum by 2. $ 6,250 7,084 $13,334 4 2 $6,667. $13,334 In calculating the inventory values of the breeding herd, you aver- age the sum of the beginning value and the ending value; but, in this case, you will simply arrive at an average value of cows of the quality in your herd and multiply this by the number of cows. This value on cows should be your best evaluation of what this type cow would be worth from year to year. You know that a certain cow might bring $125 at the market in one year, and the same quality cow might have brought $165 at another time. Some will be young cows; some will be older cows. The best figure that you can obtain will be an educated "questimate." If we take the 2 values mentioned above ($125 and $165) and sum them and take an average, your herd would be worth $145 a head. If you counted 150 cows at the beginn- ing of the year, added 30 heifers, sold 15 cows and 3 cows died, your inventory would look as follows: Value Head per Head Total Value *Beginning Inventory 150 $145 $21,750 Transferred in 30 165 4,950 Total Supply Sold Died Ending Inventory Total Disposition Average Depreciation 180 26,700 15 125 1,875 3 X 162 $145 $23,490 180 25,365 156 $22,620 $ 1,335 There are a lot of figures in the above table; however, the only two figures you would use in calculating average inventory value would be the Total Value of Beginning and Ending Inventories. $21,750 23, 490 $45,240 T 2 $22,620 $45,240 In the above table, the last entry is depreciation. This is the loss in value of the breeding herd during a year and is a method of recovering this cost. The method used is known as "whole herd deprecia- tion." The following calculations show why this occurs. First, the 30 heifers which were added to the herd were valued at $165 when added and at $145 in ending inventory. One hundred forty-five dollars is the aver- age value of cows in the herd. The only time the average value per head of cows in the breeding herd is changed is when there is a definite in- crease in quality of the herd. The value of heifers added to the herd decreased by $20 each or a total of $600. Second, the 15 cows which were sold, brought $20 each, less than their beginning value, or a total of $300. Third, the cows that died had no value or a decrease of $145 each for a total of $435. Adding the underscored values in this paragraph will give the amount of depreciation, $1335. In arriving at a value of inventory, livestock is not the only item to be considered. We must take into consideration the values of machinery and equipment, buildings and fences and land. Land will be considered last, because it does not depreciate. This is a good time to discuss depreciation. Depreciation is an accounting or bookkeeping procedure for spreading the cost of a capital item over the useful life of the item. For instance, suppose you buy a truck for $3000, and you pay cash for the truck. Granted, you have paid out the entire $3000 at one time; however, you expect to use this truck for 5 years, and wish to know what the annual cost of the investment will be in each year. There is a simple procedure to follow in determining this cost. This is the straight line method of depreciation. There are other methods of calculating this cost, but this is the simplest and most commonly used method. If the truck originally cost $3000, and you figure that it will be worth $500 at the end of 5 year, you subtract the '500 (salvage value) from the $3'000 (olgiunl coat) and divide by the number of years of useful life (the number of years you plan to use the truck). $3000 -500 $2500 1 5 $500. $2500 The above $500 is the annual straight line depreciation or annual capital cost involved in the ornerahip of the truck. You can use this 500 in figuring the inventory value of the truck at the beginning or the end of any particular year. For example, if you were interested in calculating the beginning and ending value, and the average value of the truck the first year, the calculations would be as follows: (Assume cruck purchased on first day of year.)' Original cost $3,000 Depreciacion -500 Value at end of year $2,500 To calculate average value: $3,000 2 500 $5,500 ; 2 $2,750 $ 5,500 To make the same calculations for the second year: Beginning Value $2,500 Depreciation -500 Endin- Value T2,000 To calculate: average value th. second year: Beginning Value $2,500 Enatcu Value 2,o000 $4,500 2 $2,250 $4,500 The calculations on buildings and fences irould be made by the same steps. The only difffer-nce would be in the lugth of life. B;!ildings and fancej normally are expected to last for a longer period o1 time than machinery and equipment. When you are trying to calculate the average value of land for a particular year, yo': can usually take the value at the beginning of the period; because land does not normally depreciate. An exception to this would be land appreciation (increase in value). If you had dug a canal or planted grass during the year, you would have increased the value of the land and should take this into consideration in calculating average value of land in inventory. First, let's assume that you have 500 acres of woodland at the beginning of the year which you value at $30 per acre for cow-land. During the year you have cleared, ditched, diked and planted 100 acres at a cost of 385 an acre. Your depreciation schedule would look like this: Beginning value of land (500 acres at $30) $15,000 Clearing, ditching, diL:in and plaiting (100 acres at $85) 8,500 Ending inventory value $23,500 To calculate average inventory value: Beginnion value $15,000 $38,500 2 $19,250. Ending value 23,500 $38,500 CALCULATING FEED COSTS Feed costs are one of the biggest .1'.en items in -ssaging a ranch. The cost of rfariizi= grcaia is also part of the cost of feed- ing the cttle on the ranch. This ieaciou shows how to dete.-ini hriat the feed costs are per cow, then what feed costs are per pouid of beef produced by the r:.ncti. Sin.. feed can be bou- h in difieL-ent quanitities ---in bulk (ton) or by thn haL (cwt,) -- we show how to determine which way to buy it. ThT.n ua polater' o -.-ve o on h:on t to ?l.uire the cost of fertilizer. Feed Cu ,. Per Cow In calculatiit, feed co--.t., pi-r cow, uwe first::determine the average number of cows in tL.h herd usin-g the beginning and ending inventories. For example: Beginning Inventory 1835 cows Ending Inventory 1996 cows 3831 The average number of cows is 1916 (3831 2). After calculating the average number of cows, we next determine total feed costs. Suppose our ranch records show that purchased feed last year was $17,212. If.we divide this cost by the average number of cows, we get a cost of purchased feed per cow of $8.98. However, to arrive at total direct feed costs, we should take into consideration the cost of producing grass. For our purposes we will not consider labor, machinery and equipment or taxes as contributing to this cost. These important costs would have to be considered by a manager, but in order to keep the problem simple, we will only consider money spent on seeds and plants, fertilizer-lime,.and feed. When these items are considered, our feed cost per cow is quite different. The new feed cost would be approx- im-arely $20. Thlu cost 13 obtained a follow': Seed~ and 'Plar.:ij S 905 Fer~illzer -Lime 20,299 Feed 17,212 $38,416 S$20.05 II 1.91i6 nv-,'I- n ,le.b'_r of. cow: Problems in Calculating Feerd Cos per Cow 1. What is the average of 10, 5, 7, 3, -and 25? 2. Average 5, 13, 22 and 40. 3. What is the average number of cows on hand during a year when the beginning inventory is 1050 and the ending inventory is 1100? 4. Figure the purchased feed cost per cow when the average number of .cows on hand is 950 and the purchased feeds were $7600. 5. If we had a ranch record which showed a beginning inventory of 900 cows and an ending inventory of 1000 cows with these items of coats (feed, $7600, fertilizer and lime, $7500 and seeds and plants of $1000), what would the average feed cost per cow be? Feed Cost Per Pound of Beef In calculating the feed cost per pound of beef produced, feed costs are determined the same way they were determined in calculating feed post per cow. The problem here is in calculating pounds of beef produced. When we calculate this figure, we are concerned with only the growing stock. This includes calves, steers, young bulls and heifers which have not entered the breeding herd. Cows and bulls in the breeding herd are not considered. Example: If at the which weighed 550 pounds pounds at the end of the 7,500 pounds of beef. Ending inventory Beginning inventory If feed cost had been $8 beginning of the year you had 50 head of heifers each, and this same group of heifers weighed 700 year; this group of heifers would have produced 50 head at 700 pounds 35,000 Ibs. 50 head at 550 pounds -27,500 " 7,500 lbs. per head, the cost per pound of beef produced would have been 5.33 50 head x $8 $400 $. 3 or S$.0533 or 5.330 7500 lbs. A situation you could cun into would be as follows; -Mo. Weight Ending Inventory 1,333 696,566 Sales 939 392,815 Died 17 X Eaten -- Transfer Out 405 305,442 Total Disposition 2.744 1,394,823 Purchases 27 14,598 Calves Raised 1,358 X Beginning Inventory 1,359 688,681= Total Supply 2,744 703,279 Total Produced 1,394,823 703,279 691,544 If you will use the $17,212 of purchased feed, the cost of purchased feed per pount of beef produced will be 2.5C. $17 212 -$17,22 $.0248 or 2.53 per lb. 691,544 lbs. In calculating the number of pounds produced, remember that you always subtract the number of pounds you started with from the number of pounds you had at the end of the period being considered. The difference will be the number of pounds produced. The number of pounds you started with will be found opposite Total Supply, and the number of pounds you had at the end of the period will be Total Disposition. Cwt. Vs. Ton There are times when you are quoted feed prices by the hundred pounds (cut,), while at other times the prices are given on a ton basis for the same kind of feed. The most important fact to remember here is that it takes 20 cwt, (twenty 100 lb. bags of feed) to equal a ton. For the feed r.o bf the same price, the ton price should elual 20 tines the cut. price. If, for example, one feed dealer quoted you a price of $3.50 per cwt. on 412 cottonseed meal, and another quoted a price in bags at $75 per ton, which should you buy? Simply multiply the cwt. price by 20. If the result is less than $75, buy from the dealer quoting the $3.50 per cwt. If the result is larger, buy from the dealer quoting the ton price. In this case you would buy from the dealer quoting the cwt. price of $3.50. $3.50 X 20 $70 per ton You could also make the comparison by dividing the $75 by 20. $75 4 20 $3.75 per cwt. Probably as important as knowing how to convert cwt. prices to ton prices is knowing what you are buying. If you are quoted prices such as $3.50 per cwt. and $3.25 per cwt. for cottonseed meal, be sure the dealers are talking about the same product. When you are buying cottonseed meal, you are buying protein; and the percentage of protein could be different. Of course if they are both quoting prices on 41% protein meal, you would purchase the meal at $3.25. However, if the dealer quoting $3.50 was planning to deliver 41% meal and the dealer quoting $3.25 had 36% pro- tein meal, you should do some calculating before you make a decision. Since your main reason for purchasing cottonseed meal is for the protein content, you should calculate the cost per pound of protein. There are 36 pounds of protein in 100 pounds of 36% meal. If you will divide the $3.25 by 36 you will see that this protein costs you 9t per pound. There are 41 pounds of protein in 100 pounds of 41% meal. Divide the $3.50 by 41 and the results are the price per pound of protein -- 8 1/24. 15 Problems in Figurtag Feed Costs 1. Calculate the price per ton on-a feed which is-selling for $3.00 per cwt. 2. Calculate the price per cwt. on a feed which is selling for $80 per ton. 3. Assuming two feeds are equal feeding value, which is the best buy? Feed A at $3.00 per cwt., or Feed B at $65 per ton. 4. Which would be the best buy -- 41% cottonseed meal at $4.00 per cwt., or 36% cottonseed meal at $80.00 per ton? 5. Which would you buy? 41% cottonseed meal at $4.10 per cwt. or 36% cottonseed meal at $3.75 per cwtl? ? Fertilizer with Different Analyses We know that nitrogen (N), phosphorus (P), and potassium (K) are the ingredients in a fertilizer mix that makes plants grow. We also know that grass pasture and clover pasture do not need the same kind of fertil- izer. Alo, fertilizer is sold in different blends such as 10-10-10 and ' 6-10-20. Theenumbers 10-10-10 mean that in 100 pounds of fertilizer, there would be 10 pounds each of nitrogen, phosphorus, and potassium. Similarly, a fertilizer with an analysis of 0-10-20 would contain no N, 10 pounds of P, and 20 pound- of K. I have seen some recommendations Jfr pastures indicating approximately 400 to '.0f pound, .'f 12-6-b should be applied to grass pastures and 250 to 300 pound:rh of 0-S-24 applied to clover plus 100 pounds of muriate of pocast-. If we put on 500 pounds of 12-6-6 per acre, we would be applying 60 pounds of nitrogen, 30 pounds of phosphcrus and 30 pounds of potassit~ per acre. If 12-6-6 was $40 per ton apiLJ 500 pounds would cost 1lu per acre ($40 x 500/2,000 = $10). Notice that this would only require 49 rounJ, of beef per acre to pay thei fertilizer cost, if calves were $25 per hundredweight (40 pounds of extra beef x $25/cwt. $10). On clover pasture, we might apply 300 pounds of 0-8-24 at $35 per ton. The cost would be: $35 per ton 4 20 cwt./ton $1.75 per 100 pounds 300 pounds x $1.75 per cwt. $5.25 per acre to apply 300 lbs. of 0-8-24. If muriate of potash cost $3.00/cwt., we would have ($5.25 + $3.00) $8.25 per acre on fertilizer for clover. jEamgle: If 12-6-6 was $45 per ton and 16-8-8 was $60 per ton, which one would be the cheapest? The cost per pound of plant nutrient is the thing to base a decision on. The cost per pound of nutrient is the same. 12 + 6 + 6 = 24 $45 4 20 $2.25/cwt. $2.25 T 24 $.093/1bujnutrient 16 + 8 + 8 32 $60 4 20 $3.00/cwt. $3.00 T 32 $.093/1b. nutrient However, this method would be of little use if the pasture needed nitrogen and the fertilizer 2-alysis was 0-10-20. The point is to be sure that the fertilizer you are applying will provide the recommended amounts of N, P, and K. Problem; Suppose soil test recommendations call for 60 pounds of N, 30 pounds of P, and 30 pounds of K (500 pounds per acre of 12-6-6). If 12-6-6 fertilizer is $50 per ton and 16-8-8 is $60 per ton, which one should you apply? Why? Conclusions 1. Determine the amount of nutrients recommended per acre. 2. Use a blend which will provide approximately the desired amount of N, P, and K per acre. 3. Use the cheapest fertilizer on a per pound of nutrient basis, not per bag or per ton. 4. Estimate your fertilizer needs for a year and get a bid (in bulk, if you can handle it this way) for the year's supply. 5. Generally speaking, a higher analysis fertilizer will be cheaper on a per pound nutrient basis. STOCKING RATES An animal unit is a term that ranchers use to make it easier to figure out what the stocking rate is. We adjust the number of steer, heifers, and calves so that they equal the number of cows it would take to eat that same amount of grass. Animal Units (a.u.) 1 cow 1.0 a.u. 1 cow and calf 1.25 ,a.u. 1 bull 1.25 a.u. 1 steer .5 a.u. 1 heifer .5 a.u. 1 calf .25 a.u. I horse 2. a.u. Calculating the number of animal units allows us to compare the amount of grass that the cows and calyas in one pasture will eat which tha amount that steers and heifers in another paatura will eat. For example, a maun ight have two pastures about 100 acres each. They are just about the same, and he wants to run 80 cows and calves in one pasture and 200 steers and heifers in the other. He wonders which will eat the pasture down the fastest. But how doa!- he compare cowa with calves to steers and heifers? Re uses "animal units." From the table above: 80 co-e 80 a.u, +30 calves (1/4 a.u. each) 20 a.u. 100 a.u. frcm SO cows with calves 100 steers (1/2 a.u. each) = 50 a.u. +100 heifers (1/2 a.u. each) 50 a.u. 100 a.u, from 200 steers and heifers Problems 1. How many animal units would you have if you had: 8 bulls 40 heifers 5 dry cows 10 steers 1 Scows and calves 4 horses 2. If we had 210 a.u. and 500 acres, what is the stocking rate in acres per animal unit? 3. How many animal units are there in a 200 cow breeding herd? Assume: (a) 70% calf crop (b) 25 cows per bull (c) cows replaced after 5 years (20% replacements) (d) 2 horses 4. Using the answer to problem 3, and a stocking rate of 2.23 acres/a.u., how many acres of improved pasture will be necessary to maintain a 200 cow breeding herd? SELLING WISELY Producing good heavy calves is only half the battle in managing a ranch. They must be sold wisely. The manager can sell at the ranch or at an auction in town. The amount of weight loss (shrinkage) and the trucking costs are two of the main things he must know. This section shows how they can be calculated. Calculating Shrinkage Shrinkage is the amount of weight lost by cattle berwean the ranch pens and the market. Cattle are frequently bought and sold .-Wih a "pencil .shrink". That is, the buyer weighs them at the ranch pens, and deducts a percentage figure (3% for example) from the ranch weight. This 1. suppuoed co be the same as the amount of weight the cattle would lose during the ride to market. CalLtl on different types of pasture shrink different -amounts, and the farther it is to market, the more shrinkage. However, if the cattle have been penned overnight, they have already lost some weight. Therefore, in selling cattle, a man needs to understand how to figure shrinkage, so that he can do a better job of selling his cattle.. For example, a lower price received per pound for cattle at the ranch with no "pencil shrink" deducted ,can be more profitable than a higher price per pound when the buyer is allowed to subtract too many pounds for shrinkage. If your steer calves weighed 400 pounds at the ranch and they would shrink 3% on the trip to market, how many pounds of beef would you sell? 400 pound steer x .03 weight loss in shipment (shrinkage) 12.00 pounds weight lost from ranch to market 400 pounds at ranch -12 pounds weight loss 388 pounds the steer would weigh at market The o.:llowing tables can help you decide where and how to sell. In ITabi 1 suppose that a buyer offers you $20.00 per hundred pounds for your steer calves with a 3 percent shrink allo's.ane. Looking at $20.00 under column 1, headed Offer and at column 3, headed 3%, you.will receive $19.40 for your cattle. If we want $20.00 for our cattle, we mi.hi reu.iCe thC offer ab,,uve, and Ship to mn.'ket. Looking'at Table 2 under ci-lu-rn 1, headed Asing- if catcli- shrink 3 percent during shipment, the market .price will have to be $2'1,62 it order to compensate for shrink. Table 1 Livestock Shrtnkage: Net Values per Cwt., After Deductions Applied for Shrinkage, Rates Indicated, United State Shrinkage Rate Shrinkage Rate Offer 2%- 3% 4% 5% Offer 2% 3% 4% 5% Dollar Dollars Dollars Dollars Dollara Dollar Do Dollars Dollars E ollars 30,00 29,75 29.50 29,25 29,00 28.75 28,.50 28.25 28.00 27.75 27,50 27.25 27.00 26,75 26,50 26,25 26.00 25.75 25.50 25.25 25.00 24.75 24.50 24.25 24.00 23.75 23.50 23.25 23.00 22.75 22.50 22.25 22.00 21.75 21.50 21.25 21.00 20.75 ?0.50 20.25 28.40 29.16 28.91 28.67 28.42 28.18 21.93 27.69 27.44 27.17 28.96 26.71 28.46 26.22 25.97 25, 73 25.48 25.24 24.99 24.75 24.50 24.26 24.01 23.77 23.52 23,28 23,03 22.79 22.54 22.30 22.05 21.81 21.56 21.32 21.07 20.83 20.58 20.34 20.09 19.85 29.10 28.86 28. 62 28.38 28.13 27.89 27.65 27.41 27.16 26.92 26.68 26.44 26,19 25.95 25.71 25.47 25.22 24.98 24.74 24.50 24.25 24.01 23.77 23.53 23.28 23.04 22.80 22. 56 22.31 22.07 21.83 21.59 21.34 2". 10 20.36 20.62 20.37 20.13 19. E9 19.65 28. 80 28.56 28.32 28.08 27.84 27.60 27.36 27.12 26. E8 26.64 26.40 26.16 25.92 25.68 25.44 24.21 24.96 24.72 24.48 24,24 24.00 23.76 23.52 23.28 23,04 22.80 22.56 22.32 22.08 21.84 21.60 21.36 21.12 2. 88 20.64 20.40 20.16 19.92 19,68 19.44 28.50 28.36 28.02 27.79 27.55 27.32 27.08 26.84 26. 60 26.37 26.13 25.89 25. 65 25.42 25.18 24.94 24.70 24.47 24.23 23.99 23.75 23.52 23.28 23. 04 22.80 22.57 22.33 22.09 21.85 21.62 21.38 21.14 20.90 20.67 20.43 20.19 19, 95 19.72 19.48 19.24 19,. 00- 19. 4fl 19.20 16.00I--III CC- 19.75 19.50 19.25 19.00 18.75 18.50 18.25 18.00 17.75 17.50 17.25 17.00 16.75 16.50 16.25 16.00 15.75 15.50 15.25 15.00 14.75 14.50 14.25 14.00 13.75 13.50 13.25 13.00 12.75 13.50 12.25 12.00 11.75 11.50 11.25 11.00 10.75 10.50 10.25 10.00 19.36 19.11 18.87 18.62 18.38 18.13 17.89 17.64 17.40 17.15 186.91 16.66 16.42 16.17 15.93 156.68 15.44 15.19 14.95 14.70 14.46 14.21 13,97 13.72 13.48 13.23 12.99 12.74 12.50 12.25 12.01 11.76 11.52 11.27 11.03 10.78 10.54 10. 29 10,05 0.80 19.16 18.92 18.68 18.43 18.19 17.95 17.71 17.48 17.22 16.98 16.74 16.49 16.25 16.01 15.77 15.52 15.28 15.04 14.80 14.55 14.31 14.07 13.83 13.58 13.34 13.10 12.86 12.61 12.37 12. 13 11.89 11.64 11.40 11.16 10.92 10.67 10.43 10.19 9.95 9.70 18.96 18.72 18.48 18.24 18.00 17.76 17.52 17.28 17.04 16.80 18.56 18.32 16.08 15.84 15. 60 15.86 15.12 14.88 14.64 14.40 14.16 13.92 13.68 13.44 13.20 12.96 12.72 12.48 12.24 12.00 11.76 11.52 11.28 11.04 10.80 10.56 10.32 10.08 9.84 9.60 18.77 18.53 18.29 18.05 17.82 17.58 17. 34 17.10 18.87 16.63 18.38 16.15 15.92 15,68 15.44 15.20 14,97 14.73 14.49 14.25 14.00 13.78 13.54 13,30 13.07 12.83 12.59 12.35 12.12 11.88 11.64 11.40 11.17 10.93 10.69 10.45 10.22 9.98 9.74 9.50 19. CO 19. 40 19.20 19.00 I -. .- "Table 2 Pc -Jes. :$ Par Cwt., Compensate for Shrinkage PRICES, S PER CWT., COmQP EHSATE 'F4IR SHRINKAGE ASK'wO .2% .1" 4% 6" % 5 4C.(C 40.32 41.24 41.67 42.55 42148 3 ..75 i-s.5 40.4, 41.41 42.29 43.21 39.50 40.31 40.72 41.15 42.02 42.93 39.25 4.IS 4..i.6 40.0) 41.7S 42. 5 39.0W 3 .3 0 40.2, '.4A3 41.9 42.39 33,73 ?j5.!q 3J. 442.L 41.2? 42.12 3;l) 3.?,? 39 1, 4.10 40.r6 41.35 .'.1; 3'.! 3 --. .-. .t 40.0t 41.38 34.00 33.7 3 a, 29.33 40.43 41.30 37.75 3232 3 3. 2 7?2 4(.16 41.03 37 A0 33.27 33.a.i .2. 39.29 40./. !7,a2 3a.01 30. 39.13 404? 37S.,' 17.,76 3 .. ,., .; 33. 3 40.22 3o,71 37.'; 37.- 3"1, 9. 39.10 39.95 34.5 -s 37.2:, 37. "'*. 3t.D 3 3.3 V.67 Z3.s5 3i. 3 .".312 ".7 9 30.So 3.,40 3. -__. _1'.-a~:' _LZ_-. 33.03 39.13 35.75 3 a48 Y..k, 7..-i 3.,24 33.3.5 3! 5F' S6.C :.'.. t JL) 1 '37.7?7 33.59 33.2 3 .9;' ,.' 7 3i.-' 37.50 398.2 3.7; 5.5.4j .T h 3.2; 35.97 37.73 34.5' 35.2j 31 i.7 33,'4 3S.70 37.50 34.23 .1.% 37: .2 3 6.44 37,22 34. I j 4, 3.3.6 3.4 A 3,.17 36.96 33.;; 3!. A :M.( ;7? 35.1 3:.,90 36.63 33 3,, I : 34.A4 '1490 35.64 34.41 33.,23 33 'I. 3i-. '! 24, 4 36,37 36.14 33.: 3'.6 II i, .'-1.37 33.11 35.87 3 ,... 3 I. 1 -. 1, 34.3 .15.60 3~2. 321 3,; 33..i 3,.j'" 35.23 3T I ;, ,- *"J..,L", *J ; 3 ', L 3,. ? .. .. ., 7 3... ,. 22.63 30.. 23 .1t 5. .' 213. 3 ;. 7: 332.4 30 .O ;. 1 .1- ; 33.15 3 a...3 ASKING :4%2% "A M A 3' $29.75 30.36 30.61' 30.9' 31.6: 32.4 29.50 30.10 30.41 30.73 31.34 32.07 29.25 2,.5 30.15 3 A7 31.12 31.79 2?.0 _29.5? 9. 3 3 30.2: 10.o 31-32 28.75 29.3-4 2 3.64 '29.95 O 31.25 23.50 29.03 29.3 29.69 30.32 3., 9 28.25 2J.I3 29.11 29.3 30.Z; 10.71 23.00 S M.57 23.87 21.17 29.7) 1. )J3 27. r 28.32 231 28.91 29.52 30.1i 27.50 2&3. 29.-3 23.35 292.6 1 M.t9 27.25 37.11 21.09 23.39 23.99 29.,62 v.CO 2?75 5 27.4 212 22.72 29S35 76.r; 2 '.. 27.3 277.6 23.46 219.03 26.50 27.4 27.3- 27.4z 23.i 9 2.1.80 2 .2 26.79 27.05 27.3 7?7.J9 2d53 AB.G 26.5.1 2-S.i.0 27XC8 :7.A6 r4.21 73. a2.28 26. 5 26-.2 : 7.9 27.99 25.30 25.32 'A4.' 2a.S 27.13 27.72 2335 2J.77 2j.M 2T-.3 2..h 27.43 2.i, 21 a l 51 _.^Z7 j.34 .2,L0 27.17 1.75 2;.25 2:532 2 .7. A.j 24.;90 24.50 2S.CO 23.2, Z.. ;. .06 l i.J 24.23 24.7 25.C ) 25.2& 265. 26.35 24.03J 4,4 J 2. C., 2.33 22.0:3 23.73 i.23 24.-5 2 .74. 252' 23.l2 a3J.1 23u93J 231.23 l2A3 2.00 25.5- .2 -5 23.?2 ;3.57 34?30 .4.073 2 . ".2tt :3,! 7 f2.70': J e J ... '.-3 2.0 3. 22.'4 3. 1s 2. 3..24 O .1.43 1=0.4 2.. 1 J, O,2i4 3..A : i 4 2.UJ 14 243 'IZ 22.2. '.,. 234 j.Y 0 .'3 21-.4 :3, . ..". '.^ .. .....*.* *". ..... .. ?.. .. 2C" 2,.i I A.';' .0 ". .. 21.8 ) .' Zl- I1 !4 0a a.su ___ 3t^ ; *.A' i.a -1 i!: .. Problems 1. Suppose you have two offers for your 400 pound steers; (a) $24.50/cwt. without a shrink deducted, and (b) $25.00/cwt. with a 4% shrink. Which will make you the most money? 2. If the buyer offers $30 per hundredweight with a 4% shrink, how much will you really receive per hundredweight (Table 1)? 3. If you are asking $30.00 per hundredweight for your steers and they will shrink 2% on the ride to town, how much will the price per hundredweight have to be to net you $30.00 per hundredweight? 4. If yc.r ca3lve- weighed 450 pounds, and one buyer offered you $3G.G0 per :-i .:i.edweight with a 2 percent shrink; another buyer offered you $29.25 with no shrink, which offer would you take? If you know how to figure shrink, and about how much your cattle will shrink being hauled to different markets, you can do a good job of selling your cattle. Hauling costs and commission charges should also be con- sidered if the cattle are hauled to market and sold on a cosmis~uon. Figuring Trucking Costs knent considering trucking costs, there are 2 basic e~thod3 of trucking or of transporting cattle which we should consider. We. shall call them "hired trucking" and "owned trucking". Let's take a look at "hired trucking" first. Next, we will look at costs involved in "owned trucking" and try to compare the two. Calculating the cost of hired trucking is easy. If the trucker charges 50e per mile, and the market is 100 miles from your cowpens, just multiply the 100 miles by the cost per mile (500). 100 miles X $.50 per mile $50 trip cost. In other examples, we have talked about value per pnund and cost of producing a pound of beef; and since we normally sell cattle by the pound, let's calculate the cost of hired trucking by the pound. If we consider the fact that a semi-traller can safely haul 22 cows (chis ,uld depend on length of trailer, of coUrae), ansd'te cows average 900 pounds; .we can determine the number of pounds of beef hauled in one trailer of cows. 900 -pounds X 22 cows = 19,8b0 pounds In order to calculate the cost of trucking 'er pPound of beef, we need to divide the $50 (cost per trip) by the number of pounds hauled. $50 4 19,800 $.0025 or .25 If the cows sold at the market for 16.50C per pound, we see that the trucking has reduced the amount we receive lor the cows from 16.50r to 16.25C. This cost can also be converted to a per head baais. First, calculate value per head: 900 pounds X 16.50 = $148.50 Next, cost of trucking per head: 900 pounds X .25 =- $2.25 When we subtract this cost from the sale price per head, the gross value of each of the 22 cows has been reduced from $148.50 to $146.25. If we had hauled 40 calves which weighed 350 pounds each on this -truck, nnd they brought 30, a pound at the market, what would the cost per pound have been? The cost per head? TotLa. weight 40 -alves X 310 14,000 pounds Coat/pouind ': A O 14,0lOl .0035 ot- .33. C'os t/h.ed *,= 30 eounda ~;: .3 ... $...23 To calculate the cost of hauling cattle in your own truck is a little more complicated. Therecare a variety of costs involved which mus be consideredJ. lie hav- ,re iou.ly dousaaed depreciation as a bookkeeping procedure .for spreaAding che c: t of i capital item over the years of service of the item. This is one of the costs of owning a truck. There are 2 major categories (classes) of costs involved, so let's first list them and then go over each in detail. I. Fixed Costs (a) Interest on Investment (b) Depreciation (c) Insurance (d) Taxes II. Variable (Operating) Costs (a) Gas, oil and grease (b) Repairs (c) Labor Interest on Investment: This is an opportunity cost and must be calculated to obtain the Total Cost of owning a truck. The fact that we call this an opportunity cost relates to the fact that if we did not use the money to buy a truck, we would have the opportunity to buy something else with the same money. In other words, when we spend time building fence we could be fishing or hunting, we are giving up the opportunity to fish or hunt in order to build fence. That makes building a fence a pretty expensive item. If we can buy a truck for $5000 and figure it will be worth $500 at the end of five years, we can calculate the average annual interest on investments We first must calculate the average value of the truck just as we calculated the average values on inventory. Beginning Value $5000 Ending Value 500 $5500 4 2 $2750 $5500 If we decide that our money could be invested in some other way and return a 6% interest we can multiply this interest rate times the average value; $2750 X .06 $165 I II I This $165 is the opportunity cost of owning the truck and is a fixed cost. It will cost us this much whether we use the truck or not. Depreciation: As you remember, when we calculated depreciation before, we subtracted the salvage value (value at end of useful.life) from the original cost and divided the remainder by the numbers of years we expected to use the truck. This gave us the average annual deprecia- tion. In the case of this cow truck, the calculations would be as follows: Original Cost $5000 Salvage Value 500 $4500 $4500 4 5 $900 Insurance: This is described as a risk cost and should be considered as a real cost whether you carry insurance or not. If you don't carry insurance you are taking the risk yourself; and if you do carry the insurance, you are transferring the risk to the insurance company. Buying insurance is kind of like hiring someone else to break a horse for you. Part of the pay you give him is for risking his neck instead of yours. For this example, we will assume an insurance cost of 3% of the average value: $2750 X .03 $82.50 Taxes: The last fixed cost we will consider is taxes. This item on a truck would consist mainly of the license tag, which should be in the neighborhood of $75. We can now add up the Total Fixed Cost. Interest on Investment $ 165.00 Depreciation 900.00 Insurance 82.50 Taxes 75.00 Total Fixed Cost $1,222.50 Total Fixed Cost: This is the amount of the cost of owning the truck whether it is used or not. Next let's take a look at the Variable (Operating) Costs. The only way to obtain accurate figures for calculating operating costs is by keeping accurate records on the operation of the truck. Since we don't have these on this particular truck, we must use data generated from experimental work. Dr. Whitney at the Citrus Experiment Station has published data on the operation of a similar truck which we may use. His costs are as follows: Repairs and Maintenance $ .49 per hour Fuel Costs (gas, grease, and oil) .75 Labor Costs 1.50 Total Operating $2.74 If we assume that under average conditions this truck will be operated at 35 miles per hour, the operating cost per mile would be: $2.74 4 35 = $.0782 or 7.8 per mile. This 7.8 per mile is only operating cost and does not include the fixed costs which we have already calculated. In order to arrive at a fixed cost per mile, we must make some assumption (guess) as to how many miles the truck will be driven in 1 year. If we assume that we will drive the truck a total of 20,000 miles each year the fixed cost per mile would be cal- culated as follows: $1,222.50 4 20,000 = $.0611 or 6.1 per mile If we add the total fixed cost per mile and the operating cost per mile, we have a total cost of 13.9c per mile. Fixed cost per mile 6.14 (based on 20,000 miles) Operating cost per mile 7.8, Total cost per mile 13.9 Now, let's assume that we can haul 18 head of 350 pound calves on the truck; the market is still 100 miles from the pens. What will the S cost per head he? 200 miles $27.80 4 X 13.9U = $27.80 (Cost of 1 18 = $1.54 per head. We are now ready to compare the cost of hauling the market with hiring someone else to do the job if truck for the purpose of hauling to market. Cost of hauling calves Cost of hiring truck Savings due to hiring round trip) our own calves to we purchase our own $1.54 per head 1.23 - .31 per head This does not say that there are not times when a ranch operator Cannot afford to own his own truck for hauling livestock. For instance, if you had to have the truck for other purposes, you would only charge direct operating cost to hauling calves. The picture would then look as follow: 200 miles $15.60 -4 X 7.8C per mile = $15.60 per round trip 18 $.8667 or $.87 per head This would be a savings by hauling your own calves of 36; per, head. Cost of hired hauling $1.23 per bead Cost of own hauling .87 per head Savings $ .36 per head SOURCES OF CREDIT There are times when every-one needs additional cash. Whether this cash is needed for purchasing land, battlee equipment, or for taking a vacation, would probably influence the length of time for which it would 28 be borrowed. The length of time involved in a loan will often influence the source of the loan. Some institutions are set up to make mostly short-term loans, while others will loan money for extended periods of time. We shall discuss sources of credit with respect to use and to length of time. We will consider long-term loans first and discuss the sources of these loans. There are three major sources of long-term loans, such as would be needed in purchasing real estate, a herd of cattle, or an extensive building program. Loans are avaialble from these sources for as long as 30, and even 40 years. The Federal Land Bank will make only real estate loans; however, these loans can be for from 5 to 40 years. This institution figures interest as simple interest, requires an appraisal of the property and' insurance on improvements. The Land Bank also requires the recipient of a loan to purchase stock in the association. Land Bank loans are usually available at low interest rates, when compared to other sources of credit. The Federal Land Banks were originally financed by the government; however, all outstanding government loans have been repaid, and the associations are totally owned by farmers today. Insurance companies also make long-term real estate loans (from 1-30 years). They generally charge a slightly higher interest rate than does the Federal Land Bank; although this is not always the case. The insurance company requires the same qualifications for loans as does the Land Bank with the exception of the purchase of stock. One difference in Federal Lank Bank procedures and some insurance companies is the fact that there is never a prepayment penalty on a Federal Lank Bank loan. Some insurance companies have a prepayment penalty clause in their mortgage agreement. A prepayment penalty simply requires payment of interest for a specified time even though you don't use their money for the full time. This is a point which should be definitely considered in selecting a source of capital. If there is a prepayment penalty and a loan is paid off early, the result is the raising of the effective interest rate. The Farmers Home Administration is the third source of long-term money. F.H.A. operates very similarly to the Federal Land.Bank as far as qualification of the borrower on real estate loans; however, F.H.A. loans may run for 1-40 years and are not necessarily real estate loans. It is also possible to obtain short-term operating and improvement loans through F.H.A. The interest rate is the same for all three types of loans from F.H.A. and is lower than the other two sources of loans. Of course, with F.H.A. making three types of loans available, this institution is active in short-term and intermediate term loans also. F.H.A. loans are generally available only to those producers who have no other source of credit. There are generally two sources of intermediate term loans besides F.H.A., and both of these make real estate loans. The two sources are savings and loan associations and individuals. Savings and loan associations are most likely to be involved in real estate mortgage loans, and will make these loans for 5 to 20 years. They figure interest by the simple or true annual interest method and require a closing cost. They do not require a purchase of stock and generally do not have a prepayment penalty. The "closing" costs involved in a savings and loan association loan may include investigating borrower, appraising property, commissions, recording mortgage, title examination, abstracting, lien search, taxes, revenue stamps on real estate deeds, etc. These costs could add 1 to 1 1/2 percent of the amount of the loan, and actually increase effective interest rate. The second source of intermediate credit is individual lenders. Actually, individuals are operating in several categories of loans. These loans most likely are made for a period of from 5 to 10 years, and can be made as operating, improvement or real estate loans. Individuals, at times, are the cheapest source of capital, Some individuals are willing to make loans at interest rates which are below rates charged by other credit sources. There are several sources of short-term credit including production credit associations, retailers and associated finance companies, small loan companies, credit unions and commercial banks. Commercial banks will be discussed last, because they are more or less a special case. Production Credit Associations were originally established by the Federal Government to make operating capital available to farmers at a reasonable rate. The Production Credit Associations are farmer owned. They are still generally the cheapest source of operating or improvement capital. Their loans are normally made from 1 to 5 years. Like the Federal Land Bank, borrowers from the P.C.A. are required to purchase stock in the association. This stock is recoverable when the loan is paid off, and is usually figured as a percentage of the loan. Retailers and their associated finance companies make loans normally for from 1 to 4 years for operating capital, improvements and consumer goods. The interest charged is higher than P.C.A. on operating and improvement loans and much higher on consumer goods. A borrower might pay as much as 36% for a loan to purchase a consumer good (automobile, television, dishwasher, etc.) from these institutions. "They charge a closing cost, require insurance and retain a prepayment penalty clause in their notes in most all cases. Small loan companies usually make only consumer goods loans for a period of from 1 to 3 years. They charge up to 36% interest, charge a closing cost, have a prepayment penalty clause and require property credit life. Credit unions make loans available to members for operating, improve- ments and consumer goods. They usually charge a higher interest rate for operating and improvement loans than do retailers; however, their consumer goods loans are far cheaper than either retailers or small loan companies. There is generally no prepayment penalty clause; however, they charge a closing cost and furnish life insurance. Credit unions make loans normally for a period of from 1 to 3 years. The discussion on commercial banks has been left to last, because they are involved in most phases of lending. They generally charge a registra- tion (closing) fee, require no stock purchase, require insurance in some cases, but have no prepayment penalty. Commercial banks extend operating loans up to 1 year and are fairly competitive with P.C.A. on interest rates. The same competition is true of improvement loans by banks, which are made for a period of from 1 to 5 years. Real Estate loans are made by commercial banks for a period of from 1 to 20 years, at an interest rate which in some cases is competitive with Federal Land Banks and Insurance Companies. This puts them in the intermediate, or almost long-term financing field. They also make loans for consumer? goods at interest rates comparable to credit unions. Most sources of credit have been covered thus far. Now a point or two to remember in using credit. It is generally best for an individual or a firm to establish a "credit home." A "credit home" could be defined as an institution which is reliable and dependable, where credit is avail- able at competitive interest rates. This institution is known well by the individual and the individual is well-known to the institution. In other words, the individual should generally obtain his credit from the same institution. This does not preclude shopping for a better credit deal; however, if credit is established with an institution over a period of years, this usually results in a less expensive borrowing situation in the long run. The most important factor to remember in reference to credit and borrowing is -- BE SURE YOU NEED EXTRA CAPITAL BEFORE BORROWING. FIGURING LOAN COSTS Interest is the price of money. There are many ways to calculate interest. Since the "truth in lending" bill was passed, lenders must plainly state what simple annual rate of interest they are charging. But even if we know what the loan will cost in percent, we must often figure this out in dollars because we may be limited in the amount of money we have to spend in a year. For example, if you need $1,000 for a year and the banker will charge 8 percent interest, what is the dollar cost of this loan? $1,000 X .08 $80.00 Therefore at the end of a year, you would have to repay $1,080. Suppose a rancher secures a loan of $4,500 from a lender to help pay annual ranch operating expenses for such items as fertilizer and labor. The loan was made for a 9 month period, and paid off at the end of the 9 months. The lender charged 7 percent interest on the money loaned. Calculate the cost of the loan to the rancher. Determine the annual cost of the loan by multiplying the total amount of the loan, or $4,500, by the annual interest of 7 percent. $4,500 X .07 $315.00 The annual cost of the loan would be $315. Determine the cost of the loan for one month by dividing the annual cost by 12. $315.00 12 $26.25 The cost of the loan for one month would be $26.25. Determine the Cost of the loan for 9 months by multiplying the cost for one month by 9. $26.25 X 9 months $236.25 The cost of the loan of $4,01)0 carrying an annual rate of interest of 7 percent for a period of 9 months was $236.25. You might know what a loan had cost in dollars and want to know the simple interest rate (R). Dollar cost of credit Simple Interest Rate - Amount borrowed Example: A $100 loan for one year with a Dollar Cost of $8.00. R = -00 .08 8.0% $100 If you buy anything on the installment plan, or on a credit card, you must usually pay a higher rate of interest than "bank rates of interest". For example, many major oil companies charge 1.5% interest on the unpaid balance per month. This is 18% on the basis of simple annual interest (12 x 1.5 18). Remember that any agency extending credit must tell you what the interest will be on the basis of simple annual interest. There is a publication available which shows a general formula for figuring interest; gives a table of compound interest (used to calculate long term loans on real estate) and many other useful aids for a manager. It is; "Farmers' Handbook of Financial Calculations and Physical Measurements, Agriculture Handbook No. 230". For sale (35c) by the Superintendent of Documents, U. S. Government Printing Office, Washington, D. C. 20402. Problems: 1. What if we need $100 for fertilizer? We can repay the loan in six months. The bank will loan the money at 8 percent. What is the dollar cost of this loan? 2. Suppose we buy $100 worth of fertilizer from a dealer. He will "charge it" at a rate of 2% per month. A. What is the dollar cost of this loan if we repay the $100 in 3 months? B. What is the annual rate of interest at 2% per month? 3. Suppose you borrowed $6,500 for a year and repaid $6,558.50. What was the simple annual interest? ANSWERS TO PROBLEMS Calculating Percent Calf Crop 1. 100 calves raised .667 or 67% calf crop 150 cows available 2. 100 claves sold + 20 replacements 200 cows available 3. 300 Cows in beginning inventory -50 Beef cows sold 250 Cows Available Cows in beginning inventory Bred heifers added to herd Total Supply Open cows sold Beef cows sold Cow3 died Cows in ending inventory Total Disposition Cows in beginning inventory Bred heifers added to herd Total Supply Beef cows sold Cows available for Calving 160 calves sold + 30 heifer calves for 305 cows available 190 calves raised .623 or 62% calf crop 305 cows available Determining Total Value of Calves poud eier replacement pound heifers heifers pounds produced by heifers 350 x 35 1750 1050 12,250 1. 400 pound steers x 45 steers 2000 1600 18,000 pounds produced by steers 18,000 pounds of steers x $.27 per pound 126000 36000 $4,8b0.00 12,250 pounds of heifers x $.25 per pound 61250 24500 $3,062.50 $4,660.00 from steers +3 082.50 from heifers $7,922.50 total value of 80 calves 2a. 200 O :ws x .75 percent calf crop 1000 1400 150.00 calves 2b. 15(1 60, OuO calves pounds per calf pounds of beef 60,000 pounds x $.30 per pound $18,000.00 total value 4. A. B. C. D. E. F. G. H. A. B. C. D. 300 40 3 272 345 300) +15 345 -40 305 . .. r.. .. ..... ._- i.~.r-.112. _-.~- i----- .r----u.--.- -~-rir Irlu--u~r~ril*i -il;.: I M 36 Feed Cost Per Cow 1. 10 50 4 5 10 2. 5 13 22 40 80 3. 1050 1100 2150 4. $7600. 5. 900 1000 1900 $7600 7500 1000 $16,100 80 4 4 20 2150 4 2 = 1075 4 950 $8.00 1900 4 2 950 $16,100 4 950 = $16.95 or $17 Cwt. vs. Ton 1. $3.00 X 20 $60.00 per ton. 2. $80.00 4 20 $4.00 per cwt. 3. Feed A at $3.00 X 20 $60.00 per ton. 4. $4.00 4 41 $.0975 = 9 3/4 per pound of protein. ($80, T 20) 36 $.1111 or 11 per pound of protein. 5. $4.10 4 41 $.10 10 per pound of protein. $3.75 4 36 $.1041 = 10.4 per pound of protein. Fertilizer with Different Analyses 12 6 +4 24 pounds of nutrients in 100 pounds of 12-6-6 24 pounds of nutrients per hundredweight x20 hundredweight per ton 480 pounds of nutrients per ton of 12-6-6 16 8 32 pounds of nutrients in 100 pounds of 16-8-8 32 pounds of nutrients per hundredweight x20 hundredweight per ton 640 pounds of nutrients per ton of 16-8-8 $.104 per pound of nutrient in 12-6-6 480 / $50.000 48 0 2 000 1 920 80 $.093 per pound of nutrient in 16-8-8 640 / $60.000 57 60 2 400 1 920 480 Therefore, use the higher analysis fertilizer. Stocking Rates 1. Animals Animal Units 8 bulls 10 a.u. 5 dry cows 5 a.u. 132 cows and calves 165 a.u. 40 heifers 20 a.u. 10 steers 5 a.u. 4 horses 8 a.u. 213 a.u. 2.38 or approximately 2.4 acres per animal unit 2. 210 / 500.00 420 800 6 ", 1680 20 ~I - Animal Units 200 cows and calves [200 cows = 2U0 a.u,; 70% calf crop 140 calves; 140 calves x .25 a.u. = 35 a.u.; 200 + 35 235] 8 bulls 40 replacement heifers (yearlings & bred heifers) 2 horses 235 a.u. 10 a.u. 40 a.u. 4 a.u. 289 a.u. 4. 289 a.u. x 2.23 acres per a.u. 867 578 578 644.47 or appr-.xiiarely 645 acres necessary to maintain a 200 cow breeding herd with a stocking rate of 2.23 acres per a.u. Calculating Shrinkage la. $.245 per pouonr S400 pound steers $98.000 per steer 400 pound steer x .96 animal less 4% 384.00 pounds to sell 384 pounds after shrink x $.25 per pound 1920 768 $96.00 per steer Therefore, the lower price per pound yields $2.00 more per steer than the higher price if a 4% "pencil shrink" is deducted. 2. From shritn.age table. In the first row, under the 4% column, read $28.80 received pe, hundredweight after 4% shrink. 3. From p: ices per hunrd eightgt table. In the 30.00 row, under the 2% column, read $30.61 necessary to net the same as $30.00 received at the ranch with no shrink. 4a. 450 pound calf x ..98 animal less 2% shrink 3600 4050 441.00 pounds sold 4b. 450 $.2925 $131.63 441 pounds $.30 per pound $132.30 per head with shrink pounds per pound per head with no shrink Therefore, take the p-ni!l shrink offer. lb. 3. Animals Figuring Loan Costs 1. $100 x .08 $8.00 loan 8% interest annual loan cost $8 4 2 = $4 for use of the money for six months Repay $104 at the end of six months. fertilizer bought 2% per month per month $2.00 x3 $6.00 per month months the cost of the "charge account" 2b. $6.00 cost .06 = .06 or 6% $100 "loan" However, we repaid the loan in 3 months (1/4 year). Therefore, The simple annual interest is 6% x 4 = 24%. A simple way is to multiply the interest rate times the number of payment periods per year. In this case, 2%/month x 12 months = 24% per year simple annual interest. 3. $6558.50 repaid -6000.00 borrowed $ 58.50 dollar cost of loan $58.50 $6000 = 9% simple annual interest Issued in furtherance of Cooperative Extension work, acts of Myy 8 and June 30, 1914 in cooperation with the U. S. Department of Agriculture, J. N. Busby, Dean of Extension, Cooperative Extension Service, Univer- sity of Florida, Gainesville, Florida. Ext. Service 1000 JH:ks (May, 1969) 2a. $100 x .02 $2.00 |