Cash flows for cattle

This is the second in a series of articles which will share highlights from this year’s Zimbabwe Herd Book’s annual Beef School. Presented by Jaco Erasmus, technical adviser to the Zimbabwe Beef Producers Society (ZBPS), it features a look at a cash flow model for cattle production.

* A more detailed spreadsheet of this model is available to members of the ZBPS (information on joining the ZBPS is shared at the end of the article).

Jaco Erasmus presenting at the recent Zimbabwe Herd Book Beef School in Bulawayo

Cattle farming is a complex yet rewarding venture. Managing a herd requires careful consideration of numerous variables, be it cattle numbers, growth rates, or financial implications. This article outlines a robust herd management model that can help farmers optimise their operations and enhance profitability.

Overview of the herd model

The herd model provides a systematic approach to monitor cattle numbers, growth, and sales over a decade. The model is particularly geared towards 18-month-old feeder steer sales, along with the management of surplus heifers at the same age.

Key components of the model

1. Opening stock: The initial inventory of cattle.
2. Births: New calves born within the herd.
3. Purchases: Additional cattle purchased to enhance herd size.
4. Died/losses: Losses due to mortality.
5. Sales: Cattle sold from the herd.
6. Reclassification: Adjustments for cattle moving between categories (eg. from heifer to cow).
7. Closing stock: The final inventory at the end of the period.

The model dynamically populates these numbers on a monthly basis for the first year, transitioning to an annual summary for the remaining nine years.

Assumptions and variables

To accurately forecast cattle numbers and financial outcomes, several key assumptions must be established:

• Pregnancy Diagnosis (PD) %
• Mortality %
• Culling % of empty cows
• Calving %
• Heifer reject %
• Bull replacement %

Monthly and annual breakdown

The first 12 months of operations are analysed in detail, while the following nine years are summarised annually. This approach allows for a clear view of both short-term and long-term herd dynamics.

Cost considerations

Costs are critical in assessing the viability of cattle farming. They can be categorised as:

• Variable costs: These costs change in proportion to herd size and production levels. Examples include grazing fees, veterinary expenses, and feed costs.
• Fixed costs: These are constant expenses that do not fluctuate with production levels, such as equipment depreciation and certain overhead costs.

These costs are applied to the herd model numbers to create a detailed cash flow statement.

Financial metrics

Using the herd model, we can determine:

• Gross margin: Sales minus purchases and variable costs.
• Net cash flow: Gross margin minus fixed costs, providing insight into overall profitability.
• The herd's value: Changes annually, calculated by applying weights and prices to different cattle categories.
• Net Present Value (NPV) and Internal Rate of Return (IRR)

The NPV and IRR are crucial for evaluating the long-term financial viability of cattle operations. The model calculates these metrics over a 10-year period, offering a snapshot of the investment's potential returns.

Planning for success

This herd management model equips farmers with the tools to make informed decisions about their cattle operations. By adjusting variables such as culling rates or heifer rejection percentages,

farmers can experiment with different scenarios to optimise cash flow and herd growth. This is for an 18-month steer production model but the principle can be applied to other models.

Key takeaways

1. Dynamic modelling: Monthly tracking for the first year allows for detailed insights.
2. Financial health: A clear understanding of costs, cash flow, and profitability metrics.
3. Scenario analysis: Flexibility to adapt and plan based on changing market conditions and farm needs.

In essence, this model provides a comprehensive framework for any cattle farmer looking to enhance their operations and maximise profitability. By understanding the interplay between herd dynamics and financial outcomes, farmers can develop tailored strategies that align with their specific goals and circumstances.

For more information on joining the Zimbabwe Beef Producers Association and having full access to information such as this, please contact ZBPS directly on Tel: 242 - 2756 600 / 2777 391 / 2772 915 / 0774 122 660, or email zhb-sec@lit.co.zw