Range Management Analysis Project 150 points
You have been hired as consultants by a large-scale ranching operation. The ranch has several opportunities and projects it would like to evaluate financially in order to determine which they should do (some, all, or none). Using the data provided, evaluate each of the following projects and provide the ranch with your recommendations whether these projects are profitable or not and if the ranch should take on such ventures.
Deliverables:
A. 2-page write up that provides a description of: 1) the assumptions you used to develop and complete your analysis; 2) an overview of the results of each project; and 3) final recommendations. This deliverable is worth 50 of the total 150 project points. Failure to deliver final 2-page write up will result in 0 points scored.
B. One (1) Microsoft Excel File that includes the completed analysis used to form your final recommendations. This deliverable is worth 100 of the total 150 project points. Failure to deliver final Excel file will result in 0 points scored.
Disclaimer: You are responsible for working as a productive consultant for your client and are welcome to use any and all resources at your disposal so long as you properly cite and attribute sources of information or work relative to what is provided to the client. Failure to do so would be unprofessional and unethical and provide a false sense of work provided to your client. Therefore, decisions on sharing information and knowledge by peers in the industry must be made at your discretion and properly attribute and acknowledge said individuals or sources.
Overview:
A cow/calf operation in central Texas has requested financial analysis to compare different development strategies for the ranch. The ranch consists of 15,500 acres of privately owned land that supports 1,000 head cow herd conservatively stocked (i.e., mean 3000 lbs forage/acre produced, ≈forage for 5,167 AU, @ 25% utilization = 1,292 head). The ranch sells its calves directly after weaning, which is conducted after a season long-grazing rotation. The number of calves weaned is generally 85% of cows exposed, with an average weaning weight of 600 pounds. The long-run average price received for the calves is $140 per hundred weight. The ranch would like to explore three possible new ventures or projects. The ventures/projects are described to you as follows:
A) Long-term and short-term fencing and grazing strategy- The ranch managers believe that forage productivity will be enhanced if they revamp their declining fencing system as well as adding an electric fencing system into their existing paddocks. You estimate that the feet needed will be 2,500,000 ft. at a cost of $1,150 per 1,320 feet of wire (the standard barb wire roll plus labor). Additionally, the electric fence is assumed to need 750,000 ft. at a cost of $100 per 1,320 feet of wire. Maintenance costs are expected to $0.10 per foot per year (barbed) and $0.07 per foot per year (electric). You expect the useful life of the fencing project overall to be around 30 years. You also estimate that by revamping the ranch infrastructure the ranchers can better manage calving as well as better utilize forage resources on the ranch. Currently, the cost per cow per year is $400. You estimate that weaning percentages are likely to increase 5% and weaning weights will improve 125 pounds per head. The average market price per cwt. for 7 weight feeders is $136. You assume that interest on capital is 7% and that the rate of return the ranchers must receive to make this option worthwhile is above their current rate of return on equity, 5%.
B) Additional hay enterprise- Historically, the ranch has imported hay to feed livestock through winter (2 months) as well as background a few calves after weaning (50 calves for 0.5 month). However, the price of hay and transportation over the past several years have become very costly to the ranch, so much so they have asked you to evaluate whether or not they should develop their own hay enterprise. You’ve identified 250 acres that could be used solely for hay production. Similar land on the market today is valued at $3500 per acre. The land is likely to produce about 3 tons of hay per acre, just enough hay to cover the expected feed demand. The ranch already possesses the tractor capacity, but needs to add a disk mower ($14,000), a rake ($4,000), and bailer ($28,000). You determine the useful life of all the implements to be 20 years with annual average fixed costs to be 12% of the overhead investment and non-fertilizer variable costs to be $10 acre. Fertilization is estimated to be $100 per acre, increasing 3% per year. The current market price of hay is $110 per ton and is expected to rise 4% per year. You assume that interest on capital is 7% and that the rate of return the ranchers must receive to make this option worthwhile is above their current rate of return on equity, 5%.
Bonus:
C) Adjusted calf marketing- While the ranch waits for you to conduct the analyses for the scenarios above, the management also asked that you analyze whether or not it would be profitable to wait on marketing their calf crop this year and instead market next year through a feeder/finisher operation with retained ownership. The estimated time to finish is 305 days, average death loss would be 0.5%, medical expenses would be $1.50 per head, average pounds of gain per day would be 2.5, cost of pound of gain per day would be $1.1, and the finished sale price would be $128 per hundred weight. You assume the annual discount rate associated with the risk due to retaining ownership as well as the opportunity cost of lost revenue this year would be 10% above that if the ranchers sold at weaning.
Use the attached Excel file to begin and conduct your analysis. At the completion of your consulting project, turn in your 2-page summary and your completed Excel file used to conduct your analysis.
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