lone star agrisolutions
DESCRIPTION
Lone Star Agrisolutions. AGEC 489/689 Spring 2008. Consulting for Sleepy B Ranch Cow/Calf Operation. Location: Franklin, TX. Constituents. Ranch President/CEO - Brad Roberson CONSULTANTS for Lone Star Agrisolutions: Production Advisor - Brandon Grooms - PowerPoint PPT PresentationTRANSCRIPT
Lone Star Agrisolutions
Consulting for Sleepy B Ranch
Cow/Calf Operation
AGEC 489/689Spring 2008
Location: Franklin, TX
Constituents
Ranch President/CEO - Brad Roberson
CONSULTANTS for Lone Star Agrisolutions: Production Advisor - Brandon Grooms Cost Efficiency Manager - Casey Munn Agricultural Economist - Gary Coke Business Analyst - Maria Afonso Financial Analyst - Luke Funderburg
Sleepy B Ranch
Commercial Brangus Cattle Cow/Calf Ranch Cows wean one calf per year (usually) Calves sold between 600 & 700 pounds Calves sold through a Private Contract to
Stocker Operations
Start-Up Assumptions
200 Bred Heifers purchased for Brood Cows 5 Bulls purchased 90% Calf Crop of 180 per year 1,500 acres of land owned All machinery owned $50,000 Beginning Cash Balance
Start-Up Costs
200 Bred Heifers – $802/ Cow, $160,400/ Total
5 Bulls - $1,800/ Bull, $9,000/ Total
Total Start-Up Cost - $169,400
Requesting a Loan for 80% of Start-Up Costs: $135,520
Yearly Expenditures
Direct Materials - $297/ calf, $53,556/ year Hay Range Cubes Creep Feed Salt and Meal Mineral Textured Sweet Feed 8 Way Vaccination
Vibrio/ Lepto Vaccination
Yearly Expenditures
Fixed Overhead - $2,023/ Year LA 200 Penicillin Equipment Maintenance Miscellaneous
Depreciation - $4,967/ Year (Heifer & Bull purchase price – Cull Cow & Bull sale price)/ 7 years
Disbursements for Overhead - -$2,943/ Year Overhead Cost – Depreciation = Disbursements for Overhead
Yearly Expenditures
Direct Labor - $922/ Year Owner feeds/maintains cattle; Hired Labor
only for working cattle bi-annually, fixing the fence, etc.
Administrative Costs - $2,825/ Year Insurance - $1,025/ Year ($5.00/ Head)
Property Taxes - $1,800/ Year ($1.80/ Ac)
Total Yearly Expenditures
Total Yearly Expenditures = $55,040/ Year Direct Materials + Disbursements for
Overhead + Direct Labor + Administrative Costs = $55,040
$55,040 / 180 Calves = $306/ Calf
Historical & Forecasted Sale Price
$0.00
$200.00
$400.00
$600.00
$800.00
$1,000.00
$1,200.00
1995 2000 2005 2010 2015 2020
Calf Prices
Begin Forecasted Prices
Economic Assumptions
Condition of the Economy: Input costs increase yearly due to inflation and
increase in demand for feed.
Forecasted Calf prices drop in 2010 and 2012
U.S. economy is in a recession Credit crunch makes it harder to obtain loans and
find investors
Baseline Scenario
Assumptions: Variable costs and fixed overhead increase
3% per year. Straight-line depreciation used. Administrative Costs are the same every year. Forecasted sale price changes yearly.
Shock Scenario
Assumptions: 10% drop in prices Selling 170 calves instead of 180 Direct Materials and Fixed Overhead costs
increase 9.5% per year
Condition of the Economy Worsens: Input costs increase from 3% to 9.5% due to
inflation and increase in demand for feed. U.S. economy in a greater recession
Choosing the Required Rate of Return
2008 2009 2010 2011 2012Required rate of return:1. Risk free rate of return 3.00% 3.50% 4.00% 4.50% 5.00%2. Business risk premium 17.00% 17.00% 17.00% 17.00% 17.00%3. Financial risk premium 6.06% 3.09% 1.71% 1.09% 0.55%
4. Required rate of return 26.06% 23.59% 22.71% 22.59% 22.55%
5. Present value interest factor: 0.79330 0.64190 0.52309 0.42671 0.34821
1) Rfree rate from federalreserve.gov -- current rate for a 5-yr treasury bond
2) Business risk for the cattle industry is huge – the CV for calf prices is .13
3) Since our loan dwindles significantly after the first 3 years, we took our financial risk down to ~1% in the 4th/ 5th year
4) Realistic required rate of return measures between 20-25%.
Table of NPV/Net Cash Flows for Baseline and Shock
Baseline ShockNPV 51,858.24$ 275.86$
2008 2009 2010 2011 2012Baseline 53,036$ 75,712$ 45,500$ 87,100$ 65,295$ Shock 40,228$ 57,687$ 28,954$ 60,818$ 38,625$
Net Cash Flows
Ratios – Financial Analysis
Current ratio
0.00
1.00
2.00
3.00
4.00
5.00
6.00
2008 2009 2010 2011 2012
After Shock Before shock
MinimumMinimum
Ratios – Financial Analysis
Debt Ratio
0.0
0.1
0.2
0.3
0.4
0.5
0.6
2008 2009 2010 2011 2012
After Shock Before Shock
MaximumMaximum
Ratios – Financial Analysis
Rate of Return on Assets
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
2008 2009 2010 2011 2012
After Shock Before Shock
Should be PositiveShould be Positive
Ratios – Financial Analysis
Variable Expense Ratio
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
2008 2009 2010 2011 2012
After Shock Before Shock
The Lower the BetterThe Lower the Better
Ratios – Financial Analysis
Debt Repayment Capacity
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2008 2009 2010 2011 2012
After Shock Before Shock
MinimumMinimum
Sleepy B Ranch
Conclusion Ratios steadily improving Average NPV Positive Operation is feasible even in shock scenario
(shock scenario is rather extreme)
Lone Star Agrisolutions for Sleepy B Ranch
Questions?