TABLE 2.-ESTIMATED INCOME FOR A 1-MAN RANCH IN TEXAS BASED ON 300 ANIMAL UNITS AND 4,000 ACRES BEGINNING WITH A PRODUCING HERD, 1950-72

1 Does not include interest payments on ranch and cattle.

* Includes 8 percent interest on 33 of the original cost of the cattle.

3 Includes all cash costs plus interest payments on cattle and 6 percent interest on 1⁄2 of the purchase price of the ranch.

STARTING IN 1950 WITH A PRODUCING HERD

Assume that a rancher purchasesd a 4000 acre ranch with a producing herd in 1950, a period of favorable beef prices. The ranch and cattle would have cost an estimated $175,000 or $44 per acre. The total investment for cattle, equipment and land is estimated at $237,000 or $987 per cow. Assume that the rancher borrowed half of the money to buy the land and two-thirds of that required to buy the cattle. The business covered cash costs and provided operator income the first three years, but for the next five years did not provide sufficient return to pay all of the interest charges on the land (Col. 4, Table 2). Low cattle prices during the mid-fifties resulted in six consecutive years (1952-56) with no return to the operator's equity, labor or management (Col. 5, Table 2). Prices improved in the late 1950's and there was a small return in 1958 and 1959 ($1244 and $1223). During the next nine years the ranch failed to show a profit. Then beginning in 1968 the business began to provide the operator with income above cost and 1972 was a good year, 1973 will apparently be even better.

In other words, this example showed a profit in only eight out of 23 years mostly because it spanned a long low side of the cattle price cycle.

The only way this operator could have stayed in business is if he had been able to get additional income from hunting leases, crop farming or outside income; or if he had owned the ranch free of debt from the beginning. In this case he would have averaged an annual income of $7500 from his equity, labor and management (Col. 3, Table 2).

TABLE 3-ESTIMATED INCOME FOR A 1-MAN RANCH IN TEXAS BASED ON 300 ANIMAL UNITS AND 4,000 ACRES, BEGINNING WITH A PRODUCING HERD, 1960-72

2 Includes 8 percent interest on 3% of the original cost of the cattle.

* Includes all cash costs plus interest payments on cattle and 6 percent interest on of the purchase price of the ranch.

STARTING IN 1960 WITH A PRODUCING HERD

Had an operator started the same kind of business in 1960, he would have encountered a similar situation. Land costs were higher (about $75 per acre) but cattle costs a little lower. The total investment in the ranch and cattle would have been about $350,000 or $1458 per cow.

The first nine of the 13 year period the income did not cover all cash costs (Col. 4, Table 3). The busines did not show a profit for the first 11 years. The higher cattle prices of 1971 and 1972 resulted in a profit but considering his investment it was still a low profit (Col. 5, Table 3). If the operator had owned the ranch free of debt at the start (1960) he would have received an average annual income of about $9000 (Col. 3, Table 3).

STARTING A HERD WITH UNBRED HEIFERS

If we examine the same operations as previously but assume the rancher starts with unbred heifers rather than with producing cows, this adds at least one more year at the beginning without a profit. It demonstrates even more dramatically that the cattle cycle can result in even a well managed ranch undergoing a long period when there is either no profit, or if the land is owned free of debt, a very small profit. (Tables 4 and 5.)

SUMMARY

Ranchers generally are experiencing good incomes for the first time in 20 years. There are some who expect it to be good throughout this decade. No doubt, the current high prices will encourage some to expand and newcomers will be attracted to ranching. If prices continue favorable throughout the 1970's, it will be only the second time in history that this has happened. The other period was the decade that spanned the last part of World War II and the Korean War. Several years are required for the cattle industry to adjust to changes in world demand and supply conditions. The longer prices remain high, the longer will be the following periods of losses or low profits.

Diversified farming and ranching operations generally show more stable income and profits, but specialized ranching has experienced wide fluctuations in income and the tax provisions should recognize this characteristic of the business.

The present tax regulation (Internal Revenue Code 183 enacted in 1969) requiring a producer to show a profit two years out of five is unrealistic for many agricultural producers, and especially the specialized cattle rancher because of the wide swings in the cattle price cycle. The examples presented here show that this is even more unrealistic for the rancher just getting started or those in areas where a series of dry years are not uncommon.

TABLE 4.-ESTIMATED INCOME FOR A 1-MAN RANCH IN TEXAS BASED ON 300 ANIMAL UNITS AND 4,000 ACRES, BEGINNING WITH UNBRED HEIFERS, 1950-59

1 Does not include interest payments on ranch and cattle.

2 Includes 8 percent interest on 2% of the original cost of the cattle.

3 Includes all cash costs plus interest payments on cattle and 6 percent interest on 1⁄2 of the purchase price of the ranch,

TABLE 5.-ESTIMATED INCOME FOR A 1-MAN RANCH IN TEXAS BASED ON 300 ANIMAL UNITS AND 4,000 ACRES. BEGINNING WITH UNBRED HEIFERS, 1960-72

1 Does not include interest payments on ranch and cattle.

2 Includes 8 percent interest on 2% of the original cost of the cattle.

* Includes all cash costs plus interest payments on cattle and 6 percent interest on 1⁄2 of the purchase price of the ranch.

TABLE 6.-LAND AND MACHINERY VALUES FOR SPECIFIC YEARS, BASED ON 1967 AND ADJUSTED BY INDEX OF PRICES OF FARM REAL ESTATE, 1950-70

1 Handbook of Agricultural Charts-1971, U.S. Department of Agriculture, Agriculture Handbook No. 423, p. 9.

2 C. C. Boykin et. al. "Economic and Operational Characteristics of Livestock Ranches," Texas Agriculture Experiment Station MP-1055, October 1972.

TABLE 7.-ESTIMATED CASH COSTS PER ANIMAL UNIT FOR RANCHING OPERATIONS IN RIO GRANDE PLAINS AREA OF TEXAS BY YEARS (1967-100)

1 "Handbook of Agricultural Charts-1971," U.S. Department of Agriculture, Agriculture Handbook No. 423, p. 7. 2C. C. Boykin, et al. "Economic and Operational Characteristics of Livestock Ranches," Texas Agriculture Experiment Station MP-1055, October 1972, p. 21.

TABLE 8.-GROSS INCOME FROM SALE OF CATTLE STARTING WITH A PRODUCING HERD, 1950-72

1 Average price of feeder steers. Livestock and meat situation. Economic Research Service, USDA 1972 and earlier issues.

2 Feeder steer prices times 0.9.

• Commercial cow price. Livestock and meat situation, 1972 and earlier issues.

TABLE 9.-AVERAGE ESTIMATED COSTS AND RETURNS PER COW PER YEAR ON A SPECIALIZED 4,000 ACRE RANCH IN TEXAS WITH 240 COWS (300 ANIMAL UNITS)

3 Includes all cash costs, interest and depreciation. Does not include charge for operator labor, management, or equity. • Net income to operator labor, management, and equity.

Mr. ULLMAN. Thank you very much.

The Cattlemen's Association has been helpful to this committee in the past. We appreciate your comments now.

Tell me, because of the present level of meat prices in the marketplace, we have to be concerned about the supply situation in the future. I might direct a question to Professor Farris. Is it true that there has been a large increase in beef production during the last 5 years? Mr. FARRIS. There has been an increase in total beef production in this country. This has been done without very much increase in the basic cow herd. It has been done mostly by the feed lot industry that has increased the number of cattle that have been fed in feed lots and fed these cattle to heavier weights. We have taken out about all of the slack we have had in terms of feeding a larger percentage of our cattle, and feeding them to heavier weights.

Mr. ULLMAN. Isn't it true that if you feed them too heavy, it becomes counterproductive?

Mr. FARRIS. Sure. The desirable weight is about 1,100 pounds. It varies with the kind of animal you are dealing with. We are coming along with some cross-breds and some different types of animals that we can efficiently feed to perhaps 1.200 or 1,300 pounds, but if you do feed animals longer than desirable, you can add excess fat, and this is not productive.

Mr. ULLMAN. You are finding that some of these new hybrid animals will feed out at higher weight figures and still maintain the qualities of the beef you are seeking?

Mr. FARRIS. Very definitely.

Mr. Carter is very knowledgeable about that.

Would you like to comment?

Mr: CARTER. Yes, sir. The cross-bred cattle and English cattle bred with some of the exotic imported breeds will produce a leaner carcass and efficiently convert feed on up to somewhere around 1.200 pounds. Mr. ULLMAN. Dr. Farris, what do we see in the immediate future? Will there be an increase in the amount of beef available?

Mr. FARRIS. In this year it is not clear that we are going to get much increase. There is some increase in cow herds. There will be a few more calves available. But this winter was very hard on the cattle industry. Quite a number of cattle died on the range and on wheat fields. So that there is not likely to be much more beef produced this year than was produced last year.

Mr. ULLMAN. Have you ever put together a study or chart showing the price of beef at the marketplace over a period of years, and