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910B04
OLD MULE FARMS
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In March 2009, Donna and Jim Green looked with dismay at the financial statement summarizing the
performance of Old Mule Farms for the year 2008. Old Mule’s cow-calf operation had experienced
another year of losses. Especially frustrating was that the losses occurred despite the Greens’ multiple
efforts to improve the farm’s efficiency. While these efforts improved performance compared to 2007,
they were not sufficient to overcome the decline in calf prices, so the operation continued to lose money
(see Exhibit 1). If the situation did not improve, the Greens faced the threat of losing the farm that had
been owned by the family for three generations.
COW-CALF OPERATIONS
The cow-calf segment is the foundation of the beef cattle industry. A ranch maintains a herd of cows,
each of them expected to wean a calf once a year. Like a human, the gestation period of a cow is
approximately nine months. After birth, the cow nurses the calf for another six or seven months until the
calf is weaned from its mother’s milk. During this time, the cow enters estrus, is impregnated, and the
cycle begins again. Thus, once a farm reaches a steady state of operations, a cow can produce a calf each
year.
There were more than 750,000 cow-calf operations in the United States in 2007, the vast majority of them
with fewer than 50 cows. Cow-calf operators sell their weaned calves to a stocker operator or to a feedlot,
where the calves are fattened before being sent to a packinghouse. The end products are the various fresh
beef products such as steaks, roasts and hamburgers that are consumed by millions of people around the
world.
Revenues and expenses for a cow-calf operation typically are presented on a per cow basis, as shown for
Old Mule Farms in Exhibit 2.
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This document is authorized for use only by Manjinder Neger in Accounting Administrative Control taught by Richie L. Liu, Oklahoma State University from April 2016 to October 2016.
Page 2 9B10B004
REVENUES
As a rule, cows produce one calf per year. Female calves are called heifers. Most male calves are castrated
and are called steers; those that are not castrated become bulls and may be sold or used for future breeding.
Weaned heifer and steer calves are sold at prices expressed as dollars per hundredweight (cwt), which is
equivalent to dollars per 100 pounds (lbs). Thus, the sale price per pound can be determined by dividing
the cwt price by 100.
The average weaning weight of calves at Old Mule Farms in 2008 was 602.6 pounds. Weaned calves sold
at an average price of $108 per cwt, as shown in Exhibit 3. Prices generally follow a cyclical pattern: high
prices attract producers to raise more calves, but supply usually grows faster than demand does, leading to
lower market prices and producers dropping out of the market. Prices in 2008 were down compared to
prices in 2007, causing a decline in revenue.
EXPENSES
The major expense associated with cow-calf operations is feeding the cow. A healthy cow requires a
variety of forage (primarily grazed grasses), nutritional supplements and minerals so that she remains
healthy and produces a healthy, marketable calf. Other expenses include veterinary fees and wages for
labor, and the expenses of owning and operating the farm. Subtracting per cow expenses from per cow
revenues yields the profit or loss per cow in the cow-calf operation. Exhibit 2 shows that Old Mule Farms
lost $72.51 per cow on its cow-calf operations in 2008.
HISTORY OF OLD MULE FARMS
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