By Kent Bang, Compeer Financial
Benchmarking can be an effective business management tool in any business, especially in the livestock business. Knowing this, Compeer Financial has kept a historical peer comparison of client financial results. This is a summary of select clients for whom we have good data, generally audited financials and generally accepted accounting principles (GAAP) prepared. All of the numbers (revenue, cost of production, operational profit, hedge gain, other income and consolidated profit and loss) are per carcass hundredweight (cwt.). The clients are representative of well-managed, generally larger farms with sales to all major packers across the U.S.
The summary of the Compeer Financial benchmark includes data from Jan. 1, 2015 to Sept. 30, 2020. A couple of things to point out in the chart above:
1) The average producer had operational profit of negative $0.78 per cwt. (carcass) from 2015-2019. 2020 was poorer through the first three quarters.
2) During those five years (2015-2019), hedge gains averaged $2.17 per cwt. (carcass), which more than offset the operational losses. Hedge gains through Q3 2020 were higher than any of those years.
In the chart above, we have a comparison to the Iowa State University Livestock Return Model. Although there are differences in revenue, as you would expect, they are fairly close. The main difference is in the estimate of cost of production. The model, looking at years between 2015 and 2019, is $5.01 per cwt. (>$10.00 per head) lower than the average of our benchmark group, which I believe to be better than average. Through Q3 2020, there is even more of a difference ($7.68 per head).
Finally, let’s look at the balance sheet trends of the benchmarking group in the chart above. While there is some financial impact from capital withdrawals, they do not have a great influence on these numbers. The last five years saw depressed profitability at a time that producers have invested in additional production assets and leveraged the business to do so. The trends in owner equity, working capital per sow, fixed debt and operating debt bear this out.
Chart Source: Kent Bang, Compeer Financial
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