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Masters Theses
Date of Award
5-2019
Degree Type
Thesis
Degree Name
Master of Science
Major
Agricultural and Resource Economics
Major Professor
Carlos Trejo-Pech
Committee Members
Christopher Boyer, S. Aaron Smith
Abstract
The average age of American farmers has steadily increased for decades, with 63% over the age of 55 according to USDA-NASS. There has also been a trend of declining young and beginning farmers entering agriculture. Young farmers face increased financial requirements, more competition for land, and changes to lending regulations. Currently, there is limited research focusing on strategies for producers to profitably enter agriculture, specifically cow-calf production. The objective of this research was to analyze the net present value (NPV) associated with two start-up strategies for a small-scale cow-calf producer in Tennessee (one – starting with ten bred heifers and growing to 30 head; two – starting with 30 bred heifers and maintaining the 30 head herd size). Using data from University of Tennessee Cow-Calf Budgets and historical Tennessee cattle prices, the discounted free cash flow (FCF) method was followed to calculate expected NPV and modified internal rate of return (MIRR) for each start-up strategy. Monte Carlo simulations were run to estimate uncertainties around cattle price. Both strategies had NPV less than -$118,000 and MIRR lower than -12% in the baseline models. Strategy one had larger negative FCF and smaller annual loan payment and compared to strategy two’s smaller negative FCF but larger annual loan repayment.Both strategies are highly (>95%) likely to have larger than -$100,000 NPV. Off farm income needed to break even is very important for both strategies to remain viable throughout the ten year forecasted period. Strategy (to start small and grow the herd over time) has less risk exposure while achieving the least negative NPV and is the preferred start-up strategy determined in this study. These results should help beginning cow-calf producers and agricultural lenders better understand the financial costs and risks involved with starting a small cow-calf operation. Additionally, this study can be used to assist Extension educators to demonstrate the importance of off-farm income for small-scale beef producers in Tennessee.
Recommended Citation
Bruhin, Jared Matthew, "Determining the Optimal Start-up Strategy for a Cow-Calf Producer to Maximize Long-Term Profitability and Minimize Risk. " Master's Thesis, University of Tennessee, 2019.
https://trace.tennessee.edu/utk_gradthes/5477