Trade Adjustment Assistance Training

Carole EngleUAPB

• Economics

• Options to improve profitability

• Marketing

Outline:

Economics:Economics:

•Price cycles•Financial indicators

Catfish Prices & Production Costs

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$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

$0.70

$0.80

$0.90

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Production costs Farm price

Average Price Paid to Catfish Producers ($/lb)

0.50

0.55

0.60

0.65

0.70

0.75

0.80

jan feb mar apr may jun jul aug sep oct nov dec

10-yr avg (1991-2000)

5-yr avg (1996-2000)

2001

2002

Average Fillet Price Received by Processors

($/lb)

2.30

2.40

2.50

2.60

2.70

2.80

2.90

jan feb mar apr may jun jul aug sep oct nov dec

2001 price

5-yr avg (1996-2000)

10-yr avg (1991-2000)

2002 price

Average Price Paid to Catfish Producers ($/lb)

0.50

0.55

0.60

0.65

0.70

0.75

0.80

jan feb mar apr may jun jul aug sep oct nov dec

5-yr avg (1998-2002)

10-yr avg (1993-2002)

2001

2003

2002 price

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

lbTotal “Catfish” Imports

1990-2003

Sluggish economy/Sept. 11

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1999

.1

1999

.3

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.1

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.3

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2002

.3

% c

ha

ng

e Consumerspending

Real disposableincome

Strength of U.S. $

Quarterly Exchange Rate

0.60.70.80.9

11.11.21.3

Year

Eu

ro

0

50

100

150

Ye

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EURO YEN

Quarterly Retail Sales, 1999-2003

0

100

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1000

1999

QIV

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$ b

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Short & long-term financial decisions:

• Is it profitable in the short run?• Is it profitable in the long run?• Can it generate enough cash when

needed to pay the bills (liquid)?• Can it generate enough value over

time to pay off the debts (solvency)?

Breakeven Prices (based on enterprise budgets)

Above total cost- LONG RUN $0.692

Variable cost – SHORT RUN $0.567

Above cash costs (no debt capital)

$0.518

Above cash costs (100% debt op. capital)

$0.561

Above cash costs (50% debt long-term, no land; 100% debt op. capital)

$0.572

Breakeven Prices (based on enterprise budgets)

Above total cost- LONG RUN $0.692

Above variable cost $0.567

Above cash costs (no debt capital)

$0.518

Above cash costs (100% debt op. capital)

$0.561

Above cash costs (50% debt long-term, no land; 100% debt op. capital)

$0.572

Breakeven Prices (based on enterprise budgets)

Above total cost $0.692

Above variable cost $0.567

Above cash costs(no debt capital)

$0.518

Above cash costs(100% debt op. capital)

$0.561

Above cash costs(50% debt long-term, no land;100% debt op. capital)

$0.572

Financial Analysis: the 3 key statements

• Income Statement

• Balance Sheet

• Cash Flow Statement

How Are These Calculated?• Floppy disk includes spreadsheets

with: exercise balance sheet, income statement, cash flow budgets

• The correct versions, the financial ratios, &

• Includes a brief interpretation of each ratio and how to

improve it.

Gross Revenue “Pie”

NFI to operator for unpaid labor, equity capital, & management

Interest to lenders for borrowed money

Payments for feed, seed, fuel, etc.

Rent to owner for rented land

Wages to employees

Where can I save

money?

Short-run profits: from the income statement

Monthly Cash Flow BudgetItem Jan Feb Mar Apr May Jun Jul Aug Sep Oct

Beginning Cash 15,849.00 39.79 42,835.71 12,065.73 46,466.02 24,256.90 1,145.96 34,568.03 5,806.26 36,263.66 Receipts from catf ish sold 60,000.00 60,000.00 60,000.00 60,000.00

Cash Inflow 15,849.00 60,039.79 42,835.71 72,065.73 46,466.02 24,256.90 61,145.96 34,568.03 65,806.26 36,263.66 Operating Cash Expenses

Fingerlings - - 12,415.00 - - - - - - - Feed 3,830.00 4,790.00 5,750.00 6,710.00 7,670.00 8,620.00 10,540.00 11,500.00 14,370.00 9,580.00 Gas, Fuel, and Oil 380.00 470.00 570.00 660.00 750.00 850.00 1,040.00 1,130.00 1,410.00 940.00 Chemicals - - 470.00 - - 470.00 - 620.00 - - Labor 1,000.00 1,000.00 1,730.00 1,730.00 1,730.00 1,950.00 1,950.00 1,950.00 1,950.00 1,730.00 Harvesting & Hauling 717.39 722.79 806.91 692.32 687.24 681.21 695.49 754.85 701.20 729.46 Machine Hire - - - - - 150.00 150.00 290.00 150.00 - Off ice Expenses 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 Rent 360.00 360.00 360.00 360.00 360.00 360.00 360.00 360.00 360.00 360.00 Repairs and Maintenance 1,310.00 1,310.00 1,310.00 1,310.00 1,310.00 1,310.00 1,310.00 1,310.00 1,310.00 1,310.00 Utilities 190.00 390.00 970.00 1,360.00 1,560.00 2,340.00 2,530.00 2,730.00 2,920.00 2,340.00 Other Operating Costs 360.00 360.00 360.00 360.00 360.00 360.00 360.00 360.00 360.00 360.00

Total Operating Expenses 8,157.39 9,412.79 24,751.91 13,192.32 14,437.24 17,101.21 18,945.49 21,014.85 23,541.20 17,359.46 Fixed Cash Expenses

Taxes and Insurance - - - 4,760.00 - - - - - - Total Fixed cash Expenses - - - 4,760.00 - - - - - - Living Expenses 3,000.00 3,000.00 3,000.00 3,000.00 3,000.00 3,000.00 3,000.00 3,000.00 3,000.00 3,000.00 Other Expenses - - - - - - - - - - Scheduled Debt Payments

Real Estate Principal 265.00 - - 265.00 - - 265.00 - - 265.00 Interest (10% APR) 2,368.75 - - 2,364.33 - - 2,357.71 - - 2,351.08

Equipment Principal - 665.00 - - 665.00 - - 665.00 - - Interest (10% APR) - 2,108.23 - - 2,097.14 - - 2,080.52 - -

Operating Principal - - 1,000.00 - - 1,000.00 - - 1,000.00 - Interest (10% APR) 2,018.07 2,018.07 2,018.07 2,018.07 2,009.73 2,009.73 2,009.73 2,001.40 2,001.40 2,001.40

Total Cash Outflow 15,809.21 17,204.08 30,769.98 25,599.72 22,209.11 23,110.94 26,577.93 28,761.77 29,542.60 24,976.94 Cash Available 39.79 42,835.71 12,065.73 46,466.02 24,256.90 1,145.96 34,568.03 5,806.26 36,263.66 11,286.72 New Borrowing - - - - - - - - - - Cash Balance 39.79 42,835.71 12,065.73 46,466.02 24,256.90 1,145.96 34,568.03 5,806.26 36,263.66 11,286.72

Cash inflow- Cash outflow (Operating expenses) (Fixed cash expenses)

(Debt payments)= Cash available+ New borrowing

= Cash balance

Cash Flow Coverage Ratio (Cash available/interest & principal

payments)

1,060.00 9,441.88 2,660.00 8,349.78 4,000.00

33,475.29 291,534.65

(5,685.65) 187,573.51 181,887.85

Scheduled Debt PaymentsReal Estate Principal

Interest (10% APR)Equipment Principal

Interest (10% APR)Operating Principal

Interest (10% APR)Total Cash OutflowCash AvailableNew BorrowingCash Balance

Cash Flow Coverage Ratio = (0.26)

Debt-Servicing Ratio (interest & principal payments/cash inflow)

1,060.00 9,441.88 2,660.00 8,349.78 4,000.00

33,475.29 291,534.65

(5,685.65) 187,573.51 181,887.85

Scheduled Debt PaymentsReal Estate Principal

Interest (10% APR)Equipment Principal

Interest (10% APR)Operating Principal

Interest (10% APR)Total Cash OutflowCash AvailableNew BorrowingCash Balance

Debt-Servicing Ratio = 0.21

Total Cash Inflow = $285,849

Cash Flow Scenarios

Farm A Farm B

Sept. $60,000 Feb. $60,000

Oct. $90,000 April $60,000

Nov. $60,000 July $60,000

Dec. $60,000 Sept. $60,000

Nov. $30,000

Liquidity Measures for Two Scenarios

Indicator A B

Cash Flow Coverage (0.26) 0.17

Debt-Servicing 0.21 0.17

Cash avail./cash inflow

(0.02) 0.01

Cash avail./op. expenses

(0.03) 0.02

Cash avail./liabilities (0.01) 0.01

How much debt is too much?

Assets-current

277,287 217,868

Non-current 475,213 356,410

Total 752,500 574,278

Liabilities-current

242,168 411,686

Non-current 179,079 179,079

Total 421,247 590,765

Net Worth 331,253 -16,487

Debt/asset 0.56 1.03

Year 1 Year 2

How much debt is too much?

Assets-current

277,287 217,868

Non-current 475,213 356,410

Total 752,500 574,278

Liabilities-current

242,168 411,686

Non-current 179,079 179,079

Total 421,247 590,765

Net Worth 331,253 -16,487

Debt/asset 0.56 1.03

Year 1 Year 2

How much debt is too much?

Assets-current

277,287 217,868

Non-current 475,213 356,410

Total 752,500 574,278

Liabilities-current

242,168 411,686

Non-current 179,079 179,079

Total 421,247 590,765

Net Worth 331,253 -16,487

Debt/asset 0.56 1.03

Year 1 Year 2

How much debt is too much?

Assets-current

277,287 217,868

Non-current 475,213 356,410

Total 752,500 574,278

Liabilities-current

242,168 411,686

Non-current 179,079 179,079

Total 421,247 590,765

Net Worth 331,253 -16,487

Debt/asset 0.56 1.03

Year 1 Year 2

Questions?

Discussion?

Options to Improve Profitability

Options to Improve Profitability

•Maximum production vs. maximum profit•Stocking densities/strategies•Feeding strategies

-every other day vs. every day -feed prices•Producing optimal sizes of fish

Yie

ld

Stage I

Stage II Stage III

Maximum yieldMaximum profit

Input level

Studies at UAPB Identified Economic Relationship

Between Feeding and Stocking

• Estimated a production function.

• Profit-maximizing stocking rates ranged from 6,500 - 8,500, depending upon feed and fish prices.

What would happen with different feed and catfish

prices?To maximize profits:At low fish prices, feed rates and

stocking rates would decrease.At low feed prices, feed and stocking

rates would increase.At high feed prices, feed and stocking

rates would decrease.

How low should you go?• Model results dropped profit- maximizing

stocking rates to 5,000/ac at $0.60/lb.

• At very low prices, may not be possible to calculate true

profit-maximizing stocking rate.

• Farmers need to stock at rates that ensure financial payments

are met.

Optimal stocking densities with high feed prices

• Fish prices have larger effect than varying feed prices.

• Fish prices of $0.70/lb (from $0.65/lb) nearly offset $45/ton increase in feed price in terms of optimal stocking density.

Feed Prices

$150

$170

$190

$210

$230

$250

$270

$2901

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$/t

on

Feed Price

Monthly Average Price of 28% Catfish Feed ($/ton)

$100.00

$150.00

$200.00

$250.00

$300.00S

ep-9

7

Jan

-98

May

-98

Sep

-98

Jan

-99

May

-99

Sep

-99

Jan

-00

May

-00

Sep

-00

Jan

-01

May

-01

Sep

-01

Jan

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May

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Sep

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May

-03

Sep

-03

Breakeven prices as feed price increases

$/ton TC VC

240 0.645 0.520

260 0.668 0.543

280 0.692 0.567

300 0.716 0.591

320 0.740 0.615

Current Feeding Strategies• Every other day feeding

– Carryover fish may be small following year

• Restricted daily feedings– May equal thin fish

• Catfish exhibit

compensatory gain• Can gain weight extremely fast, at

low FCR when full feeding resumed.

Processing Cost by Size0.6 lb 1.5 lb 2.5 lb

Wt. (oz) 9.6 24 40

Labor $0.08 $0.03 $0.02

Fixedoverhead

$0.25 $0.10 $0.06

Totalexpenses

$0.33 $0.13 $0.08

Factors Impacting Costs

• Economies of Scale: higher throughput will help to reduce unit costs by spreading fixed costs over more units.

• Technology/processing practices:– Automatic presorting of fish by weight

– Chilling/cleaning fish between deheader & fillet line

– Reduction in trim operation

– Interfacing trim, grading to reduce handling

– Online monitoring and control of productivity.

Factors Affecting Costs

• Production Impacts– Characteristics of fish received have

large impact.– Off-flavor, disease, weight to yield

ratios, weight distributions– 2% normal seasonal variation in yield– Distribution of fish sizes received from

each pond varies widely.

Big Fish Studies•Big Fish I

–4,500/acre, 0.6 lb–FCR 1.8-2.0–Survival 83-94%–32% protein

•Big Fish II–4,500/acre, 0.5 lb–FCR 1.7-1.9–Survival 87-91%–32% protein–No impact of fingerlings

02,0004,000

6,0008,000

1 2 3 4

Treatment

lb/a

cre

0.0

1.0

2.0

3.0

lb/f

ish

Net Yield Final Weight

02,0004,0006,0008,000

1 2 3

Treatment

lb/a

cre

0.0

1.0

2.0

3.0

lb/f

ish

Net Yield Final Weight

Stocker Net Yield

5,533

4,8024,591

4,000

5,000

6,000

3,500 4,500 5,500

Stocking Rate (fish/acre)

Ne

t Y

ield

(lb

/ac

re)

Individual Weight

1.81.9

2.2

1.0

1.3

1.5

1.8

2.0

2.3

2.5

3,500 4,500 5,500

Stocking Rate (fish/acre)

Ind

ivid

ual

Wei

gh

t (l

b/f

ish

)

Management for Larger Mesh Sizes?

Fingerlings

Single batch

Multiple batch

Yr 10.8-1.16 lb

0.6-1.01 lb

For stockers 0.25-0.80 lb

Growout

1.3-2.6 lb0.5-0.6 lb stockers

10,000 lb/yr

4,700-7,900

6,500 lb/yr

6,300 lb/yr

Questions?

Discussion?

Catfish Markets and Marketing

0.0

10.0

20.0

30.0

40.0

50.0

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70.0

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Seafood Beef Pork Broilers

U.S. per capita consumptionseafood, beef, pork, broilers

U.S. Per Capita Consumption of Catfish

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U.S. consumption of top 6 seafood products

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1.00

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4.00

1990 1992 1994 1996 1998 2000

Tuna Shrimp Cod Pollock Salmon Catfish

lb/p

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on

Consumer Food Expenditures at Home and Away from Home

0

200,000

400,000

600,000

800,000

1,000,0001

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$ m

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At home Away from home

Increasing consolidation in food industry

• Beef, pork, poultry all have consolidated.

• From mid-1990s to 2000, market share held by nation’s top four food retailers (4-firm ratio) increased from 17% to 34%. In cities, reached 72%.

• Broadline distributors have concentrated food buying power.

Product Life Cycle

Growth Maturity Decline

Introduction

Time

Fin

an

cia

l P

erf

orm

an

ce

Sales revenue

Which strategy?

• Compete on price in commodity markets with a product very similar to other products?

• Create unique identity (differentiate product) to capture higher consumer price?

That thing got a Hemi?

That thing got a hemi?

That thing got a Hemi?

The key to higher prices is to convince the consumer that your

product is different and worth more.

Quality/Price Matrix

Low Quality

Lo

w P

rice

High Quality

Hig

h P

rice

New Product Development• When existing products decline phase,

replaced with new products.• Failure rate is high for new products.• Must maximize idea generation &• Effectively screen

ideas to ensure that

only best concepts

go to market launch.

Value-Added Product Initiative: Turning Nuggets into Gold

• Value-Added Products may have potential to re-position the catfish industry into retail sales away from commodity-based sales.

• New products expensive to develop and market. Much research needed to provide guidance.

The U.S. Consumer Wants• Good flavor• Convenient food• Healthy food• Safe food• To know where their food comes from• Food free of chemicals and drugsThe catfish industry should be well

positioned to supply what U.S. consumers want.