The danger in strong cattle prices

One of the tools we use to help us be profitable in HM is to pay ourselves first. Basically this means that we set the profit we desire at the beginning of the year. We then use our creativity and planning ability to make it happen.

In other words, we plan backwards. But also, we must guard against the common tendency (basic human nature) of allowing expenditures to increase when income increases. — jtl

Plan for a profit, but always keep a watchful eye on your cost of production

cattle eating hay in the snow
Photo: iStock

What is this hidden danger? It is that we will let our cost of production rise to match the higher prices. If we allow costs to rise, the potential profit and the benefits of higher prices will flow to someone else. It isn’t difficult to structure our businesses so that we have no more profit at the new higher price than we did at the old lower price. I think this is largely the history of the cattle business.

Let me suggest some safeguards that might help us as we move ahead. The first one is: the anticipated price for our products must not determine the cost of production. The past 10 years have been one of the most difficult times for the cow-calf producer in the last 50 or 60 years. If you are still in the business I congratulate you. You must have done something right. In fact you have likely done many things right. You have learned some important cost-cutting ideas that have allowed you to stay in business. This is not the time to abandon these ideas. If they worked in the difficult times you can be confident that they will work even better in the good times. This is not the time to slack off in our management. The exact opposite is true. This is the time to bear down. Continue to be a low-cost producer. Use the good times to generate a profit and to create a low-cost, sustainable business. We are all being presented with a wonderful opportunity. By using it wisely we may be able to build a solid business that will last for generations.

In HM we define profit as an increase in net worth. This increase is measured while we hold our long-term assets (land and cows) at a relatively low constant value. By measuring profit in this manner we can be sure that when our net worth increases we have more assets, less debt or cash. We are not just measuring the inflation of our cows and land. Profit is defined as a return on your investment (the value of your business) and a return to your management skills. Profit is calculated after your living expenses have been paid.

income chart for cattle pricesProfit must be planned for. It will not happen automatically. Let’s look at some real numbers and see what has happened to income for the cow-calf sector in the last year. For this example I will use 200 cows, a 90 per cent weaning rate and a calf weight of 500 pounds. We will retain 40 heifers and sell 40 cull cows with a weight of 1,300 pounds. I have used Canfax prices for calves in October for 2013 and cow prices for midsummer in 2013 and 2014. I have used current prices for the 2014 calves. This is just an example. It is realistic but not detailed. To get the real benefit from these ideas use your own numbers.

No matter how you measure things we have experienced a significant increase in income. For most of us the present increase in prices will be a once-in-a-lifetime opportunity. It deserves to be managed carefully. If we squander this opportunity we are not likely to have another chance.

One of the tools we use to help us be profitable in HM is to pay ourselves first. Basically this means that we set the profit we desire at the beginning of the year. We then use our creativity and planning ability to make it happen. Let’s look a little closer at our example ranch. Last year’s income was $153,380. Times have been challenging. Let’s say we tried our best last year but only generated a profit of $5,000. Now as we look ahead we realize that our income this year will increase by $103,670. If we are disciplined and hold our expenses to the same level as last year we will generate a profit of $108,670. Our reaction may be: “Wow, I’ve never made this kind of money. Is this really possible?” The answer is a resounding “Yes”; all it requires is discipline and planning. You can achieve this.

If you are serious about profit now is the time to plan for one. Since profit is an increase in net worth you will be able to hold your profit as an increase in assets, a decrease in liabilities or cash. The best way to hold your profit will vary from farm to farm. A close look at your goals will aid you in this decision.

We are all being presented with a golden opportunity. I urge you to seize it. Make profit a way of life. Plan for a profit every year. I wish you success. Happy trails.

Don Campbell ranches with his family at Meadow Lake, Sask., and teaches Holistic Management courses. He can be reached at 306-236-6088 or by email.


FOLLOW LAND & LIVESTOCK INTERNATIONAL ON FACEBOOK

Check out our WebSite

Check out our Online Rancher Supply Store

The Betrayed: On Warriors, Cowboys and Other MisfitsThe Betrayed: On Warriors, Cowboys and Other Misfits. Although woven around the experiences and adventures of one man, this is also the story of the people who lived during the period of time in American history that an entire generation was betrayed It is the story of the dramatically changing times in which this personal odyssey took place. It is the story of thebetrayal of an entire generation of Americans and particularly the 40% (of the military aged males) of that generation that fought the Vietnam war.

Combat Shooter's Handbook Combat Shooter’s Handbook. Call for a pizza, a cop, and an ambulance and see which one arrives first. So, who does that leave to protect you, your life, property and family? The one and only answer is: YOU This Handbook is intended to help you exercise that right and meet that responsibility. Available in both paperback and Kindle versions.

FOLLOW LAND & LIVESTOCK INTERNATIONAL ON FACEBOOK

About Land & Livestock Interntional, Inc.

Land and Livestock International, Inc. is a leading agribusiness management firm providing a complete line of services to the range livestock industry. We believe that private property is the foundation of America. Private property and free markets go hand in hand—without property there is no freedom. We also believe that free markets, not government intervention, hold the key to natural resource conservation and environmental preservation. No government bureaucrat can (or will) understand and treat the land with as much respect as its owner. The bureaucrat simply does not have the same motives as does the owner of a capital interest in the property. Our specialty is the working livestock ranch simply because there are so many very good reasons for owning such a property. We provide educational, management and consulting services with a focus on ecologically and financially sustainable land management that will enhance natural processes (water and mineral cycles, energy flow and community dynamics) while enhancing profits and steadily building wealth.
This entry was posted in Managing the Ranch as a Business, Ranch Economics, Uncategorized and tagged , , , , , , , , . Bookmark the permalink.

1 Response to The danger in strong cattle prices

  1. futuret says:

    THE FEDERAL RESERVE IS AT THE VERY CORE THAT AFFECTS OUR LIVES PHYSICALLY ON THIS PLANET, THEY HAVE EVERYTHING TO DO WITH PRICES EVERYWHERE EVEN CATTLE. WHETHER YOU LIVE A RURAL LIFE, OR YOU ARE A TYPICAL CITY SLICKER YOUR, YOU WAKE UP EVERYDAY AFFECTED BY THE FEDERAL RESERVE AND ITS UP COMING NEW WORLD ORDER. IN FACT THE FEDERAL RESERVE IS CONNECTED WITH THE SHADOW GOVERNMENTS OF THIS WORLD. IT IS HIGHLY IMPERATIVE THAT ALL OF US “GET THE HELL OUT” OF OUR OWN WORLDS SO TO SPEAK, SO THAT WE MAY SEE WHAT IS HAPPENING IN THE “NEXT WORLD” THAT HAS IMPLICATIONS ON OUR OWN, AND WE HAVE NOT BEEN DOING THAT ENOUGH, WHETHER WE LIVE IN THE RURAL PARTS OF THE PLANET OR THE CITY LIGHTS. IT IS IMPERATIVE TO KEEP UP TO DATE ON EVERYTHING AND EVERYWHERE. TYRANNY KNOWS NO BOUNDARIES, REGARDLESS WHERE WE HAPPEN TO BE.

    http://www.dcclothesline.com/2014/11/25/federal-reserve-heart-debt-enslavement-system-dominates-lives/

    Like

Leave a Reply to futuret Cancel reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s