Are You Ranching for Practice or Profit?

For many cow-calf producers, the thought of not raising cattle just seems foreign. As livestock producers, most of us have built a life around our cattle, not the cattle around our life. For better or worse, there seems to be an unexplained gravitational pull that will not let a rancher walk away from their cows.

I started as a financial officer with Compeer Financial in 2018. Readers might recall that it was not a glamorous time to be in the cattle industry or raising row crops. Early on, I sat in on a discussion with a financial officer and credit team about how to help a financially-challenged client get his operation back on track. Someone suggested the option of selling the cows. His financial officer quickly shot down the idea, saying that the client might rather give up his wife than the cows. Of course, this was a joke, but I share it to illustrate that as cattlemen, we are drawn to this lifestyle. And if the cows aren’t going anywhere, we might as well do our best to make them a profitable part of our business.

State of the Markets

As of early June, the cattle business is sitting in a good position. This week at my local sale barn, top of the market for fats was $1.935/lb and feeders prices are behaving accordingly. Honestly, it would be hard not to make a profit with the current dynamics, but if history is any indication, these good times won’t last forever. Herd liquidation over time led to a lack of beef supply, and then a dramatic rise in prices. If we remember back to the good times of 2014 and 2015 we know those high prices didn’t stick around too long. Just like in the past, our beef supply will start to increase or demand will pull back until profits reach more normal levels. Many years these normal levels mean break-even or negative profitability in the cow-calf industry. When you’re making long-term financial decisions and investments in herd expansion, facilities or land acquisition, keep the fluctuations of the markets in mind and remember those high prices might not be here to stay.

Pursuit of Profitability

Sitting in the sale barn bleachers and watching the calves you raised cross the scales near the top weights of their group sure makes for some good bragging rights. What’s even better is knowing the profit margin on that group of cattle and having that satisfaction of positive revenue. The two aren’t mutually exclusive, but it doesn’t always happen that way.

Think about what it took to have a heavy group of calves cross the scales. If you had 1,800 pound cows, massive amounts of creep feed, while feeding our cows hay for 6+ months a year, how big were your profit margins? That question can be answered differently on every operation, but at the end of the day it boils down to the real numbers behind business you are operating.

Calculating the break-even price or cost of production in a cow-calf enterprise may be more difficult than with corn or beans, but it is no less important. Without knowing the true numbers on a per head basis, your long-term decisions will always sit on a weak foundation. With the amount of dollars that get traded in this industry, shooting from the hip is not a plan that will typically result in long-term success. Knowing your numbers will allow you to take the emotion out of decision-making and help you confidently adjust accordingly. This is especially important to the young generation just getting started or looking to grow their operation.

Since I was old enough to walk, my life has been largely consumed by the cattle industry. So I get the passion that comes with it, but I also know the hours and sacrifice it takes. Study the numbers and true economics of your individual operation diligently. It will lead to more informed decisions on a daily basis. After years of the daily grind, you’ve had enough “practice” but let’s make sure to keep working towards positive long-term margins so you can move from practice to profits.

Jacob Postin is an Ag Lending Financial Officer with Compeer Financial. For more insights from Jacob and the Ag Lending team, visit Compeer.com.