Economics: March 2003

Recently, I was on a commercial plane flight coming home from a meeting I attended. After the flight attendants made their talk about all the safety features of the plane and what the passengers should do in case of an emergency, I devoted my attention to a book my son and daughter-in-law had given me for Christmas.

Before my senses became completely focused on the morals of the book, the middle-aged gentleman sitting next to me inquired of my final destination. Further conversation ensued, and I learned that he was a medical doctor living in Seattle. He had at one time lived in Edmond and was returning to visit relatives. During the course of our conversation, he mentioned several aspects of his work and the long hours that he often worked each week. Something he said surprised me coming from a medical doctor. He said, "I must learn to work smarter rather than harder." All of us have heard this statement before, and many of us have said it to ourselves. However, knowing the salary of most medical doctors, why would one be interested in being more efficient?

There is a quote by Lou Gerstner, the CEO of IBM, that I think is appropriate for my medical doctor acquaintance and many of us in production agriculture. His quote, "Never confuse activity with results," hits home to many of us. George Jones, the popular country and western singer, recorded a song not too many years ago entitled "Choices." In the song, George sings of the many choices we face each day. Oftentimes, we make choices to do things that require considerable physical effort and they are productive ? but are we doing the right task?

For those of us who have the privilege of being a steward of the world's most basic natural resource, land, we often can involve ourselves in tasks that keep us busy but maybe are not very productive. I need help in this area myself. On the small farm where my wife and I live, we have an old 4020 John Deere tractor. A few years back, cattle prices were pretty good and we were able to purchase a front-end loader for that tractor. I can spend many hours on that old 4020 and it even surprises me what we can accomplish.

However, I wonder sometimes how much money that old tractor and me are making. In some instances, our "busyness" may add more to quality of life than the bottom line. There's nothing wrong with doing things for enjoyment as long as we understand what we do for enjoyment and what we do to make a profit on the farm or ranch business.

There are many attributes to a successful business. We as managers must dwell on doing the right things, not necessarily doing things right. Of course, since I am an ag economist, I think the most important attribute of a successful business is management. Management most often is your responsibility as owner/operator and primary decision-maker. You decide what are the right things to be doing in your operation. Following are a few items I would encourage you to think about to determine if you are doing the right things on your farm or ranch.

The first thing I will mention is keeping sufficient financial records to determine what enterprises on your farm or ranch are making a profit. Many of us keep enough records to satisfy the requirements of filing an accurate income tax return. However, unless you have only one enterprise on your farm, seldom will these records provide enough information on which to base good management decisions.

Briefly, I will say that in one situation, I worked with an individual who had employed the services of an accounting firm and they had provided the producer with so much information that they had him confused. Only spend time keeping the records you will use making management decisions.

Another item I observe about producers who own cattle is how they provide for their hay needs. It seems that hay is somewhat of a necessity if we have cattle. Although the need for hay is common among most cattle producers, there is a wide range in costs to acquire hay. Several factors influence hay costs. Whether we purchase it or raise it, if we raise it whether we harvest it ourselves or have it custom harvested, how we store it and how we feed it are all factors that influence hay costs. Since hay is a major part of a cattle producer's cost, doing the right thing about providing for hay needs can make a huge impact on the bottom line.

The third and final item I will mention to those with cattle is how you are providing for replacement females. In Oklahoma, there are 59,000 cattle producers that own and manage 2.042 million head of beef cows. If you do the arithmetic, the average-size producer owns about 35 cows. If you are close to the size of the average cattle producer in Oklahoma and are raising your own replacements, you may need to review your records. In many instances, purchasing replacements and using terminal cross bulls will increase your bottom line.

Making a profit in production agriculture is becoming harder and harder each year. If we are to survive and thrive economically, it is imperative that we make the right choices concerning doing the right things. In our world economy, commodity prices are determined globally but costs of production are determined locally. Our greatest opportunity is to do things that will reduce our costs, which will lead to higher net income.