What an amazing year in the cattle industry! One year ago, cattle prices had been at all-time nominal highs. Today, prices for steer calves are even higher (Figure 1).
It appears that through the combination of high prices and ample grass, your cow herds have truly become "cash cows." In the business world, cash cows are products that generate a steady, dependable flow of cash. Cash cows are typically business units that provide needed funds for reinvestment in other areas or products. Some of the profits of the last two years are dearly needed to compensate for the drought-induced lean years since 1996. However, many operations will have profits left for purchases and investments. In our society, there will be many possible alternatives for monies generated by profitable cow-calf enterprises.
Investing in the Future
Cow-calf producers should consider investments that will enhance the future profitability of their operations. The temptation will be great to purchase a new pickup or upgrade to a better line of farm equipment. These types of purchases will no doubt make life easier, but will they ensure profits next year and the year after? Better choices might be to identify key areas of the operation where investments will lead to lower future production costs or increased quality and quantity of production.
- Cattle genetics - Now is a great time to assess the type and quality of calves you are producing. Do your calves fit the market? Do you need more muscle or more growth? Numerous articles by Noble Research Institute livestock specialists address these topics, and they are available to counsel you in making changes. Refer to my August 2004 NF Ag News and Views article on the value of replacements to determine if you can cash flow additional females in your operation.
- Working facilities - With more emphasis on backgrounding programs, working facilities are needed to enable producers to easily perform routine health management procedures. Investments in facilities should focus on items that will make cattle working faster, easier and safer for both humans and animals.
- Grazing facilities - Fencing and water systems can make grazing more efficient, leading to increased production. Grazing cows can cost half as much as producing and feeding hay. Every county has different priorities, but some counties have EQUIP funds for fencing and water systems available through the NRCS.
- Feed storage - Bulk storage is a long-term investment that immediately saves $20 to $30 per ton over sacked supplements. In many areas, hay storage sheds offer long-term feed savings. As the availability of alternative feeds such as brewers grains (a by-product of expanding ethanol production) increases, a good investment might be building a commodity shed to receive and store truckload lots of the cheaper by-product feeds.
- Pasture acquisition - In the long term, all businesses need to grow to survive. Now would be a good time to consider adding additional grazing capacity. Leased land is usually more economical than purchasing, but now is a good time to evaluate all possible alternatives.
- These are a few areas where you can look to make changes that will enhance your future profitability. I am sure you can think of others. You might even consider diversifying by looking at non-farm or ranch alternatives.
Thought for the month: Change is inevitable in a progressive society. Change is constant. Benjamin Disraeli, 1867