The prices are high in the cattle business at least for the time being. However, what happens when, or if the price drops?
I am happy for those ranchers who have stayed in the business. For those entering my feelings are of caution.
The latest news is that smaller or hobby farm losses are dragging down the average net income (after costs) of cattle producers. The 2023 reports show that the larger ranches are making a decent income.
While we can celebrate the high prices—over $4/pound, or $2,000 for a 500 -pound steer calf—we have to temper our giddiness with careful reflection on what to do with our retained earnings.
Land, machinery and input costs are all up dramatically since the industry was built over --the past 150 years while prices have not risen accordingly.
We can spend our currents profits on a lot of things. I would say that the top of the list would be a decent holiday for those that haven’t taken one and feel they need a rest. After that some advisors would say to pay off debt starting with those with the highest interest rates.
Others would say keep up with payments on the short-term debt, then ease in to the intermediate and long term debt.
Some long term debt can’t be paid off except over longer term (think mortgage debt on land). Much of the longer term has been secured against the land, equipment and the basic cattle herd.
Good accounting advice is crucial. One does not want to starve the business which may need to invest in efficiencies such as more reliable or faster equipment.
While repair parts are more and more expensive, it still might be better that the cost of new equipment. However, spending “good money after bad” on repairs may be a poor decision when careful investment in new machinery may make for a more efficient business.
It makes sense to pencil out some of the options while remembering to save for retirement, family emergencies or declining health.
There are calculators for farm and ranch planning. Check them out and use them. Find a financial advisor and if you are young enough small frequent investments left for many years can result in big saving when you need them.
