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Taking a look at the bottom line

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By Rick Greenwell

The bottom line of a complete budget generally refers to what is left after covering all costs, including depreciation, labor, land, management, etc. But most of the time cow-calf producers operate with a partial budget where the bottom line is “returns to land, labor and management”. In other words, we may be interested in what’s left over after we cover “out-of-pocket” costs. Most economists would say that only works in the short-run but small cow-calf producers stay in business over many years.

Small cattle operations that do not always cover all costs tend to survive and thrive. In fact, if we were to combine Kentucky and Tennessee, it would be the second largest cow-calf state in the U.S. with 2,065,000 beef cows that have calved. Hmmm…maybe the smaller producers should unite and work together. I’m just saying…

But, let’s get back to the bottom line. How do we sometime survive with very little return to “land, labor and management”? Paying for land is very difficult in cow-calf operations. We used to depend on tobacco to make the mortgage payment but not so much now.

If the land is paid for, we may be concerned with building equity and accumulating wealth. We want the land to be taken care of and hope we can make money on it but that doesn’t always have to happen, mainly because we want a house with some acreage and are willing to work in town to pay for it. Yes, most of our cow-calf producers are part-time farmers but that doesn’t diminish their importance to the industry.

In order to be a full-time cattleman, our beef herd needs to be an “economical unit”. That is to say it needs to be large enough to support the family. If a commercial operation could consistently return $100 per cow then it would take 300 cows to net $30,000 dollars. Most of our herds aren’t nearly that large. However, purebred operations may return more per head which probably accounts for a very large percentage of our operations selling seedstock.

The crux of the matter is that it is very difficult to pay for a farm with a cow-calf operation but the cows can contribute and help you accumulate some wealth. Cattle consume forages from land that has few alternative uses. We either use it or let it grow up.

Now, what about labor and management? We can generally lump those two things together in a small cattle operation because they may refer only to one person – you! We certainly expect to have a good outcome with money left over. But, let’s face it; many times we would rather be working with our cows than playing golf or some other expensive hobby. Our physicians would probably prefer that we were out working on the farm rather than watching television. So how much do you have to pay yourself? We hope for a good year but are usually able to survive a bad one.

Some folks would argue that we don’t always react to normal economic signals like price and might, therefore, be a drain on the industry. Conversely, I believe that we have a competitive advantage in terms of forages that we can produce, and people that understand and love the industry. Let’s use that advantage.

There are a lot of small producers in this industry and our goal is to make each operation more profitable and more enjoyable. There’s nothing wrong with that. Some “cattle states” may say that we should count cattle instead of producers to determine representation in the NCBA, but I say count either one and the southeast is still a major player in the beef industry.