Don’t Make the Same Mistakes Again
01/17/2024
Producers are enjoying marketing cattle this year at prices they’ve not seen in many a blue moon, if ever. Even the strong pricing opportunities experienced ten years or so ago are not in the league with this present market. Here in northeast Texas, we’re seeing four- and five-weight front-end steers and heifers in the upper $200/cwt range and the two- and three- weights topping well over $300/cwt. Even as buyers are starting to grade their purchases harder, the front-end quality calves are holding their own. Though falling back a couple of dollars per cwt, the plainer calves are still moving at good prices.
Producers are enjoying marketing cattle this year at prices they’ve not seen in many a blue moon, if ever. Even the strong pricing opportunities experienced ten years or so ago are not in the league with this present market. Here in northeast Texas, we’re seeing four- and five-weight front-end steers and heifers in the upper $200/cwt range and the two- and three- weights topping well over $300/cwt. Even as buyers are starting to grade their purchases harder, the front-end quality calves are holding their own. Though falling back a couple of dollars per cwt, the plainer calves are still moving at good prices.
OPPORTUNITY STARING US IN THE FACE....
The profit potential in the beef business for 2023 and beyond is promising. I say “potential” because we’ve seen this movie before. Strong revenues are wonderful and give producers the upper hand in the market for a change. But...There are a multitude of needs of the farm business operation, including the family aspect of it. Paying down operating debt, paying down some term debt, investing in some farm infrastructure improvements (usually long overdue), needed equipment trades, other livestock trades, you name it, I’m sure the need is there. And please don’t forget or neglect family needs. There probably has been some neglect and doing without when the cash margins were thin.
But...But, what usually happens when the cash pile coming in is bigger than it has been in a while? Gotta buy something and book some depreciation ‘cause my tax liability may be up. I darn sure don’t want to pay Uncle Sam. Gonna spend multiple valuable dollars to tie up some capital long-term on equipment used occasionally to save a few dollars on federal taxes in the short term. Now, that may be a wise decision if what is bought will add efficiency and economy to the farm business. Choose wisely. Don’t make tax avoidance the number one thing.
It's not what you make on the top line (revenue), it’s what you keep on the bottom line (net income). And what you can do with cash (liquidity) for the coming business cycles.
The pandemic, in addition to general rises in input costs and labor, among other demands on revenues, such as debt service (interest costs and principal), put a burden on many farm businesses.
Get focused on generating sound and solid farm financial management strategies, starting with good ol’ Bookkeeping 101, graduate quickly into managerial accrual accounting, enterprise analysis, cost-of-production metrics, budgeting, partial budgeting, return on assets, return on investments. Building long-term wealth and multigenerational viability and success requires thinking beyond the current year and about what a federal, or state, tax liability may be. Tax returns are NOT financial statements and will not provide long-term management success.
Focus and work on the controllables. You don’t have control over product prices or the weather.
• Scrub the expense portion of the business income statement. Get efficient.
• Spend money on things that will generate returns over their costs. Budget...Budget...Budget.
• Invest in labor efficiency, whether its labor-saving equipment/devices, technology, or in educating/training for yourself and employees to increase skill sets, and to be more creative, more competent, and more accountable and valuable to the business.
• Build and stay firm on family living budgets. No one advocates that a family must live like a pauper. But....don’t burden the business with excess family living costs. Some recent articles have highlighted real-life examples of family living costs exceeding $200,000.00. It’s one thing if the resources are present. A whole ‘nother thing if they ain’t...Keep it sane. A farm itself can’t sustain a high cost of living, especially if multiple families are involved.
• Build Liquidity...Reserves...A Rainy-Day Fund. It will rain. Farming is a cyclic business. A vicious cycle, at that. Have reserves for pandemic-like, black swan events. Easier said than done, I know, but make it a goal.
This market will go down one day...No assurances it will come back up when we need it to.
Don’t Make the Same Mistakes Again.....
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This article is the opinion and perspective of the author and may or may not be consistent with those of other ASAC Members. Endorsement of specific items mentioned in the article is not an endorsement of the individual, the company or the organization from which it originates. ASAC as an organization does not advocate opinions or positions on issues.
Pete Weisenberger
Weisenberger Agricultural Services, LLC
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