Beef with a Business Mindset
– Haley Shoemaker, OSU Extension AGNR Educator, Columbiana and Mahoning Counties (originally published in the Ohio Farmer on-line ; sourced from the Ohio Beef Cattle Letter)
These days dropping a cull or feeder calf off at the local auction can feel a little bit like Christmas in July – prices are solid, and markets are strong, largely due to a decline in cattle inventory following years of drought and
Find out where your ‘benchmarks’ fit among your peers.
production challenges. And while as cattle producers we’re naturally inclined to keep the “when will these prices end” thought in the back of our mind, we also sometimes find ourselves getting comfortable with the idea of $135/cwt for culls or upwards of $300/cwt for calves.
Periods of high prices, such as those the industry is experiencing now, have been known to make the good farm business manager look great, and the mediocre farm manager look good. Anyone who’s been in business for any amount of time knows that these trends have a way of evening themselves out, but the factor that remains is that a well-managed farm business will stand the test of time, and volatile markets. One of the tools utilized by beef herd managers across the U.S. is called FINPACK, a financial analysis software service offered in Ohio through the Farm Business Analysis and Benchmarking Team. Each year, farm analysis teams throughout the country collect data from a variety of enterprises, ranging from beef, dairy, and crops to specialty products and small ruminants. The data collected from balance sheets, income statements, and enterprise analyses not only provide invaluable information to the producer and their operation, but also compile the national database, known as “FINBIN”, managed by the University of Minnesota.
Taking a look at FINBIN’s five-year financial report for beef cow-calf enterprises, a couple trends stick out – net return, an indicator of the farm’s profitability, has only recently climbed into the positive during 2023 at an average of $125.31 per cow, preceded by four years ranging between ($41.50) and ($113.13) per cow. 2023’s rise in net return was accompanied by increased direct and overhead expenses, totaling $1,019.85 per head on average, indicating that even with elevated feed and operating costs, managers who took a calculated approach to business decisions “made the most” so to speak, of a favorable marketing landscape. Those producers who managed their way into the top 20% of beef herds included in the 2023 database saw an average net return of $564.09 per cow, and an average of $812.14 per cow in direct and overhead expenses. This represents a nearly $438 break separating the “average” and “top” herds, which can be the difference between a profit or loss during a year of weaker markets.
So, how do you know where your farm falls? Is your business average, slightly above, or excelling – and how does your operation measure financial success? If “I don’t know” was the answer to any of those questions, completing a farm business analysis may be a logical next step. Beginning a financial analysis can be an eye-opening experience for a farm business. In addition to gaining perspective on how a farm compares to similar operations throughout the state, producers also learn how to keep more targeted and detailed records, allowing for historical data and trends to be identified over years of participation in the program. These trends provide insight into the operations’ reaction to business decisions and market variability, and can help producers clearly decipher financial strengths, areas of potential concern, and opportunities for improvement.
Producers throughout Ohio have the option of completing either a whole farm analysis, or whole farm with enterprise analysis. Both provide individualized reports that take into account beginning and ending balance sheets and income statements, however those who complete an enterprise analysis will also receive summaries breaking down costs of production per unit (per head, cwt, acre, etc.). All data is handled with care to preserve confidentiality. Additionally, personalized benchmark reports serve as a useful tool in visualizing an operations percentile ranking among peers, which has often been stated as one of the most beneficial outputs of completing a farm business analysis.
Getting started is as simple as reaching out to your county Agriculture and Natural Resources Educator, or to Clint Schroeder, Program Manager, at 567-242-6693 or via email at schroeder.307@osu.edu. It’s tempting during times of favorable prices to shift resources and attention to putting out the next most demanding fire, but recent history has proven that consistent, diligent management is what prepares a farm for years where financial efficiency matters most. In the long run, you can’t manage what you don’t measure – don’t let your financial success fall into that category.
Sources:
Beef Cow-Calf – Average Per Cow Sorted by Year: https://go.osu.edu/cowcalf5yearavg
Beef Cow-Calf – 2023 High 20% of Farms: https://go.osu.edu/cowcalfhigh20
