milofarmer1 - 11/26/2015 08:56 I listened to a beef economist a while back and he made an interesting point. Cow/calf guys make a mistake when they think they are operating to increase margin. i.e. buying low to sell high. That may work for a few guys that buy cull cows and improve them for slaughter, but the real beef cow herds are operating to increase equity. Which is harder to get a good feel on. Or it is harder to monitor your progress. Cow guys should always be working to increase the value of their herd, by improved genetics, selective culling, increasing numbers gradually, and of course decreasing the debt against them if any. Also increasing land acres and infrastructure. If they are solely focused on margin, they will always be jumping in and out when prices are up and down, won't make good long term decisions, etc. Cow calf is more like farmers in that farmers are increasing equity in their operation with better equipment and land. They don't jump in and out of the business when prices tank. Feeders and backgrounders are strictly margin motivated. Margin isn't there, it is somewhat easier to scale back, let pens sit empty. When margin is good increase numbers quickly. It was an interesting perspective I had not really thought about before. A couple of very interesting points, milofarmer1. There is a difference between profitability and cash flow. A cow calf operation can be very profitable by increasing equity/herd value every year. An increase in equity value of the cow herd by retaining heifers and maybe steers in a birth to finish operation can be profitable depending on how you control expenses. It can be tough to live on equity increases alone. Generally we need some positive cash flow also. However in many grazing based cow/calf operations cash requirements can be held to a minimum compared to annual equity increases. This is not going to work where operations must purchase or rent high dollar land in competition with row crops. Nor is it going to work where there are a lot of dollars invested in a hoop building, feeding equipment, feed harvesting, storage and movement. Equity increases are not going to make the land or rent or loan payments. Cow calf can flourish however on lower value ground or in places not really suited to row crops. Cow calf in these places does not require expensive buildings or equipment or feed harvesting/storage equipment nor much labor. Done in these places with low input methods and genetics, cow calf is not a get-rich-quick business but can generate significant annual equity increases, if not a lot of cash. I have only around 50 head total in a cow calf, birth-to-plate operation and am no cattle industry expert, but I can show very good profitability from equity increases if not a lot of cash at this stage of herd growth. There is initial investment in fences water etc but with equity increases and by limiting cash expenses one can show a respectable ROI. "beef cow herds are operating to increase equity" is an important concept. Happy Thanksgiving to everyone.
Edited by Jim 11/26/2015 15:08
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My thoughts on cow-calf prices / future
