The profitability of the cow-calf enterprise is dependent on many factors such as cow production, feed costs, and the markets, but one big factor to the profitability of our cow-calf enterprise is the impact of overhead costs to our operation. I am sure you have heard it before that cow-calf enterprises do not handle a lot of overhead cost very well but by evaluating our financial records and utilizing them to make better management decisions we can better our chances for profit.
Overhead costs are the ongoing expenses of operating an enterprise. Overhead costs should not be confused with direct costs of operating on a day to day basis. As the number of cows in the enterprise increases the direct cost additionally increases and the overhead cost would stay the same. The overhead costs would cover such things as housing, equipment, land costs, depreciation, interest, repairs, taxes, and insurance. Overhead costs can be difficult to track especially if there are multiple enterprises involved where a percentage of the overhead cost would have to be assigned to each enterprise. Keeping adequate and accurate financial records can help with this.
Keeping sufficient financial records can significantly impact our decision-making ability. It is dangerous to use average costs when calculating net returns for the cow calf enterprise. Data collected by the University of Minnesota’s Center for Farm Financial Management shows that in the years from 2008 to 2017 if the cow calf enterprise wasn’t in the top 60% of farms for net returns they experienced net loses eight out of eleven years. The data suggests that if we have an average net return each year we will experience a profit loss more years than not. We need to strive to do better than average to ensure a profit.
Equipment and interest can be big contributors to overhead costs. Sometimes as cow-calf producers we can experience “iron-fever” where we feel the need to own more equipment than what we actually need for our enterprise. In making a decision to own a piece of equipment or to hire the job done by a custom outfit we need to be able to evaluate the total ownership and operating costs of that specific piece of equipment as compared to the custom rate for our area. We may be able to hire it done for less than what we can do it ourselves. If we need to own our own equipment we may need to diversify in enterprises or do custom hire ourselves to spread out the overhead costs.
Another way to spread out the overhead costs is to better manage our feed efficiency and space to be able to run more cows with the acres and facilities we have. We need to ensure that our cows are doing their jobs in getting bred back within a ninety day window and are weaning healthy calves with adequate growth. We need to be able to identify cows that do not fit well with our management system and sell or cull them if necessary. The more calves we are able to produce the more the overhead cost is going to be spread out over the cow-calf enterprise.
Overhead costs can have a large impact on the profitability of our cow calf enterprise. Through knowing our financial status we can make better management decisions and increase our chances of landing with a profit.
Written by: Amanda Cauffman, UW Extension Agriculture Educator, Grant County, article recently appeared in the Wisconsin Agriculturist magazine.