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 a cow-calf enterprise is the impact of overhead costs on the operation. It's thought that cow-calf enterprises don't handle a lot of overhead cost well. But by evaluating financial records and utilizing them to make better management decisions the chances for profit can be increased.
Overhead costs are the ongoing expenses of operating an enterprise. Overhead costs shouldn't 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; 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 that.
Keeping sufficient financial records can significantly impact decision-making abilities. It's 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 best 60 percent of farms for net returns they experienced net loses eight out of 11 years. The data suggests that if there's an average net return each year a profit loss will be more experienced more years than not. Producers need to strive to do better than average to ensure a profit.
Equipment and interest can be big contributors to overhead costs. Sometimes cow-calf producers can experience “iron-fever,” where they feel the need to own more equipment than what they need for the enterprise. In making a decision to own a piece of equipment or to hire the job done by a custom outfit producers 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 that area. Producers may be able to hire it done for less than what they can do it themselves. If they need to own their own equipment they may need to diversify in enterprises or do custom hire themselves to spread out the overhead costs.
Another way to spread out the overhead costs is to better manage feed efficiency and space to be able to run more cows with the acres and facilities available. Producers need to ensure that cows are doing their jobs in being bred back within a 90-day window and are weaning healthy calves with adequate growth. Producers need to be able to identify cows that don't fit well with their management systems, and sell or cull them if necessary. The more calves producers 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 a cow-calf enterprise. Through knowing financial status producers can make better management decisions and increase the chances of landing with a profit. Visit fyi.extension.wisc.edu for more information.