The scorching sun is setting on August quickly. As producers transition from running hay equipment to preparing for the winter feeding season it provides a great opportunity to catch their breath and glance at their financial condition.
Why now?
The August to September period is a prime time for a spring calving cow-calf operation to experience a cash flow issue. This can be attributed to a collection of timing and seasonal ranch operations. The first potential cause is calving and marketing season. Most operations are spring calving, then market calves in the fall. This results in most operations receiving the largest portion of their annual revenue in the fall of the previous year. They then funded any debt obligations due and purchased supplement for the cowherd last winter. Then they moved into hay season. Capital expenditures along with diesel, fertility, net wrap, repairs and maybe labor are all consuming cash.
What should producers do?
The easiest step would be to sit down and estimate ranch expenses from now until the intended time to sell calves. Then take cash balances, room on any revolving credit line, any anticipated cash inflows and add them together. Subtract the anticipated expenses from the anticipated inflows. If positive, the short-term cash position is likely adequate. If not, producers need to consider how to meet that cash need.
Calculating working capital at this point would also be helpful. Working capital is a liquidity measure and shows how effectively producers will be able to cover short-term obligations. This includes any operating costs on the horizon and any upcoming debt obligations that operations need to be ready for.
Evaluating Financial Performance and Position is a great fact sheet that discusses this in more depth.
A strong cash or working capital position allows operations to be opportunistic. Producers may be able to purchase assets (cattle, equipment, etc.) that are undervalued in the market. Furthermore, investments could be made that may yield greater profits later. Items like pasture fertility for stockpiling forage, backgrounding, or retaining ownership on calves could be examples to explore.
