Cattle prices in 2023 and 2024 have ranged from good to great depending on if your glass is half empty or half full. Adding to this, feed grains have been getting progressively cheaper since the start of 2023. And finally, Oklahoma has put together two productive hay seasons back-to-back. Cheaper feed and hay along with strong calf and cull prices all pave the way for some profitable years (keeping our fingers crossed that the drought conditions are short lived).
Yet, as I have traveled to talk to livestock groups across the state it hasn’t felt as rosy as one would have thought in 2018, for example. A phrase I hear repeatedly is that it just costs more to do business than it ever has. That is something we can all agree on; it seems to cost more to do everything these days. If we subtract these earlier mentioned issues from the profit math, that leaves overhead expenses as a likely culprit for the less than rosy outlook.
Overheads have been explained in many ways. I like to describe them as all the things that we need to take care of the cattle, that don’t go into the cattle.
For example, a bale of hay is not overhead. But all the things it took to get the bale in front of the cow likely is. The tractor, baler, rake, truck, hay bed, repairs, labor, etc. are all a part of our overhead expense.
Costs that fall into the overhead category tend to not follow a normal “commodity trend.” More specifically, when we enter drought and hay supplies are already tight, we can expect hay prices to climb. We expect hay prices to stay high until we have a good hay growing season and adequate supply returns. Most overhead items don’t behave like this. They tend to have a slow but steady increase in cost over time that is corrosive to our profit margins.
Don’t get me wrong, there is a degree of overhead that is required to care for the cowherd. That will vary among ranches based on goals, labor and resource availability. Minimizing overhead costs is difficult. Just be aware that the decisions made to repair, replace or upgrade these assets will impact our profitability for many years. As the cost of these items that we need to do business with continues to increase, be especially diligent of how we can stretch each dollar a little further.
Read more:
Six Factors Affecting Farm and Ranch Profits
Recognizing Economic Ranch on the Risk on the Ranch
