Budget livestock profits wisely
This will probably be a year of record livestock income for many. I hear the term income more frequently than the term profit. Many ranches are handling millions of dollars of income and expenses each year, and when we look at the bottom line, th...
This will probably be a year of record livestock income for many. I hear the term income more frequently than the term profit. Many ranches are handling millions of dollars of income and expenses each year, and when we look at the bottom line, the word is profit. So how do we make sure it will be a profitable year? Now that 2014 is almost finished, start looking at how to become more profitable in 2015.
• Create a cash flow plan: Sit down with the past year, or even better, the past three-year income and expense statements and consider a budget for 2015. Look at the areas to decrease management cost without decreasing income. There is usually a breaking point where decreasing expense ends up hurting the income side. A lender or instructor from the South Dakota Center for Farm and Ranch Management can assist.
• Enterprise analysis: In every operation there are specific enterprises that are more profitable than others. The key is to have the management skills to analyze those individual enterprises. An example of individual enterprises are: Cows, backgrounding calves, corn, millet or oats. Each of these enterprises is its own entity within the operation. If a specific enterprise has not been profitable in the past few years, find out why it is still operating the same way. Knowing what you are doing is the key to success. I do understand that not everything we do with our enterprises is always profitable but gives some profit to another enterprise. Review this past year to see if investments made the expected returns.
• Work smarter: With the new resources available throughout the state, become educated before trying something new in the operation. Especially now in winter. Attend some educational meetings that are being offered. Take time to start researching a different enterprise for the operation. Most operations have computer technology at home to do the research. Give that task to a younger member of the family to see what they can do to find that extra profit in the operation. There are so many different ways to become more profitable that don't require a huge investment.
• Return on farm and ranch assets: So what kind of rate of return should you expect for your operation? Going back to 2010, we saw an average rate of 15.23 percent return on assets, 2011, 10.4 percent; 2012, 10.2 percent; and 2013, 5.1 percent.
That is a decline overall on our investment. We are handling a lot more money, but are in a downswing with rate of return on our assets. Many of us know that our expenses keep increasing. It is crucial to find those expenses that we can decrease without decreasing the rate of return.
For some operations, it could be a very successful year, while for others it might be a struggle. For now, it is wise to start preparing for the 2015 year. Make decisions that will create cash flow and be profitable for each enterprise that will give us a return on every dollar of investment.
Editor's note: Koupal is an instructor of agriculture at Mitchell (S.D.) Technical Institute.