What should producers do with the record income they'll receive from selling cattle this year?
By: Aaron Berger, Extension Educator, University of Nebraska
Cow-calf producers are looking at the potential for significant positive cash flow for 2014 due to record high calf prices along with reduced harvested feed costs and income from the Livestock Forage Disaster Program. This income may position cow-calf producers with the opportunity to make capital investments back into their operation.
The following are some options to consider when thinking about and planning for investments back into the ranch or cow-calf enterprise.
- Visit with your tax accountant about your current financial position and how income and investments can be managed to address tax liability for the 2014 year.
- Invest in yourself! Is there a class or an educational experience that would improve your ability to be effective as an owner/manager of resources? Great managers are lifelong learners. Identify an area where you could benefit from an educational experience and commit to do it. Challenge yourself! The greatest educational gains usually are at the edge of your comfort zone.
- Look at your management information system. Does your current record keeping and accounting system provide you with the information needed to make effective decisions? If not an investment in the tools, training or hiring of help in this area could be extremely beneficial.
- Hire an attorney to review and evaluate your current estate plan. If you have been procrastinating in developing an estate plan, this year may be great time complete one!
- Range and pasture continues to become increasingly valuable. Consider investing in dependable livestock water sources for rangeland and pastures. Water is frequently the first limiting factor for grazing management systems. A year-around dependable water supply is critical for good grazing management.
- Think about how additional permanent and temporary electric fence might be used to improve grazing management and increase forage utilization. Correct application of electric fence tools and technology that is currently available can provide a rapid pay back on investment.
- Look at investments that could have a multiyear benefit, especially for improved pastures. Consider spending money on soil fertility and pasture renovations such as adding legumes that can cost-effectively improve the quantity and quality of forage produced over the long term.
- Evaluate your ability to buy inputs in bulk. Frequently there are cost advantages to being able to buy truckloads of product or buy inputs seasonally when prices historically are lower. Would an investment in this area provide flexibility in purchasing inputs and reduce cost of production?
- If you don't have a scale as part of your operation, consider adding one. Being able to know accurately the weights of cattle has a multitude of management and marketing benefits.
- Evaluate working and load out facilities. Could changes in this area provide a safer environment and better working experience for cattle and the people who are handling them?
- Invite a team of people to evaluate and give you feedback on your business. Find people who will challenge you and who think differently than you do. The implementation of just one or two ideas could have a tremendous impact on long term business success.
- Be careful to avoid a knee jerk reaction to avoid the paying of taxes through the purchase of new paint. Overhead costs associated with depreciation, interest, repairs, taxes, and insurance with owning equipment are costs that should be minimized as much as possible to the cowherd if a long term profit is to be made. Consider investments that will reduce overhead expenses. If it isn't a good business investment, it isn't a good tax management strategy either.
The 2014 year will likely be remembered as a historic one for many cow-calf producers from a profitability standpoint. Plan now how to manage and invest this profit for the long term benefit of your business.