Do you operate as a business or are you a full-time recreationalist? I am sure most of you would say you are running a business and enjoy what you are doing. That is great because I can’t imagine spending my life doing something every day that I did not enjoy. But saying we are in the business of raising livestock and actually running the operation on sound business principles may not always be one in the same.
Since most of us enjoy our profession and our lifestyle, we should be sure that enjoyment is sustainable. The only way to be sustainable is to run your operation as a true business. With the current business climate in the cattle industry, as producers we should be taking advantage of what is available to us. I think two of the positives right now are high prices and low interest rates. Both of these will change: Interest rates will go up and prices will come down — when, I don’t know. But planning and working through a decision-making process to take advan-tage of the current situation seems essential.
Now would be a great time to restructure debt at a lower rate. Review and analyze the debt ratios on your balance sheet and your cash flow statement. Would restructuring some short-term debt to intermediate or long term increase cash at year end, or increase your current asset to current debt ratio? The current ratio is a key measure of liquidity. A current ratio of 1.5 or greater is considered good. Depending on the business, some will require higher and some can manage with a slightly lower ratio. Where are you?
The other positive we have now as producers is the price of our production units. Taking advantage of this high market now makes a lot of sense. Will the market go higher? Maybe. Is there a chance it will go lower? Absolutely. I don’t think anyone knows where the market will go from here. Yes, all the fundamentals point to continued strong prices, but it does not have to stay at these levels to still be a good market. If the market drops 20 percent it will still be a good market, but why not take advantage of where it is today (as I write this in late March)? There seems to me to be a lot more risk of downside than upside potential. At current levels everyone should be making a profit, so lock in a profit. If the market goes higher you can still say you did well. If the market goes lower you will really be proud of yourself.
With prices at these levels, buyers of your product are being much more critical of their purchases. When paying premium prices they want premium products for their money. Programs like preconditioning, weaning, natural, organic, NHTC, BQA and ASV are ones you should evaluate within your operation and cost structure to determine how they may fit your ranch and produce more profit.
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