Cattle business tough, novices told
May 6, 2004 12:00 PM
In Texas, operators of most beef cattle and forage operations realize a very low rate of return on investment.
“That's the reality with beef cattle and forages in Texas,” said Greg Clary, Texas Cooperative Extension agricultural economist.
Clary was the first speaker at the recent Pasture and Livestock Management Workshop at the Texas A&M University System Agricultural Research and Extension Center at Overton.
Unlike most other programs conducted at the Overton center, the focus of the three-day workshop was not so much how to fine-tune an agricultural operation but how to get started in ranching and pasture management in the right way with research-based information. More and more frequently in the last decade, Extension specialists and agents are finding their clientele are not established farmers but baby boomers retiring from city jobs or those still working but looking for a weekend homestead farm.
Whether they inherit land or buy it, many retirees want to get in the cattle and forage business. A common perception is that raising beef and forage is a glamorous, highly lucrative business; a matter of sitting back and watching the cattle get fat on grass, Clary said.
But while it is possible to make money on cattle and forage in East Texas, it's a venture that demands much work and a keen business sense to realize a profit, Clary said.
Many decisions
“You're going to have a lot of decisions to make. And hopefully, that's what we're going to do here the next three days,” he said. “Teach you how to make wise management decisions.”
Clary, with 16 years as an Extension economist, wasn't just painting a gloomy picture of the cattle business to scare people. His economic sketch was based on standardized performance analysis data from ranching and farming operations throughout Texas.
SPA is an Extension management tool designed to enable producers to complete an integrated financial, production, and marketing analysis of their entire operation using farm financial statements and other data. By integrating the SPA method of farm analysis with their current record keeping system, producers can calculate their unit cost of production and measures of profitability and thereby be better informed to meet their business and marketing objectives.
SPA data are particularly valuable in identifying where the money is going out and what ventures are bringing it back in, he said.
Clary said most people starting out in the cattle business make the mistake of putting a large investment into land and then trying to decide what they're going to do with it.
Clary said his role was to help the workshop participants develop a specialized business plan, a “farm plan.” A farm plan takes into consideration several factors, including marketing of the product (calves), resource assessment, alternate production possibilities and projections of the money-making potential.
But some of the most important elements of the farm plan are the operator's personal, family and business goals and objectives.
Do you understand?
“Do you really understand how much time and money it's going to take to run the operation?” Clary said.
Often, the expectations of cattle business novices are unrealistic. Upon early retirement, for example, they buy 100 acres — or even 20 acres — and expect it to replace the income and benefits of a $50,000 salaried position.
They remember granddad making a living on 100 acres, maybe even putting their parents through college.
“But that was 50 years ago. Things are different today,” Clary said.
Today, beef and forage producers have to examine every cost outlay with regard to its return. True, agriculture is like any other business in that one has to spend money to make money, but many expenditures don't give returns.
“If you want to make money in the cattle/forage business, own as little high-dollar land as possible,” Clary said.
This means leasing land rather than buying it to enlarge an operation. And studies show that most producers can buy hay cheaper than they can produce it.
“If you buy things that rust, you've created overhead and you had better plan on using it to its capacity to pay for itself,” he said.
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