On today’s Cow-Calf Corner, Scott Clawson, M.S., Oklahoma State University Cooperative Extension Service NE Area Agricultural Economics Specialist writes about fall finance chores.
The scorching sun is setting quickly on August. As we transition from running hay equipment to preparing for the winter-feeding season, it provides a great opportunity to catch our breath and glance at our financial condition.
Why now?
The August to September period is a prime time for a spring calving cow-calf operation to experience a cash flow issue. This can be attributed to a collection of timing and seasonal ranch operations. The first potential cause is our calving and marketing season. Most operations are spring calving and then market calves in the fall. This results in most operations receiving the largest portion of their annual revenue in the fall of the previous year. We then funded any debt obligations due and purchased supplement for the cowherd last winter. We then moved into hay season. Capital expenditures along with diesel, fertility, net wrap, repairs and maybe labor are all consuming cash.
What should we do?
The easiest step would be to sit down and estimate ranch expenses from now until we intend to sell calves. Then take our cash balances, room on our revolving credit line, any anticipated cash inflows and add them together. Subtract the anticipated expenses from the anticipated inflows. If positive, our short-term cash position is likely adequate. If not, we need to consider how to meet that cash need.
Calculating working capital at this point would also be helpful. Working capital is a liquidity measure and shows us how effectively we will be able to cover our short-term obligations. This includes any operating costs we have on the horizon and any upcoming debt obligations we need to be ready for. AGEC-790 Evaluating Financial Performance and Position is a great OSU fact sheet that discusses this in more depth.
A strong cash or working capital position allows us to be opportunistic. We may be able to purchase assets (cattle, equipment, etc.) that are undervalued in the market. Furthermore, we could make investments that may yield greater profits later. Items like pasture fertility for stockpiling forage, backgrounding, or retaining ownership on calves could be examples to explore. For more information on farm business management issues, contact your local OSU Extension Educator.
