On today’s Cow-Calf Corner, Scott Clawson, M.S., Oklahoma State University Cooperative Extension Service NE Area Agricultural Economics Specialist writes about examining overhead.
Overheads have been explained in many ways. I like to describe them as all the things that we need to take care of the cattle, that don’t go into the cattle. For example, a bale of hay is not overhead. But all the things it took to get the bale in front of the cow likely is. The tractor, baler, rake, truck, hay bed, repairs, labor, etc. all are a part of our overhead expense. Costs that fall into the overhead category tend to not follow a normal “commodity trend”. More specifically, when we enter drought and hay supplies are already tight, we can expect hay prices to climb. We expect hay prices to stay high until we have a good hay growing season and adequate supply returns. Most overhead items don’t behave like this. They tend to have a slow but steady increase in cost over time that is corrosive to our profit margins.
Don’t get me wrong, there is a degree of overhead that is required to care for the cowherd. That will vary among ranches based on goals, labor and resource availability. Minimizing overhead costs is difficult. Just be aware that the decisions made to repair, replace or upgrade these assets will impact our profitability for many years. As the cost of these items that we need to do business with continues to increase, be especially diligent of how we can stretch each dollar a little further.
