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196: The Financial Metrics That Separate Profitable Ranches from the Rest · CattleUSA Daily

• 0:03
  Welcome to the Cattle USA Daily podcast.
• 0:06
  Your go to source for. The latest livestock markets,
• 0:08
  industry insights and the update shaping agriculture today.
• 0:12
  I'm your host Lauren Moylan, a passionate advocate for
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  agriculture, here to keep you informed and connected.
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  Now let's dive into today's episode.
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  The strangers know their cow numbers, their rainfall and
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  their hay inventory down to the Bale.
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  But when it comes to books, the real metrics that tell you if
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  you're making money, things can get a little fuzzy and pretty
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  fast. Today we are cutting straight
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  through that three financial numbers.
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  Every producer should track what they actually tell you and how
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  you can use them to make Better Business decisions, not just
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  fill out your tax forms at the end of the year.
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  First, your cost of production per cow or per hundredweight.
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  Every business is going to do a different Pick one that works
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  best for you and your operation. This is the foundation if If you
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  don't know what it costs you to produce a pound of wean calf or
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  finished beef, you are managing blind.
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  Oklahoma State and Kansas State Extension called this the single
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  best indicator of long term profitability.
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  Here is the formula. Take your total annual operating
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  cost, things like your feed, labor, fuel that bill, past
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  releases, land cost, depreciation, interest, and
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  everything else that goes into this, and divide by pounds of
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  calves weaned or sold. Most commercial Cal calf
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  operations land between $1.20 and $1.80 per pound of weaned
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  calf, but it varies widely by region and feeding system.
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  Tracking it over time shows your trends.
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  Are you getting more efficient or just getting lucky with the
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  markets? When you know your true cost or
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  production, you stop chasing prices and you start managing
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  margins. The second metric is your
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  operating expense ratio, sometimes called your efficiency
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  ratio. It's simply total operating
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  expenses divided by gross ranch income.
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  The University of Nebraska benchmarks suggests that top
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  performing beef operations keep this number below 75%.
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  That means for every dollar that you bring in, you're spending
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  $0.75 or less to make it. Anything higher and your margin
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  for error gets razor thin. This ratio tells you how
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  resilient your operation is to price swings.
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  If calf prices drop 10%, can you still cover costs?
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  It's not a one time number. It's something you track year to
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  year to see if rising input costs are quietly eating into
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  your margins. The third one, and the one
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  lenders care about the most, is your Debt Service coverage
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  ratio, or DSCR. It measures how easily your
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  operation can cover debt payments with your current
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  income. The formula is simple, your net
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  operating income divided by annual loan principal and
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  interest plan payment. ADSCR above 1.25 means you're
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  generating 25% more cash than your debt requires, which is a
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  very healthy buffer. Below 1% and you are borrowing
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  money to make payments. This number matters because it
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  shows whether growth is sustainable.
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  Expanding the herd or buying land is only smart if your cash
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  flow can handle the debt load in a bad year, not just a good one.
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  So what do you do with these numbers once you have them?
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  Start by benchmarking. Compare your cost of production
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  and expense ratio to other producers in your region.
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  Most land grant universities publish annual Cal calf budgets,
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  then use the trends to guide decisions.
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  If your cost per pound is creeping up, look at feed
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  efficiency or stocking rates. If your expense ratio is high,
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  maybe it's time to cut variable cost or delay equipment
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  upgrades. And if your debt ratio is tight,
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  rework payments or slow expansion until cash flow
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  stabilizes. These aren't accounting metrics,
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  they are management for your operation.
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  So here's the take away. Knowing these three numbers,
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  cost of production, expense ratio and debt coverage gives
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  you control. Markets change, the weather
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  changes, but these numbers let you see exactly where your
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  operation stands and what levers to pull in order to stay
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  profitable. You don't need your CPA on the
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  phone to figure them out, just good records and a calculator.
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  Because when you run your ranch like a business, not just an
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  operation, you're already ahead of half of the industry.
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  This is the Cattle USA daily podcast.
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  I'm your host, Lauren Moylan. Thank you for tuning in to
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  another episode. We will see you all next time.