If you’re in the cattle feeding business, you know how vital the bookkeeping and financials are. This is for good reason, with feed being the universally most significant cost of beef production, this segment of the industry leaves no room for cutting corners to remain profitable.
And when we speak of profits, the terms “breakevens” and “net margins” tend to come up. Not only are these essential metrics to gauge your business’s success, they are valuable tools throughout the entire feeding process from purchase through shipment.
Net margin is essentially your net profit (revenue minus expenses) divided by total revenue. The resulting percentage and ratio is the most accurate way to determine how well your business makes (or losses) money. Breakevens, on the other hand, is simply the point at which a company will at least cover costs, neither making nor losing any money.
Both of these are especially relevant to the beef sector, where cost of production and projected revenue can change at an instant.
Continual awareness of breakevens and net margins are essential for the cattlemen to ultimately wind up turning a profit. Today’s cattle world, now more than ever, is everchanging. Cost of feed, cattle prices, and basis levels are all intricacies that can shift the revenue potential at any moment in time. In other words, determining your breakevens and ideal net margins isn’t a one-and-done deal. If you can keep a pulse on your operation’s finances and efficiencies, you can shift your strategy in advance to still wind up on top.
But for this to happen, you need to have both accurate bookkeeping and correct calculations. Most of today’s feeding operations are complex, comprised of large team networks, thousands of cattle and hundreds of groups all with their own needs and impacts.
Human error is something that we call fall prey to. Software is one tool that can help reduce common business pitfalls. Margin Trax, made by and for cattlemen, does the hard number crunching for you. Its unique single-platform design further simplifies the analytic process by keeping all records in one place without the frustration of going back and forth between different programs.
Tracking Performance Matters
The turbulency of the cattle business, today now more than ever before, means that things can change at a moment’s notice. Details like death loss, basis levels, and changes in the futures market can happen overnight. While some of these can be mitigated with a bit of risk management, they are by no means completely under the cattleman’s control.
“Accurately predicting and managing unit cost of production is key to sustainably providing the inventory “shock absorption” ranchers and cattle feeders depend on,” write Rick Machen and Stan Bevers in an article for Progressive Cattle. “Whether the stocker cattle made a profit or loss, savvy stocker cattle operators are compelled to evaluate each group individually. The financial results and key performance indicators start with the net income of the group and net income per head.”
A beauty of Margin Trax is the ease to track each individual lot within a single operation (or multiple lots across multiple operations) on a single platform. This allows for quick and easy comparison within and between lots, empowering operators to analyze trends and react quickly to undesirable performances.
Ongoing performance is also a fluid factor in the cost of production.
“It determines your break-even price which, in turn, helps determine pricing decisions and profit margins,” writes Jay Parsons, Farm and Ranch Management Specialist, in an article for the University of Nebraska-Lincoln. “It also provides a baseline for comparison to other producers with the same or similar output so you can see how competitive you are at producing the product in question.”
Past, Present and Future
Tracking breakevens and margins today is a great way to help cattle feeders brace themselves for the unknowns of tomorrow. (This is especially of interest as the beef market continues to see a lot of uncertainty as it rises out of the COVID pandemic.)
Understanding performance trends, be it due to feed issues, management or buying decisions, are critical to improving on future finances. Seeing how much profit has increased or decreased when comparing multiple lots at different points in time is also a great tool for realistic benchmarking. With Margin Trax, management teams can visualize these metrics and strategize to enhance profitability both now and down the road.
Want to learn more about how Margin Trax can help your operation? Click here to schedule a demo!