Mark and Haley Miles farm and ranch near Ainsworth, Neb., and their family continues to expand. After welcoming their third child into the world this past fall, the family takes great care in strategically planning for the future of their operation so it is sustainable down the road.

The cattle business has been enjoying profits as of late, but Mark is always looking ahead. Growing up, the farm had crops and a feedlot as its main enterprises. But when Mark and Haley were married, they added cow-calf and yearlings to the mix, trying to diversify their portfolio.

That is important for Mark because he worked in ag lending before returning to the family farm. He knows that it is crucial to have multiple income streams, especially when the overall ag economy may face headwinds.

By the numbers

“In 2023, Nebraska’s net farm income was $9.27 billion,” University of Nebraska Extension economist Jim Jansen says, citing numbers from the Rural and Farm Finance Policy Analysis Center at the University of Missouri, which works in collaboration with Nebraska Extension policy specialist and Nebraska Farmer columnist Brad Lubben at UNL’s Center for Agricultural Profitability.

“However, in 2024, total farm receipts (when finalized) are expected to decline by $1.4 billion, resulting in net farm income at $7.69 billion,” Jansen says. “Although livestock receipts are projected to increase by $1.16 billion, this growth will only partially offset the $1.64 billion drop in crop receipts and the $924 million decrease in crop insurance indemnities.”

Related:How to survive a challenging farm economy

Corn and soybean receipts for 2024 are expected to fall by 17% and 22%, respectively. “Together, these two crops represent 97% of the state’s crop receipts,” Jansen says. “On the other hand, cattle receipts, which account for 89% of the state’s livestock receipts, are expected to rise by $1.09 billion due to higher cattle prices.”

What about inputs?

“Recent data shows that input expenses have moderated from the highs experienced in previous years,” Jansen says. “In Nebraska, estimates indicate a decline of $187 million for fertilizer, $125 million for pesticides and $77 million for fuel and oil expenses. Additionally, the increase in land market value has slowed.”

The average market value of land rose about 30% over the past two years but only saw a 5% increase in 2024, according to UNL’s most recent Nebraska Farm Real Estate Report and market survey.

Weather projections

Weather is all a part of the outlook for 2025 and could have a major impact on the profitability of both crops and livestock.

Related:Have yourself a merry little cedar tree Christmas

A few moisture systems worked their way across the state, offering the first time since early July when there wasn’t any degradation to the U.S. Drought Monitor map in Nebraska, says Eric Hunt, a Nebraska Extension ag meteorology and climate resilience educator.

According to several models, Hunt says, we could have a cooler-than-average mid- to late winter in this region, especially for the northern half of the state. “We’ve had a borderline La Nina condition the last two or three months,” he says. “We’re between neutral and La Nina. In terms of moisture, there isn’t really a strong signal in some of the models I’ve seen so far. My sense is that we will remain in a more active pattern until the end of November and into early December. That would mean staying fairly wet in a relative sense, and at least not bone dry.”

On the ranch

For Mark Miles and his family, understanding the effects of weather and taking advantage of a strong cattle market is crucial to ensuring profitability. “To us, adding cow-calf to our farm instead of expanding the feedlot was a matter of economics,” he says. “We chose this because we wanted to grow and diversify, and do so by adding enterprises that were flexible and fairly liquid.

KEEP THEM FED: Caring for his cow herd is crucial for Ainsworth, Neb., farmer Mark Miles, who hopes to capitalize on the strong cattle market to help profitability of the family operation over the long haul. He also describes how his family made their decision to expand the operation by adding cow-calf and yearlings to the mix.

“Expanding the feedlot was going to come with a lot of fixed overhead cost. With cows and yearlings, we can utilize cornstalks in the winter for both feed and capacity, and then rent summer pasture. Payments for summer pasture generally align with marketing of the cattle, so it cash flows well.”

Yearlings and cow-calf didn’t require much additional equipment, Miles says. “We can manage volatility with risk-management tools, and these are fairly liquid investments where you can add value to them with good management,” he says. “I think adding value to an animal is an important driver in profitability.

“You need to figure out what the buyer demands and bring that value to them. One of the values a yearling producer can add is making cattle uniform and stretching them into seasonal windows of tighter supply. It just makes sense to sell yearlings because we are located between Bassett and Valentine, Neb., which are two of the best marketing channels for cattle.

More costs

“We are approaching year five of a bull market in cattle, with each segment of the industry capturing periods of profit during that time,” Miles says. “The cow-calf producer has captured the largest market share because leverage has shifted from the packer to the producer.”

The biggest challenge Miles sees at this point for the future is capital requirements to maintain inventory of the feedlot and yearling operations. “The calves we were buying this time of year were costing about $1,100 per head in 2021, but today, that same calf costs $1,900,” he says. “When you factor the cost of animal plus interest and operating expenses, the increase is almost double the amount of capital required to maintain the same inventory level as three years ago. One method that cattle feeders have tried to increase margins is feeding cattle longer and to heavier weights.”

What the future holds

“The tightest numbers are still in front of us, and we have yet to generate any sizeable heifer retention in the industry,” Miles says. “We have seen five consecutive years of contraction to the cowherd. Cattle on feed numbers will drop in 2025, so I believe the result will be even higher prices ahead.”

How long that lasts will be driven by when the marketplace feels comfortable with heifer retention. Looking back to 2015, producers learned that the market can make up its mind sooner than we anticipate, Miles says.

MORE THAN HARVEST: How producers manage yields is only part of the equation when looking to turn profit in 2025.

“We need to be prepared for more periods of extreme volatility,” he says. “This cycle is a little different than the last because heifer retention is not as robust. This time around will be a slower rebuild, and we may never build the herd back to the level we were at five to 10 years ago because of an aging producer demographic, capital constraints and continued drought.”

While the outlook for cow-calf producers in the short term is bright, Miles is realistic about the coming herd expansion. He knows how the 10-year cycle works and believes the key to sustainability is how you are positioned when the trends change. “The market isn’t always right, but it’s never wrong,” he says.