Back in November I wrote a blog about our equity problems and lack of profitability in the cow-calf industry, and I believe it lacked one fundamental doctrine.
I called it Cheap cows, poor soil and low finance, and I discussed several factors that I believe all have a part in this play:
- The decrease in cow value over the past five years.
- The apparent overall decline in the agricultural economy.
- Foreign land ownership.
- The effects of real subsidies to some parts of the agricultural complex and not to others.
- Trillions dollars in funny money has been pumped into the stock market, so the people made rich by that have re-invested some of that wealth into various types of land, including agricultural land.
I also wrote about the never-ending spiral of cost escalation on the farm and ranch, which I am positive is a major part of our problems.
I did not mention packer concentration nor the fact I agree with many people that situation is suppressing market prices for cattle.
But there is one thing I did not say directly, and I think it needs to be said.
I typically call it “Alan Newport’s fundamental rule of business.” You cannot spend more than you earn and make a profit. You cannot spend all your income and make a profit. You must spend less.
It should be quite obvious, but I believe it is not.
I have told this often to youths through the years, and to anyone else who seemed not to understand it. Sometimes I say it just because it needs to be injected into a conversation. You might be surprised how many people I have said this to.
Further, it applies regardless of what type business you operate. It also applies to those who have a job; your job is your business. You cannot earn $1 and spend $1.10 without developing problems. You cannot do that and make a profit. In addition, making a profit that you can save or reinvest is the only way to increase your net worth.
Overly simple? Yes. But badly ignored.
Claim it and name it to your children and grandchildren. I bet you’ll be surprised how poorly they understand this principle.
The opinions of the author are not necessarily those of Beef Producer or Farm Progress.