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When budgeting consider interest costs

Article-When budgeting consider interest costs

1-20-23 inflation GettyImages-528026726.jpg
Don't forget the hidden costs for cattle when figuring out the bottom line.

Cost of production in the cattle business has been a hot topic and an area of concern for cattle producers for many years. This topic gained more notoriety in 2022 when fuel, fertilizer and feed prices all increased about the same time. In fact, the price of most inputs increased over the past several years, which has resulted in a higher cost to produce cattle.

Compared to one year ago, the cost of fuel, fertilizer and feed has moderated to a small degree. However, one cost has tripled over the past 12 months. It is often an expense that goes unrecognized, but it is an extremely important part of many operations. The cost that has tripled is interest expense.

In March 2022, interest expense when purchasing a 575 pound steer and growing him for six months was about $15 per head. Due to higher interest rates and higher cattle prices, that same 575 pound steer now incurs an interest cost of about $45 per head. This is a real cost that can reduce margins and must be considered when purchasing cattle.

Source: University of Tennessee

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