Diversifying can spread out risk and income across the farm and the calendar year.

April 4, 2022

3 Min Read
Goats and cattle on pasture
MIX IT UP: Goats are a good species to add to a cattle operation. It provides another animal’s palate to help maintain pastures. Goats typically eat weeds that cattle do not, and the goat market is seeing high prices, which only adds to the farm’s bottom line.theresajam1/Getty Images

Adding meat goats to your beef cattle operation may improve your financials, says Jennifer Lutes, University of Missouri Extension agricultural business specialist.

Lutes developed a model that looks at the economics of co-grazing — a diversification strategy involving production of more than one livestock species on the same farm. According to her model, this type of scenario generated higher profit per labor hour and per acre, along with a higher net income than scenarios that involved producing only cattle or goats.

Add more livestock, profit

Lutes chose to analyze co-grazing beef cattle and meat goats because their complementary feeding behaviors enable several benefits, such as control of undesirable weed species and better use of standing crops.

With the assistance of MU Extension economist Joe Horner, Lutes applied her model to compare three hypothetical farms: one with 45 cows, another with 90 goats, and a diversified farm with 45 cows and 45 goats.

Ultimately, the diversified farm produced the highest profit per labor hour and per acre, and had the overall highest net income. The cow-only farm had the lowest cost per pound produced, which Lutes says is due to the cost-reducing effects of specialization.

However, the diversified farm’s cost per pound produced was only 2 cents higher than the cow-only farm. This is the power of combining the knowledge of specialization with diversification, she says.

While this financial comparison focused on cattle and goats, they are not the only two enterprises that can complement each other on the farm.

“I’m not asking that you forget all of the strides we’ve made with production knowledge and technology,” Lutes says. “What I am asking is that you take a hard look at your operation and see if you could benefit your farm financials by diversifying and producing an additional product.”

Spread risk, income

Lutes says there are two main strategies for reducing the average unit cost of producing a good — specialization and diversification. Specialization, or producing only one crop or animal, emerged during the transition from sustenance farming to for-profit farming.

“It continues to serve farmers well as it has for hundreds of years, but a diversification strategy combined with the knowledge gained from specialization might better meet the needs of some farms today,” Lutes says.

In the case of cattle and goat production, the goat market is seeing strong prices. In February alone in states like Alabama, meat goats sold from $1.70 per pound to $2.20 depending on size. However, in Missouri, during the last week in March, capitalizing on the Ramadan holiday, goats ranged from $3.27 to $4.30 per pound, according to the USDA Agricultural Marketing Service. And many of these goats can be sold right off pasture with limited inputs.

“Diversified production can be an advantage because it promotes a stable income by spreading income across the year,” Lutes says. Using shared resources can create a synergy between the products that increases productivity of labor and land and decreases per-unit costs. In turn, this can increase average revenue and reduce profit variability.

“However, diversified production requires that farms have the knowledge and skills to manage multiple species,” Lutes says. It’s necessary to learn about markets that may move differently than cattle markets. Each species has different needs regarding shelter, fencing, feeding and water tank height. In addition, supporting multiple enterprises can mean more time on the farm, reducing the opportunity for off-farm jobs.

On diversified farms, one enterprise is typically less profitable than the other. This can provide the temptation to move back to a single-species operation. “Trade-offs must be made between the long-term, risk-reducing effects of diversity and the perceived short-term economic loss of allocating resources to the less profitable enterprise,” Lutes said.

“When we evaluate two enterprises separately on profitability alone, we might undervalue the synergies of the two enterprises,” she adds. “We need to ensure we evaluate the enterprises through multiple lenses to understand implications to the farm business.”

Source: University of Missouri Extension, which is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.

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