Authors: Kenny Burdine and Jonathan Shepherd
Strong cattle prices are giving cow-calf producers a rare window to strengthen their financial position. While every operation will respond differently, producers should aim to look back on this period and feel confident about the decisions they make.
In an article last summer, investments in genetics, facilities, and grazing systems were discussed, as well as paying down debt and improving liquidity. Here, we dive deeper into improving liquidity by focusing specifically on one often-overlooked opportunity: building working capital.
The financial formula for working capital is current assets minus current liabilities. In simple terms, it refers to the amount of readily available assets beyond what is needed for short-term obligations. Current assets include cash and marketable commodities (livestock, grain, etc.) that can be converted to cash quickly. A farm business should always have at least enough current assets to cover current liabilities, and depending on the type of business as much as 2-3 times the current liabilities may be recommended. When the opportunity presents itself, there are substantial benefits to growing working capital beyond just meeting typical current liability needs. A few of these benefits are discussed briefly below.
Self-finance short-term expenses
With stronger working capital, producers can pay cash for expenses instead of relying on operating loans. This reduces interest costs, a valuable advantage in today’s higher-rate environment. The current environment also offers more attractive returns on working capital kept in liquid investments such as money markets and high-yield savings accounts.
Stronger finances improve borrowing power
Building increased working capital can also have financial benefits by improving the financial position of the operation. As working capital increases, the farm’s current ratio (current assets divided by current liabilities) improves. Holding all else constant, this makes the farm more attractive to lenders. An improved financial position can lead to increased borrowing opportunities and more attractive borrowing terms.
A cushion for tough times
Working capital also acts as a built-in risk management tool. By stockpiling some cash reserves during good times, the operation will be in a better position to weather the downtimes. When markets turn or costs rise, a financial cushion allows producers to ride out the downturn without taking on more debt. Just as importantly, it buys time to make thoughtful decisions instead of rushed ones. Time to process and evaluate options can be very important when dealing with financial stress.
Be ready when opportunities appear
Working capital can also improve an operation’s ability to be opportunistic, which can be a key to growth over time. There will be times when ground comes up for sale that has always been wanted, a set of heifers is a good buy, or a piece of equipment is priced below what it is worth. The operations best positioned to take advantage of these opportunities are often those with strong liquidity, as they either have the cash to make the purchase or can quickly secure attractive financing.
Fuel future growth
Working capital also serves as a baseline for long-run investment. A growing cow-calf operation typically sees lower income levels because they are selling fewer females or expanding through the purchase of cows or heifers. Working capital can be a source of funds to offset the reduction in heifer sales or the purchase of additional breeding stock. The same can be said of land acquisition and other investments in facilities and infrastructure. Having a pool of funds to draw from and / or leverage makes long-term investments much easier to approach.
The current cattle market offers opportunities, and how an individual operation chooses to capitalize on them will depend on that operation’s goals. Some may choose to retire, while others may choose to expand. Some may make long-term investments, while others pay down debt. The purpose of this article was simply to focus on the benefits of increased working capital as a financial strategy. By building working capital today, the operation can be more prepared for the uncertainty of tomorrow.
Burdine, Kenny, and Jonathan Shepherd. “The Current Cattle Market Offers Opportunity to Build Working Capital.” Southern Ag Today 6(27.1). June 29, 2026. Permalink
