Livestock producers entering 2026 face strong cattle markets but ongoing economic uncertainty, and agricultural economist David Kohl says financial discipline, diversification and strategic planning will be key to maintaining profitability in the year ahead.

Kohl, an emeritus professor of agricultural economics at Virginia Tech, outlined several strategies livestock farmers can use to strengthen their operations, emphasizing that success in the current market environment depends on careful financial management and diversified income streams.

Global trade continues to play a major role in supporting livestock prices and farm income across the United States.

According to Kohl, producers should closely monitor trade relationships with Mexico, Canada and China, which remain among the largest buyers of U.S. agricultural products, including both crops and livestock. However, ongoing trade tensions and tariff policies could eventually influence market conditions. Kohl noted that the effects of tariffs often take years to appear in consumer prices and agricultural markets.

"Tariffs typically take two to three years before their full impact shows up in the marketplace," he explained, warning producers not to underestimate long-term policy effects on export demand.

One of Kohl's primary recommendations for livestock producers is what he calls the 60-30-10 rule for allocating farm profits.

Under this strategy:

• 60% of profits should be reinvested to improve operational efficiency first and growth second

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• 30% should strengthen working capital and support tax planning strategies

• 10% can be directed toward projects or improvements producers are passionate about

Kohl emphasizes that farms should prioritize becoming more efficient before expanding their size, a strategy designed to protect profitability during future market downturns. While tax planning is important for farm businesses, Kohl warns that poor tax strategies can sometimes weaken financial stability.

Some producers make large purchases primarily to reduce taxable income, but that approach can drain working capital reserves and increase long-term debt obligations. "Many people spend a dollar to save twenty cents," Kohl said, noting that excessive spending for tax purposes can leave farms vulnerable when commodity markets decline.

Diversification remains one of the most effective risk management tools for livestock producers. Kohl recommends maintaining three to six different sources of revenue, combining both on-farm and off-farm income streams.

Many Midwestern livestock operations already have built-in diversification. Producers who raise cattle or hogs while also growing corn and soybeans, for example, typically operate with multiple income sources that help balance fluctuations in commodity prices. Additional revenue streams may include custom farm work, crop insurance services or off-farm employment within the household, which can help stabilize farm income during volatile market cycles.

Liquidity-how quickly assets can be converted to cash-remains a critical financial indicator for farm operations. Kohl advises producers to closely monitor the relationship between current assets and current liabilities, ensuring that farms have sufficient cash or liquid assets to meet short-term financial obligations. Regular financial checkups every 30, 60, 90 and 120 days can help farmers track their liquidity position and maintain the flexibility needed to respond to changing market conditions.

Despite the current strength in livestock markets compared with grain prices, Kohl cautions producers against becoming complacent. Strong years can create opportunities to improve efficiency, strengthen financial reserves and invest in long-term resilience, positioning farms to weather future downturns.

Disorganization or lack of financial discipline, however, can quickly undermine profitability. "The bottom line is that financial disorganization and complacency are business killers," Kohl said. As market volatility, trade policy uncertainty and rising input costs continue to shape the agricultural economy, livestock producers who prioritize diversification, liquidity and disciplined financial planning may be best positioned to succeed in 2026.