In my retirement work as a consultant and speaker, I often see situations where ranches are not profitable. In attempting to become profitable, most of these operators continue the same old practices with an attempt to do them better.
I remember once hearing that you are structured and organized to get the results you are getting. If you don’t like your results, you will most likely need to make big, strategic changes, as simply improving what you are doing will seldom make significant bottom-line changes.
Of course, improving weaning weights, yearling gain, pregnancy rates, weaned calf crop percentage or other areas of performance and productivity are helpful and important, but will seldom yield enough net dollars to change the bottom line enough. That’s because there are always associated costs that we fail to consider.
If you want to make significant change, most likely you will have to change what you do rather than how you do what you are currently doing. I like to consider three levels of management: strategic, tactical and operational.
• Strategic management or planning addresses the questions of what you should be doing and requires economic analysis. This includes questions like: Should our ranch be cow-calf, cow-calf-yearling, or perhaps a stocker operation? Should we capture the benefits of heterosis? Should we raise our own replacements or buy them and terminal cross? Should we be using planned, time-controlled grazing with adequate or full recovery time between grazings? Should we farm and put up hay, contract with someone to do it for us, or buy our hay and thereby increase our carrying capacity? Should we calve at a different time or times? Should we graze more and feed less? Should we expand – lease or buy? What is the appropriate herd turnover rate or replacement rate? Should we better define our marketing objectives?
Once we decide on the appropriate questions, we must determine if such changes will enable us to remove significant overhead? What has to happen to our accounting and data capture system to enable analysis of the above? What changes are or will be needed in our management structure? There are many more.
• After strategic questions are answered, then we proceed to the tactical. For example, if you decide to take advantage of heterosis, the breeding program needs to be defined – breeds, rotation, composite, etc. Who will be the seedstock supplier? Will we need to group the cattle differently? If you were to advance the grazing method, you would need to determine where fencing and water development will be needed, how many pastures, how much permanent and how much temporary fencing, etc.
With each strategic change, tactics must be developed to fit the new strategy. In other words, we are asking, “How do I get it done?” Good, well-defined tactics make the strategic decisions work.
• Operational management is the use of a schedule and short-term planning to get the work done that is defined by the tactical planning. Many ranchers are quite good at this and love to do it. They might not actually have a calendar, but it’s in their head. This is where the problem starts.
Ranchers tend to get so involved and invested in operational planning that it becomes habitual. We do the same thing in the same place at the same time every year. We become so locked into our routines that we can’t see a better or different way because we become convinced that ours is the best. At this point, we’re allowing personal convenience and ease of planning to become more important than profit. We let operations drive tactics, and tactics drive strategy. This is opposite of what it should be.
We all need office time
I’ve found that many of us would rather do day-to-day ranch work than go to the office and put the necessary tools and information together to work on a strategic plan. But we don’t have to do it all at once; we can work on one strategic question at a time.
However, we do need to recognize that a change in one aspect of our strategy will often cause or necessitate a change in another aspect. For example, if we analyze a change in calving date, we must recognize that there will be changes in marketing, feeding, supplementing, and perhaps manpower and equipment needs.
The main reason for this article is to encourage you to start with strategy. Don’t try to do it in the field, the pasture or across the hood of a pickup. Go to the office or the kitchen table. Get your accounting in order so that you have the direct costs by enterprise and all the overhead costs. Know your average sale weights by class of animal, the weaned calf crop percentage, the pregnancy rate, and the yearling gain for several years. Use a stock-flow spreadsheet to monitor past inventory changes and activities, and also to project forward for comparison of alternatives.
With good financial and production records in hand, you are prepared to do good analytical work. If you don’t have the past records, you can utilize your memory and income tax records to arrive at reasonably good assumptions. You can then proceed to work on strategy with good effectiveness.
Sometimes, when you move from strategy to tactics, you find that the tactics make the desired strategy impractical for your situation. Don’t give in easily, though ultimately you may have to. If you have made a good strategic decision, do a lot of brainstorming to find the tactics that could make the strategy work.
For this kind of work, it’s important to get your entire crew or family involved. Their involvement may not be in every step, but they should be asked for critical input and ideas. It’s also good to involve a few people who aren’t full time on the operation but who have good abilities, such as other ranchers, veterinarian, nutritionist or feed salesman, banker, accountant, etc.
Burke Teichert, consultant on strategic planning for ranches, is retired as vice president and general manager with AgReserves, Inc., where he was involved in seven major ranch acquisitions in the U.S. and the management of a number of farms and ranches in the U.S. as well as Canada and Argentina. He resides in Orem, UT, and can be reached at [email protected]
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