You might ask, “Is profitable ranching possible?” Even though good economists and Extension educators have told me that few or none of the ranches in America with 100 cows or less are profitable, I want to tell you that ANY ranch, regardless of how many cows you have, can be. Let’s examine some of the fundamentals of profitable ranching.
There are four areas that we must manage:
- Economics and finance
Neglecting any one will have bad consequences. A change in production will usually require a change in marketing and vice versa. A change in either will result in a change in your economics and perhaps in your financing. Any change will impact people; and, yet, it is people who instigate and implement change.
As Stan Parsons and now Dave Pratt have so clearly pointed out in their Ranching for Profit schools, there are three ways to improve profit:
- Increase turnover
- Reduce overheads
- Improve gross margin
Any management change you can think of will fit under one of these and then will have an effect on and probably cause change to the others.
For 20-plus years, I have been teaching that there are “Five Essentials” for approaching or dealing with these big strategic issues:
- The approach must be both integrative and holistic.
- We must strive for continuous improvement of the key resources—land, livestock and people.
- We must assemble and use good analysis and decision-making tools.
- We must wage war on cost. We need to produce a product at a price that is attractive to the customer and, at the same time, profitable to us.
- We must place an emphasis on marketing, including hunting or other land based, non-agricultural activities from your ranch.
Once we understand the scope of what we manage, the ways to improve profit and the “Essentials” for developing strategies and going to work on the tasks, we must recognize that it is whole ranch profit or profit per acre that we must improve and not profit per animal.
Why not profit per cow? You can change profit per cow by changing cow size or by changing the calving or weaning dates; but what if you have to run fewer cows and reduce the profit per acre? And that is the typical result.
Then we need to understand the major determinants of profit. These are usually not very well recognized or understood, but they are where we need to direct attention:
- Overhead: These are the costs associated with land and the structures and facilities attached to it plus people, along with the equipment and tools used to accomplish their work.
- Stocking rate: Stocking rate is affected by:
- Cow size and milk production. You can simply run more cows if they are smaller and give less milk. Remember the conversion from grass to milk to pounds of calf is a very poor conversion.
- Grazing & pasture management. While few have done it, there is a growing number of livestock producers who have doubled carrying capacity and then stocking rate using improved grazing practices.
- Calving season: Calving in sync with nature can reduce or eliminate the need for fed feed. It can reduce the need for supplementation. It can also reduce the need for labor, facilities, and tools for calving.
- Fed feed vs. grazed feed: Cows were made to walk and graze. Putting a machine between the mouth of a cow and her feed source costs money. If you do have to feed for short periods, work hard to determine the lowest cost way to do it. For small farms or ranches, owning your own equipment is seldom the low cost way unless you also put up hay for others to spread equipment cost across more tons of hay.
- Realized herd fertility: There are two parts to “realized” fertility. There must first be a pregnancy. Then you need survivability until there is a live animal to sell.
- Heifer development or replacement cow cost: This is one of the best forward indicators of future profitability.
- Wise input use for profitable production: The direct costs of cattle production are almost entirely for feed, vet services and medications and sales costs. Almost all else is overhead. For every dollar you spend, you want to get more than a dollar return. Money spent for strategic supplementation can have a very nice return. Knowing when and how much is critical because supplementing too much for too long can be very detrimental to profit.
- Marketing: In marketing you want to think of time, form and place. When is the best time to sell what I produce? How do I decide the best form—calves, yearlings, bred heifers, bred cows, etc.? Can I upgrade that? What is the best place—auction yard, video sale, direct sale, etc.? I like to add value and retain values already built in when economically reasonable.
You will notice that I did not include individual calf weaning weight in this list. It is pounds weaned per acre that is truly important. If you come to understand why the items on this list drive profitability and how you can manage them to best fit your location and management, individual weaning weight will fall about where it should.
You may carefully increase it, but be careful. You may take more away from something economically important, like carrying capacity or pregnancy rate, than you add through weaning weight. Not to say that weaning is not important, but don’t take away more profit than you add.
This all implies that you should cut overheads, market well, use inputs wisely and improve three key ratios:
- Acres per cow
- Cows per person
- Fed feed vs. grazed feed
These ratios correlate very highly with profit and tie back to the major determinants of profit. The cows per person ratio implies that unless you have a large operation, you will need to have other sources of income to be competitive because you don’t have enough cows to have a high cows per person ratio. In other words, a small herd cannot pay adequately for your full time. Something must fill in.
When you recognize that almost none of the actions listed above are independent of the others, you should understand that, to make decisions for improved profitability, you should learn to be a systems thinker or even a better systems thinker.
As you come to understand these concepts and apply them in developing a shared vision for your operation and then proceed to make it happen on the ground, you will be able to enjoy profitable ranching.
Teichert, a consultant on strategic planning for ranches, retired in 2010 as vice president and general manager of AgReserves, Inc. He resides in Orem, Utah. Contact him at [email protected].