A very wise and observant uncle who has lived through nine decades, including the Great Depression, recently said, “Everything we own, owns us.” We have to care for it, maintain it, store it, fix it, improve it, etc. He was getting at a very simple yet salient point—life and business are more efficient, effective and enjoyable when they are devoid of clutter including things we don’t need and tasks that don’t add value.
Following that introduction, I would like to review some ideas presented in previous articles:
- We have four areas to manage:
- There are three ways to improve profit. You will be tempted to list more, but they will all fit under one of these:
- Increase turnover: This can relate to volume or size of business or to the turnover of salable assets with the current business size.
- Decrease overheads: Land with attached fences, corrals, buildings, etc. and people along with the tools and equipment used to do their work.
- Improve gross margin: That’s total returns minus direct costs for the enterprise. The direct costs are those that vary with the number of cattle. They are typically feed, vet services and meds, sales commissions, trucking and livestock handling supplies.
- I believe there are five essentials for successful ranch management which are really attitudes or approaches to managing the items listed above:
- Our approach must be both integrative and holistic. This suggests that we learn about and recognize the interactions and interconnectedness between each of the above items and actions.
- We should strive for continuous improvement of the key resources—land, livestock and people. Remember that these can all appreciate in value and we would much prefer to be invested in things that appreciate in value than things that depreciate.
- We must acquire and use good analysis and decision making tools and information.
- We must wage “war on cost.”
- We should place an emphasis on marketing.
Excellence in management is really that simple; but we must admit that the functional and economic relationships between production, economics/finance, marketing and people are complex and not always easy to understand.
Then, as we try to improve profit by increasing turnover, decreasing overheads and improving gross margin, we recognize that these actions are not independent of each other. Our ability to estimate the cumulative net result of the good and bad effects of any anticipated managerial action or change is highly dependent on the quality of our information and the simplicity of the system.
From many years of budgeting, analyzing financial and production information and observing pasture productivity, animal behavior and production, and interactions of people and their productivity, I have drawn the following conclusions:
- Reduce overheads—cut them to the bone. If you really need it (a building, piece of equipment, tool, employee, etc.), make sure it is dependable.
- Increase cows per person. On small farms or ranches, this may mean reducing the hours spent with cows and redirecting those hours to other income-producing activities. Think of the non-salary costs of one person on the payroll—housing, tools, vehicle, horse care, etc. If you add the total salary cost to the non-salary costs, you can see that spreading that over a larger number of cattle can make a huge difference.
- Reduce acres per cow as much as possible. Stocking rate is one of the biggest determinants of profit. It is improved by first, reducing cow size and milking ability, and secondly by improving grazing and pasture management.
When a larger number of cows are run on the same acres, there is usually no need for additional manpower. You are going to wean more pounds per acre with a greater number of smaller cows giving less milk and with the calves being slightly smaller. You will sell the pounds for more money per pound—so, more total pounds and a higher price. You can’t do that with bigger and bigger cows.
- Reduce the ratio of fed feed to grazed feed, or replace feeding days with grazing days. This is a huge determinant of profit. In some places, swath grazing or even bale grazing can reduce feeding costs and get you through the tough parts of winter. If yields are good enough, you might even get enough more animals days per acre to pay for the machine cost.
- Understand realized herd fertility is very important. You want a high conception rate followed by a live birth and then an animal thriving until it becomes a good market animal. This is greatly enhanced by heterosis which can be simplified by the use of hybrid and composite bulls. Herd fertility usually responds positively to reduced cow size and milking ability.
- Cows need to be trouble free. They need to be very fertile and productive in their natural environment with very little supplementation. This kind of adaptation may take a little time.
- Rethink records. In commercial herds, individual animal records are a waste of time and a distraction from simplicity and more productive work. What decisions will you make with those records that you wouldn’t or couldn’t make without them? I will suggest none that are economically important.
- Make sure that purchased inputs will improve gross margin. I like to feel like a purchased input will provide additional revenue at least double its cost. You might ask why. I want to cover any prediction error, plus allow that the price of that input might increase after my animals have adapted to having it as part of their environment.
Then always remember that, because of the price slide that occurs as calves get heavier, you can’t value the extra pounds at market price. The value of additional pounds is always less than the market price and seldom much over $1.00 per pound.
Operational simplicity comes from:
- Few overheads—hopefully this is apparent.
- Large but few herds. It is far easier for one person to check 800 cows in one herd than in eight herds. Fewer herds make for simplicity in grazing management and cattle management. I think small farms or ranches should terminal cross and have only one herd. Larger ranches producing their own replacements should not have more than two herds unless the largest herd gets larger than 700-900 head. If you run stockers, a third herd might be warranted.
- Adapted cows with good heterosis—that’s almost redundant. Heterosis helps with adaptability. As cattle become adapted to their environment, they do everything better and with less trouble (more simplicity) for you.
- Little feeding. Reducing feeding days and machinery use greatly improves profitability. Appropriate strategic supplementation can pay good dividends, but it’s easy to do too much.
- Good infrastructure for grazing management and stock water. When permanent fences and stock water are located correctly, you have lots of flexibility in grazing management. Temporary fencing can be used to adjust for herd size, frequency of pasture moves, application of various animal impacts on the land, etc.
When I look in the mirror, I have to tell myself, “Keep it simple. You’re not smart enough to manage it if it gets complicated.”
Burke 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].