November 3, 2016
After 10 years of the best prices the cow-calf business has ever seen, only a few heeded the warnings that some of us were giving. Prices from 2013 through 2015 may have really given a false sense of security. While some of us were warning that prices always come back down and that those big profits should be used to prepare for tougher times, it appears that not many listened to the advice. Now what will happen?
Some will continue to be profitable—yes, even at these prices. They structured their business and strategies to deal with drought and low prices. Others with strong equity positions will be able to borrow and eat up some equity but get through until there is price recovery. Some will eat up all their equity; and, if they don’t sell out before using it all, the banks will foreclose.
If you didn’t significantly reduce indebtedness during the good years and know you can’t make it now, get out while you still have some equity left. It’s time to be honest with ourselves and ask, “Can I make it through this if it lasts four or five years?
What can you do to make it through this tough stretch without losing too much and be structured to make it through the next period of tough times profitably? Too many of the advice givers would have you focus on animal production. Remember that increases in production always come with a cost; and in low price times, the cost required to bring forth more production is too often greater than the value of the added production.
While animal production is important, I suggest that there are far more important drivers of profitability that need to be considered. Pay close attention to these:
These consist of land and the structures attached to the land and people and the tools and equipment they use to do their jobs. Overheads are necessary for efficient accomplishment. However, on most ranches, overheads are the low-hanging fruit. You must simply, honestly and often brutally ask, “Do we really need all this stuff?”
The ranches that I have seen come back from the edge of bankruptcy have gotten rid of lots of stuff—buildings, tractors, pickups, trailers, etc. They get rid of the painfully obvious first. Later they may restructure the compliment of overheads to be more effective and efficient. Consider resizing or trading three for two or even two for one when it becomes time to replace. First eliminate, and then later reduce further by correct replacement of well-worn facilities or equipment.
Fed feed vs grazed feed
Any time you put a machine between the mouth of the cow and her feed source, it’s costing you money. Cows can graze a lot more than many of us want to let them. In the northern and western parts of the county, I have actually seen ranches flip-flop the use of their pastures. What used to be summer pasture is now winter pasture and the irrigated ground now produces irrigated summer pasture.
I have also seen ranches in cold and snow country use windrow or swath grazing very effectively, thus reducing the need for labor and equipment (overheads) for making and feeding hay. It appears that you will get significantly more animal days per acre from windrow grazing than by grazing standing stockpiled feed. However, the production per acre must justify the machine cost. In addition, changing the calving season can often be a big help in reducing fed-feed and overheads.
Stocking rate is a huge driver of profitability. It is dependent on:
Cow size and milking ability: You can run more cows if they are smaller and give less milk.
Range and pasture management: As you graze more efficiently, carrying capacity will increase. There are a number of pasture management changes that can provide very good results and have a one year payback or less on capital outlay. Remember carrying capacity must precede stocking rate.
Realized herd fertility
I say realized because it has to get all the way from a pregnancy to a weaned and sold animal. It means having a good conception rate each year and getting as many of those pregnancies weaned and sold as possible. To do this you must have cows that are fertile and adapted to your environment with little supplementation or fed feed. Adapting cattle to their environment and low-input management takes a little time and starts by culling the right cows and selecting the right bulls.
Cows per person
This ratio has a lot of economic power. If your ranch is small and you are the only “person,” you might need to get a day job or add other enterprises to get the ratio reasonable. If you can change the labor requirement for your cows from full time to half time, you will have doubled the cows per person ratio.
To get a high ratio of cows per person, you need to develop a herd of functional, problem-free cows and have as few herds as possible. Problem-free cows don’t take much of your time. Keep the cows in as few herds as possible. On small ranches, one or two herds should be enough. On large ranches, herds of 700 to 1,000 are very possible.Think of it this way—one person can check on 700 cows in one herd a lot easier than in seven herds. Grazing management is much easier too.
As changes are made in any of the above areas, you will need to make marketing changes. Try to sell each animal to its highest and best use.
A few marketing paddocks can prove valuable for assembling and packaging groups of similar animals in preparation for sale. I know one rancher who places market animals, except for largest groups, with the two-year-old heifers. He feels there is no detraction from the performance of the two-year-olds in their rebreeding or calf rearing; and he can easily retrieve market animals from this group when timing is right and the animals are ready.
Focus on total pounds produced on your ranch--not on weight produced per cow or calf. Focusing on individual weaning weights or weight produce per cow exposed can be terribly distortive to thinking and decision making processes when you want to increase profit.
Having more cows that are smaller and give less milk will result in slightly smaller calves but not proportionally smaller. You will produce more total pounds per acre (or on you whole ranch); and those pounds will sell for more per pound. Weight produced is dependent on:
Stocking rate as described above.
Inherent growth rate of animals. Remember, additional growth rate always comes with costs. Usually, those costs are in reductions in stocking rate, herd fertility and herd health. Make sure that through good years and bad, the value of the additional growth is greater than the cost. In my experience it seldom is.
The better strategy is to achieve good realized herd fertility and eliminate or cull cows that produce poor calves. Then be satisfied to have a lot of acceptable (not huge) calves that are born early in the calving season.
The wise use of inputs. Carefully make sure that inputs such as implants, ionophores, supplemental feeds, etc. will more than pay for their use even if the price of the inputs should double while your cattle prices stay low. Some inputs such as immunizations can appropriately be regarded as insurance.
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