While not intending to offend anyone, I will express some concerns that may do just that.
Most of the conventionally managed ranches on the North American continent are not profitable. A few are. Many are just breaking even when you take an average of good and bad years. And, quite a few are going broke. Some of those haven’t figured it out yet because increasing land values enable them to borrow a little more money each year to keep operating.
If you are going broke, you need to make changes quickly or sell out quickly to stop the erosion of equity. If you are just breaking even or perhaps a little better than that, you should consider making changes that will improve your profitability over time.
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Over several decades, since the end of the Second World War, we have been developing a ranching and farming culture that has become more and more dependent on fossil fuel, iron, synthetic fertilizers and chemicals. During that time the prices of those inputs have increased at a rate that exceeds the price we receive for what we produce. Would it not make more sense to reduce dependence on those inputs and develop a system that has a much higher dependence on soil, rainfall and sunshine?
For most of us, it takes a change in mindset to begin to make the necessary changes to become profitable. I was fortunate that early in my story, I was led and mentored by some people who helped me see that there is always a better way. I was then shown some of those better practices and began to recognize that they were based on sound and true principles.
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The next step for me was to learn that more production (heavier weaning weights, etc.) was seldom the right objective. I began to recognize the major or big determinants of profit and understand how much they could leverage profitability. I also began to learn that I needed to think holistically and see our ranch businesses as entire systems with all the parts interconnected and interacting. I have never learned how to clearly explain that in a brief article. Let’s just say understanding grows with practice and exposure to other good systems thinkers.
In a ranching business, we must manage four large areas: 1) production, 2) economics and finance, 3) marketing and 4) people. Each of these affects profitability and they all interact with each other. We need to learn to see that and anticipate how a change in one might affect the others. It is easy to let production alone dominate our thinking and decision-making.
There are only three ways to improve profit: 1) increase turnover, 2) decrease overheads, 3) improve gross margin (total returns minus direct costs).
You will say there are more ways than that. However, anything you do to improve profit will be through one or more of the “three ways.” Those who have attended a Ranching for Profit school will have been very well exposed to this concept.
For most people starting to attack a problem of low profitability, the most and quickest progress will be made by reducing overheads as much as possible — cutting to the absolute needs. (Overheads are land and the fixed facilities attached to the land, and people and their tools and equipment.) We need overheads, but not as many as most ranchers have.
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Remember, in improving profit we are striving to improve “whole ranch profit” or “profit per acre”— not production or even profit per cow.
There are five essentials for successful ranch management that we should adhere to for excellent profitability:
- The approach must be both integrative and holistic.
- Strive for continuous improvement of the key resources — land, livestock and people.
- Acquire and use good planning and decision-making tools.
- Wage war on costs.
- Emphasize marketing.
These should constitute your approach to management.
The following are major determinants of profit:
- Enterprise mix and choices.
- Overheads.
- Stocking rate, affected by:
- Cow size and milk production.
- Grazing and pasture management.
- Fed feed versus grazed feed.
- Calving season.
- Realized herd fertility (from conception to an animal to sell).
- Wise input use for optimum production.
- Marketing.
All of this leads to two summary statements which come from putting all of the above together.
The first is “adapted cows, calving season and grazing management have high-leverage effects on soil health, carrying capacity, fed feed versus grazed feed, overheads, labour requirement and herd fertility.”
Adapted cows, calving season and grazing management work together to have a big influence on soil health, carrying capacity and herd fertility which all affect revenue. They also have cost-reducing effects on fed feed, overheads and labour requirements. You see, these are the big dollars and have little to do with weaning weights or what you do with your supplemental feeding program or the use of pest control products.
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The next summary statement and an overall formula for profitability is “reduce overheads, achieve excellent herd fertility, market well and then improve three key ratios: 1) acres per cow (fewer is better); 2) cows per full-time labour equivalent (more is better); and 3) fed feed versus grazed feed (more grazed feed and less fed feed is better).” If you completely understand this statement and know how to make improvement in each of the components listed, your ranch will become significantly more profitable.
It took me many years to put this all together. And, there is much between the lines. However, I hope it is well enough organized to help you understand that there are a few important things to work on to improve the profitability of your ranch.
Questions to ask yourself are:
- What overheads can I give up? Trucks, tractors, horses, unneeded buildings.
- How do I cull cows and select bulls to achieve better herd health and fertility with fewer inputs? How does grazing management play into that? What are the marketing implications?
- How do I market to fit my changed and improved management and not just sell?
- How can I manage grazing to achieve greater carrying capacity followed by a greater stocking rate and better overall herd performance? If I hold back more females to enlarge the herd, will I have enough cash flow for other needs or might I need to consider grazing outside cattle or using other species?
- How do I organize and plan so that we can run more livestock with less labour and not work harder or more hours?
- Will better grazing help me lengthen the grazing season (less fed feed, more grazed feed) — start earlier in the spring and graze later in the fall and perhaps even through winter?
Getting good answers to these questions will require a serious “conventional” rancher to move well outside of his or her current comfort zone. It will require a new mindset and an open mind. It will also require some reading, perhaps some seminars, workshops or short courses, and some visits to ranchers who have already started down the road on some of these recommendations. He or she will no longer be conventional.
What I have written here is an outline of advanced and adaptive ranch management — just an outline.
So, you might guess what to expect in future articles, and you might also review what I have written in previous articles on grazing management, soil health and selecting for good cattle.
Burke Teichert is a long-time manager of large ranches. He is also a consultant and speaker. Contact him at [email protected].
