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The Cost Of“Unpaid Labour” – for Aug. 9, 2010

I am a custom grazer. I graze other people’s cattle on other people’s land. I believe it is very important that grazing needs to be looked at as a separate profit centre. One of our downfalls in agriculture is that the true value of forages is misunderstood because most of the forage is never bought and sold. It is consumed on-farm. Worse yet, we don’t include our labour. Even if you are not a custom grazer, it is important that you understand the value of each profit centre in your business. Last month I looked at calculating the gross margin on a pasture and as promised, we will now look at some of the costs involved with that grazing profit centre.

I have had many producers at my schools shocked that I charge a dollar/ head/day to graze cow-calf pairs. “I can’t believe that someone would pay you that much!” is usually the comment. I then ask them to do a quick calculation about one of their pastures.

Here is one example. The producer rents two quarters of land for $25 per acre. (Even if you own it, what is the market value in your area to rent it?) They paid $8,000 in annual rent for 320 acres. Sixty pair grazed this last season from May 1 to September 15 with continuous grazing management. That is 138 days, $8,000/138 days/ 60 pair = $0.97/pair/day. That means for $0.03/pair/day, they have to check all the fencing, pay for the water system, unload the cows in the spring, deal with the management and treatments for 4.5 months and manage the roundup and ship out in the fall. All that work for $0.03!!! That adds up to $248.40 for the season to cover all his labour and equipment costs. I can’t believe someone would do all that work for $248.40. I despise the term “unpaid labour.”

What are the direct costs associated with a pasture profit centre? I use my pasture calculator to look at a rough gross margin for each pasture I have. It is important to understand the true costs in an operation, including labour. Now the “Big Number” in the gross margin is easy as a custom operator. Market value (in my area) puts grazing pairs at $1/pair/day. In the example, $1/pair X 138 days X 60 pair = $8,280.

The “Little Number” is a little bit more complicated. My costs usually are comprised of five things. Water systems, cross fencing, spring setup labour, grazing labour, and land rent. You may have more costs in your calculations such as fertilizer, mineral, drought insurance, rejuvenation costs, etc. But for now, I will keep this simple.

The cost of the water system is calculated by taking the total cost of the system and then amortizing it over the life of the system. How long until it is totally depreciated? I know some people might disagree with this but financially you will have to pay for it in the first year. Economically you will spread that cost out for the life of the asset. Let’s say we purchased a water system for $3,500 and it will last seven years. $3,500/7= $500/year. We also need to account for the opportunity cost on this system; 10 per cent of $3,500 is $350/year.

In this example, the producer was continuously grazing his pasture so there is no cross fencing costs. However, in my operation I cross fence to increase the gross revenue so I would account for the total cost of the cross fencing and the labour to install it similar to the water system.

How about spring setup labour? You have to get the water system up and running, check the perimeter fence and possibly all the cross fencing. This cost will depend a lot on how good the fencing is to begin with. Land with a new perimeter fence is pretty easy. It is those 30-year-old fences through the bush that can sometimes be a problem. Let’s say it takes two days of labour to get ready at $50/hour for you and your pickup truck; 2 days X 8 hours X $50/ hr = $800.

Grazing labour is the amount of time you put in throughout the season checking the pasture. In this case we might run down once a week to look in on the cattle. That would mean about 22 trips to the pasture. This cost can be quite variable depending on the distance you need to travel to the pasture or if you just walk out your back door. Driving our pickup at $50/hr. for a total time of two hours per trip would make a $2,200 cost.

Our total cost so far adds up to $3,850. With $8,280 in gross product, did we make any money? Wait, what about the $8,000 worth of rent? Our gross margin would be $8,280 -$11,850 = -$3,570. A negative margin? How many pastures can I graze like this to support my family? There are only two things you can do to improve your margin. Make the “Big Number” bigger or make the “Little Number” smaller.

How can we increase the gross revenue? I use intensive cell grazing to get more out of my pastures by keeping them healthy and productive. However, this will require cross fencing that will also increase our costs. As long as the gross revenue increases more than the costs it will be worth it. Maybe we could save on the cross fencing by using all temporary fence? But be aware that will increase your grazing labour as now your time spent moving fence will increase. When it comes to intensive cell grazing, how intense should we get? Does moving cows six times a day (mob grazing) increase your gross product and improve your pasture health enough to pay for the extra labour? Or does moving cattle once a day give a better return? Better include your labour costs in your margin before you answer that one.

Can we lower some costs? Should we forget about the water system? If we do, maybe then we will have more health problems and because of extra animal treatments, our grazing labour will increase. I vote on keeping the water system, but can you find a cheaper system and still have the same results? How about labour? Can we cheap out on fixing the perimeter fence? Not likely. But I might pay more rent for a pasture with a good perimeter fence as I know the spring labour will be lower to maintain it. Distance is a large factor in grazing labour. The farther away a pasture is from home, the less I will pay for rent. A larger piece of land will offset the distance but be wary of travel time. Avoid unnecessary trips to the pasture or plan your trips to hit multiple pastures along the way.

For this particular example, the rent seems too high for the production. I made that mistake a few times before I started using my pasture calculator. My first suggestion is to use your communication skills to get a better rental rate. You can also improve your grazing management to get a better return. If your rent is still too high because market value is overpriced in your area, then send your cows elsewhere to be grazed. It might be more profitable than having all that “unpaid labour” at home. If you will manage a pasture all summer for $248.40, I have a job for you!

SteveKenyonrunsGreenerPasturesRanching

Ltd.inBusby,Alta., www.greenerpasturesranching.com, (780)307-6500,email

[email protected]

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Steve Kenyon runs Greener Pastures Ranching Ltd. in Busby, Alta. You can email him at [email protected] or call 780-307-6500.

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