Are you a farmer? Or are you a business manager? Are you improving the profitability of your agribusiness? Or someone else’s? For generations now we have been taught the fundamentals of the family farm by our fathers. The dilemma I have with that is that the fundamentals are all on production. We have been taught how to run a tractor, build a fence, or pull a calf. And we are good! We are efficient, and we do a great job at getting more and more productive. But have we become more profitable during this process. In my farm business, the last thing that I worry about is production practices.
Production is dictated by economics and finances. Whatever production practices I use on my farm have to work economically and financially before they can be implemented. Now, my ranch has different advantages and different disadvantages than yours. What works for me might not work for you, but the truth is in the numbers. Economically and financially, are you running a business? Or are you farming?
Economics is profitability and I manage this with a Gross Margin Analysis. Finance is your ability to cash flow a venture, and this I manage with a simple spreadsheet cash flow. Two separate sets of books. Oh, and there are those ‘other books’ for the accountant, but they are not very useful to me. If I can work through my economics, develop a profitable plan, and have the ability to cash flow the venture, should I go ahead and jump in?
Maybe, but there is one more aspect to my farm business that has seniority over economics and finances. Human resources! If the people side of your business is not able to perform the task then the venture could fail. Eighty-five per cent of all employment turnover is due to personality conflicts, not job ability. Human resources is the most important part of any business. Without it, you are sure to fail. In most farm businesses, we add an extra degree of difficulty on the human resource side. Most of the time we deal with family members.
What does all this have to do with grazing? Everything! Any successful business starts with good planning and good management. By building good people skills, understanding the abilities and needs of the people in the business, and continuing the education of those people, you will be able to move forward in your business. You also need the people in the business to understand the economics and finances of the business. I would also fail if I could not communicate with all of the people outside the business that allow it to run. My customers, landowners, buyers and suppliers all are an important part of my business. Once all of these human resource issues are taken care of and you have run your numbers, the production falls into place. If you don’t have these parts in order, you’re at risk of having a wreck.
I own a custom grazing business called Greener Pastures Grazing Management Ltd. and I would say it would be a “low-risk ranching” business. (Special thanks to Greg Judy.) At the present time, we own four head of livestock, (three donkeys and one horse) and manage 4,000 acres of land. This might seem a little under-stocked to some people, but we also graze 150 cow-calf pairs and run 1,200 yearlings for the summer. Of these 4,000 acres, I own 155 and lease the rest. In our area, the land is too high in value for agricultural purposes. My quarter of bush land is valued at $160,000 due to the urban pressures of Edmonton and the increased demand for recreational land. As an investment, land in our area can be quite profitable because of appreciation and the demand for acreages; it however does not cash flow very well for an agricultural stage one business. That is why we have continued to expand our operation through lease arrangements and with an investor strategy. I am not saying I don’t want to own any more land… it is a good investment. We just have to be able to cash flow it. For every quarter of land that we own, we need to offset the negative cash flow that it creates with 10 quarters of leased land. Our investor strategy was developed to encourage investment in land through our company that will allow the investors to own the land but not have to manage it. We then assume the management of the land in a sustainable manner. Of course we promote the environmental benefits that we can provide but also the investment potential of real estate in our area. A win-win for both sides. Our profit centre is in land management; the investor’s profit centre is real estate. It does, however, take a little human resource management in dealing with 21 different landowners.
Another part of our business is in the livestock. At the present time, we do not have a cow-calf profit centre or a grasser profit centre. I determined a few years back, that on our operation, economics did not work. I make a profit from our custom grazing and I do not have the market risk, the breeding risk, the cow depreciation or the death loss. That does not mean that I will not own animals in the future. I believe that in the cow-calf profit centre, the revenue created from selling of the calf at weaning will provide cash flow for the operation. The profitability of the
profit centre comes from the ability to manage for the cattle cycle. You buy low, sell high. If a cow is too expensive to buy, then she is too expensive to own. We try to work with the cattle cycle, not against it. Cow depreciation is a huge loss that most producers don’t account for because it is hidden, but believe me, it is a big cost and needs to be in your numbers.
Our grazing profit centre has its own built in risk management. By managing the land through intensive cell grazing, we limit the risk we have in the crop we grow. By managing for the grazing concepts, (graze period, rest period, stock density, animal impact) our only risk is weather. Temperature and rainfall limit our growth potential, but we always get to harvest our crop. Snow, hail, frost — we can still harvest, and because we manage to improve the health of the land, we reduce the risk of temperature and drought. We build humus and thatch which helps absorb rainfall and reduce evaporation. It also helps control soil temperature in order to maintain a longer period of growth for the plants. Healthy pastures are profitable pastures.
Our ranch is also a low-cost operation. We use no chemicals and no fertilizers. Our pastures are managed to recycle nutrients and improve forage quality by understanding grazing concepts. We manage for weeds and pests strictly through management. If we work with Mother Nature, we are able to let her do all the work. Soil organisms help us import and recycle nutrients. Legumes are a very important source of nutrients for us. Why would anyone buy nitrogen fertilizer when the air we breathe is 78 per cent N? We just have to understand how Mother Nature pulls it from the air.
We run our business without needing to own a tractor. If we have minimal investment, we can lower our risk. We own a bale truck, a quad and a horse. Even when we swath graze, we lower our risk by purchasing the crop from other producers. They take the risk of growing the crop and we purchase what is produced. We have developed ourselves as a market to other producers. We will take oat crops, barley crops, salvaged crops, crop residues or whatever else we can beg or borrow. With minimal equipment, we use less fuel, spend less time turning circles, have lower repair bills and incur less depreciation and opportunity cost on those assets. It is the depreciation and opportunity cost that really sneak up on a business with out you realizing it. When we have to feed, we still use a grazing mentality by bale grazing. Here our big savings is in lowering the labour and equipment costs of winter-feeding. The average Alberta yardage rate for feeding dry cows is 70 cents/head/day. Through bale grazing we have been able to reduce our yardage down to seven cents/head/day.
So there you have it, low-risk ranching greener pastures-style. We feel we need to stay on top of our human resource management, our economics and our finances. If we can keep these in check, the rest falls in place.
Steve Kenyon runs Greener Pastures Grazing
Management in Busby, Alta., www.greenerpasturesgrazing.com,(780) 307-2275