By late September our growing season was winding down here at Greener Pastures as my feeder pastures were starting to destock. I have three herds that were heading back to the feedlot soon and I ll be down to one breeding herd left on pasture. I will give a little bit of supplementation as the winter sets in but I hope to keep them on the pasture and off the bale grazing until after Christmas.
If your grazing season is over, it is important to run some actual numbers and see how your pastures did this season. But we need to find out more than what they produced. We need to figure out the margin on each pasture. I have a simple Pasture Calculator to run a margin on each pasture. I use this in the spring to make some estimations of what the season should bring. Now that I have some actual numbers, I enter everything into my grazing chart and it calculates out my actual animal days/acre (ADA). This measurement is adjusted for animal type and size throughout the season. Once I have entered the data into my chart, it automatically calculates out my total animal days (AD) harvested and my ADA. It converts this to dollars per acre and then tells me my Gross Margin on each area, as well as my Gross Margin Ratio (GMR) and my Rent Ratio.
WHAT? No one ever told you that you are supposed to calculate a GMR? Then how do you know if you are making any money or not? You would not take off a crop of wheat without calculating the yield, would you? Why would you not calculate your yield on pasture land? For most, I suspect, it is because you might not want to know the answer.
My Gross Margin is calculated by taking the Gross Product from the pasture and subtracting all the direct costs. The Gross Product is the amount of the grass grown in one season and we value it as if you are a custom grazer. What is the market value of custom grazing in your area? You need to use market values in your margin. Let s say we had grazed for 120 days with 100 steers at a rate of $0.75/head/day. That is $9,000 in Gross Product.
The costs include any costs related to the grazing profit centre. These could include but are not limited to rent (or opportunity rent if you own it), water system costs, fencing costs and labour for spring set up and grazing. Don t forget about your labour and equipment costs! That quad does not fix itself and yes it does depreciate. If rent was $20/acre and my other costs added up to $15/acre, this would give us a direct cost of $35/ acre. Your margin is the difference at $40/acre.
I might need to back up a bit here. Some of you might be wondering what is an opportunity rent. If you own the land you are grazing, you still need to assign a rent value to the land. This needs to be set at market value for your given area specifito the type of land. What would someone else pay you in rent for your land? Or what are you paying in rent for similar land? Remember, when you are calculating your gross margin, you are looking at economics. You use an opportunity rent on owned land, not your land payments. The land payments go into your financial calculations, not your economics. Clear as mud?
So what the heck is a Gross Margin Ratio (GMR), you ask. Well I m glad you asked. It is a benchmark that I use to help me determine if I am making a profit or not. In any profit centre, it is calculated by dividing your Gross Margin by your Gross Product. If your pasture produced $75/acre and your costs worked out to $35/acre, then your GMR would be $40/$75= 0.53 or 53 per cent. In my business, I would like to see my GMR at 50 per cent or higher. I need each pasture to produce at least double the value of the costs associated with it. If it can t, then it is not contributing enough value to cover my business overheads and still produce a profit. And I am a believer that profit is more important than production.
I also use a Rent Ratio. This is another benchmark I use to see if my rent is reasonable for a given pasture. This is simply the rental rate divided by the Gross Product. In this case, I like to see my Rent Ratio less than 40 per cent. In my example, this would be $15/$75= 0.20 or 20 per cent.
I am sure I have confused you enough for one day so I will wrap this up. I have made a lot of mistakes in my grazing management. I have paid too much for rent. I have put too much labour into a pasture. I rented pasture that was too far away. I have spent more on water systems than I should have. Simply put, I lost money. It was not until I learned how to calculate a margin on each pasture that I realized the mistakes I was making. Decisions are easy to make when you have the right information in front of you. Now thanks to my GMR, I turn down land that is not profitable, even if it has really good production. I believe that the most important part of any business is the management of the manager. Education for yourself is well worth the investment. Do you know what your GMR is?
SteveKenyonrunsGreenerPasturesRanchingLtd.inBusby,Alta., ww.greenerpasturesranching.com, 780-307-6500,email