The power of a gross margin in cattle production

From the Ground Up with Steve Kenyon

The power of a gross margin in cattle production

It was 2001. I was a young man starting my farm from scratch. I was just starting a family, running a small herd of cattle and working way too many hours on and off the farm. Have you heard the saying that a farmer works eight hours a day to feed your family, then he works another eight hours a day to feed his? Well, that was me except it was more than eight hours off the farm. I hate that saying. It really hit me one day when I was trying to feed grain in the morning and in the evening. I realized that I was feeding my animals four hours apart. I was working way too hard and not getting ahead. Why was I broke? Why couldn’t I make my payments?

I was desperate. I heard a rumour that there was this school called Ranching for Profit and it could turn your farm around. But there was a problem — it was a week-long school, and the tuition was $2,500, plus all the travel and hotel and food costs. Ouch. I can’t afford that. A week off work and find $2,500? I had a friend from college who was in the same place as me — working extremely hard but no money. He was working off-farm and with his parents on the farm. Not only was he broke and could not afford the school, but the farm needed him.

I decided to sell four cows and take the school. My friend was not able to come. Off I went, green as grass and swinging for the fence to see if I could turn this farm around.

MIND BLOWING! I was so overwhelmed with information and emotion and passion. It was an incredible week for me. It was almost 20 years ago but I still feel the emotional overload that I had from being there. I was a young man starting a family. My job was to provide for my family and I was failing. I’m not too proud to say that there were a few tears shed that week.

On top of the course content, the networking that goes along with events like this is half of the education. The people I met and the knowledge I received was worth its weight in gold. What an amazing group of people. I had one person from the school offer me a job to set up and manage a ranch. I had another invest in land for me and I also had 300 head of cattle sent to me to custom feed, just from the networking. No one can ever tell me the networking is not worth your time at a conference or a school.

There were so many ideas that I brought home but one stands out. I learned how to do a gross margin analysis. I was never taught this in school, not even in the agriculture college I attended. It was a whole new way of looking at the farm. Imagine, actually planning to pay for your labour on the farm?

As soon as I got home — you guessed it — I was back to the off-farm job. Back to the same old grind of making a living. My friend phoned me up and I told him about how powerful the school was. The next weekend, he traveled over 500 km to come see me. He asked me to teach him what I learned. It was the best thing that that could have happened to me. I had to teach what I learned. We sat down for two days and I struggled to remember what I learned and tried to remember how the numbers all went together. I stumbled through it and at the end of the second day we had his family farm entered into a gross margin analysis.

I still remember him sitting at the table. He dropped his head into his hands and there was silence. I did not know what to say, so I stayed silent. The margin told us he was LOSING $300/cow. I was not sure if he was mad? Or sad? Did I do something wrong? Finally, he looked up at me and there were tears in his eyes. “I thought we were making money,” is all he said. “I honestly thought we were making money.” I saw right there, first-hand, the power of a gross margin.

All that week, after work, late at night, I ran my farm through the margin calculator, and I found out that the cows were losing me the most money. In my environment, the small herd of custom cows I was managing was making me the best margin and my cows were losing money. I think the biggest benefit to understanding the economics of your business is that the decisions are so easy to make. His decision was to pull back from the purebred business and focus on the grass and the commercial cattle. My decision was to focus on the custom grazing and sell my cows. Different decisions but similar results. Both farms started to make money.

I would like to share with you some fantastic news. My friend turned that farm around. Over the next few years, he was able to buy back 14 quarters of land that the bank had previously repossessed, and within a few years, he quit his off-farm job. I’m happy to say that he is still operating a successful farm business today. I think the gross margin analysis was the most important breakthrough that my farm ever had. I would guess that if you asked my friend, it was his as well. I am proud of you, buddy!

About the author

Contributor

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

Steve Kenyon's recent articles

Comments

explore

Stories from our other publications