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What is custom grazing?

From the Ground Up with Steve Kenyon

To improve your operation’s profitability, run the numbers to see which profit centres work best for you in your environment.

Custom grazing is an arrangement or contract between two parties where a livestock owner pays grazing fees to another for the management of the animals on pasture. The custom grazier would have control of the land, manage the animals, and deal with water and fencing. The labour and equipment costs would be included in the grazing fees. In contrast, a cattle owner might just rent the land from a landowner and do all the work on their own. This is just a land rental, not custom grazing. The difference is in who is doing the management.

The main part of my business here at Greener Pastures Ranching is custom grazing. I lease land from landowners and I graze other people’s cattle in a regenerative manner. You might say that my business is just in harvesting sunlight and building soil. What I try to do is find land all together in one area and graze it as one pasture. These smaller pieces of land are owned by multiple landowners. This way I can offer custom grazing to larger herds. The labour and equipment costs divide out much better on a larger herd than it does on a small herd.

Are you a custom grazier? On paper, yes, you should be. Now the question is whether you custom graze someone else’s cattle or use your own. If you are running a farm business, the only way to know where you are making a profit is to break down your farm into profit centres. Grazing is just one profit centre. On your farm, you need to use the market price for grazing that you charge out to yourself.

Let’s look at a simple example. You own the land. You graze the pasture and we own the cattle. You wear all three hats. That is three separate profit centers. Which part of the farm is making a profit? You need to break down each part separately in a gross margin to see. Is it the real estate part that is making you a profit? Or maybe it is the grazing? Or is it the ownership of the cattle? Each profit centre will have revenue and it will have some costs. Hopefully, that is a big number minus a little number — then you will have a positive margin. The land will have rent as the revenue and will have its own costs. Part of the costs to the grazier is the land rent and the revenue comes from the cattle as grazing fees. The grazing fees are a cost to the cattle owner and who receives revenue when the cattle are sold. Simple right? Three profit centres. Three hats.

If that seems complicated, let me tell you my story. Many years ago, I owned a small herd of cattle. I owned one quarter of land but did not have enough animals to stock it. I found a neighbour who needed a little extra pasture so I topped up my pasture with some custom grazing. I was able to charge $1.25/pair/day. I was struggling to keep the farm afloat, working off farm and not sure why it was not working.

I decided to take the Ranching for Profit school. That was the first place that I learned how to do a gross margin. I came home and crunched numbers. I found out that I was losing money on my cows and I was making money on my custom cattle. The reason that my cows were losing money was that I was paying too much for pasture, and it was my pasture on my land. What? I had to account for the opportunity cost that I could be making at $1.25/head/day grazing someone else’s cattle, so I had to charge that to my cows. I soon realized that in my area under my conditions, it was more profitable to custom graze someone else’s cattle than it was to own my own. And it had less risk. That’s what I have done ever since. I began to grow my custom grazing business through land leases. Remember the three hats? I now have landowners that are just in real estate. I am the custom grazier and I have customers who just own the livestock. Three separate businesses.

This may not work the same for you on your farm in your environment. Your margins will be different. It depends on the demand. It depends on the price. It depends on a lot of things. That’s why it is so important to run your own numbers. Maybe custom grazing will not be profitable for your farm.

Will I always custom graze? Not necessarily. It depends on the market values within the different profit centres. If markets change, then maybe my profit centres will change. My cows at the time were not making a profit because the biggest cost was the pasture costs at $1.25/head/day. The demand for pasture set the price at $1.25. What if the demand dropped and I could only get $0.80/head/day? The margin of the grazing profit centre would be far less and would most likely no longer be profitable. In turn, the pasture cost for the cattle owner now drops, which makes the cattle margin better. At this point, maybe I would be further ahead to buy cattle again. Don’t take my numbers to heart, I am just using random numbers to make the point. Which profit centre works best for you in your environment? The margin will give you the answer.

There are many other reasons why you would or would not custom graze. The point is, you need to crunch your numbers to figure out where you are making a profit. It is your job to decide which profit centres work for you, on your farm, in your environment.

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.

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