Extension by Dallas Mount
Ranch Profitability Focus Areas
By Dallas Mount, UW Livestock Extension Educator
What items have the greatest impact on your ranch’s profitability? OK – let’s take the ones off the table that you have very little control over, like weather and national market trends. Now, can you try and put the major items that affect profitability in order from top to bottom on their relative impact on your operation?
Next comes the question that may cause some discomfort. Where do you spend most of your management time? Do the items you spend most of your management time line up pretty well with the items that have the greatest impact on your profitability? If they don’t I’d suggest you are in the majority.
Those of us who work in agriculture usually have the benefit of being our own boss, but with that comes the danger that we spend most of our time working on the things we enjoy, rather than the items that have the most impact on profitability.
I’m not suggesting that we ignore all the things that are not on our top five list or that we completely abandon the items of ranching that we enjoy. I am suggesting that, if you recognize your ranch business is not giving an important area the management emphasis it deserves, you should develop a plan to address this. Perhaps there is someone else on your ranch team that is waiting in the wings for an opportunity to have meaningful input into the management of the ranch? Maybe this is an opportunity to involve this person?
In my experience assisting ranchers in conducting cost of production analysis over the past several years, I believe there are several areas that for most cow/calf producers should be in their list of top five areas.
1. Fed feed – Most people agree that feed accounts for 60 percent of the annual costs of maintaining a cow. In my experience, the more of the feed is made up of fed feed rather than grazed feed, the larger your total feed bill will be. I would challenge you spend a substantial amount of management time trying to reduce your fed feed bill.
2. Replacement cost or cow depreciation costs – These can be hidden costs, since most ranchers don’t write a check for cow depreciation or purchase outside replacements, but even if you raise your own replacements, they make up a major expense. Most ranches can spend $150 per cow per year on this item very easily. Investigating ways to lower this expense by either increasing the value of cull animals or decreasing the cost of developing replacements can be time well spent.
3. Rangeland productivity and harvest efficiency – By improved grazing management, both of productivity and harvest efficiency of rangelands can be improved, and with the current value of forage, this can reap huge financial rewards. Sure, fences and stock water developments cost money, but they can often be paying investments.
4. Other land business ventures – This varies greatly from one ranch to another, but it is not uncommon for a ranch to generate more income annually from non-ag uses of the land business. How are you doing about marketing and managing these income generators?
5. Whole ranch enterprise analysis – This means taking the time to look at the long-run profitability of each major enterprise on your ranch, and perhaps making decisions to eliminate those enterprises that frequently lose money. A whole ranch enterprise analysis can seem like a daunting task the first few times you do it, but there are plenty of resources to help you accomplish this. One online guide is available at bit.ly/THmpxp.
Hopefully my list will challenge you to make your own list. Perhaps your items are quite a bit different from mine.
If my crystal ball is correct, this year and the next few years are going to present some very challenging times to manage the cost side of a ranch business. When you include all the cash and non-cash costs of running a cow, I’m having a very difficult time finding much profit in this business, even with the relatively high calf prices we have been experiencing. I think aggressive business management will be necessary to make these operations profitable in the next few years.
I hope you have a great holiday season and look forward to seeing many of you at the meetings next month.
Dallas Mount is the University of Wyoming Livestock Extension Educator and can be reached at email@example.com.