Ranch Profitability Focus Areas
By Dallas Mount, UW Extension Livestock Extension Educator
What items have the greatest impact on your ranch’s profitability? Let’s take the ones off the table that you have very little control over, such as weather and national market trends. Now, try and put these major items 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 on 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. What I am suggesting is that if you recognize your ranch business is not giving an important area the management emphasis it deserves that you develop a plan to address this.
Perhaps there is someone else on your ranch team who 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? Maybe the ranch should hire someone to do or help with these important areas if they are not being done or are done hastily.
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.
First, fed feed impacts profitability. Most people agree that feed, both grazed and fed, accounts for 60 percent of the annual costs of maintaining a cow. In my experience the more feed made up of fed feed rather than grazed feed, the larger your total feed bill will be. I would challenge you to spend a substantial amount of management time trying to reduce your fed feed bill.
Replacement costs or cow depreciation costs 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 they make up a major expense. Most ranches spend $250 to $600 per cow per year on this very easily. Investigating ways to lower this expense by either increasing the value of cull animals, decreasing the cost of developing replacements or improving stayability can be time well spent.
Rangeland productivity and harvest efficiency are other factors to consider. By improved grazing management, both of these 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.
Other land business ventures can influence profitability. 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?
Finally, it is important to undertake a 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 improve the profitability of some enterprises or eliminate those enterprises that frequently lose money.
This 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 HPRanchPracticum.com.
Hopefully my list will challenge you to make your own list. Perhaps your items are quite a bit different from mine. These times of high profit are a great time to make some strategic evaluations of your operation. Please let me or other UW Extension people know if we can be of help to you.