Improving profit on the ranch involves improving gross margin by changing attitudes
To improve profit, renowned agriculture economist Burke Teichert noted ranchers can do one of three things – increase turnover, decrease overheads or improve gross margin.
Any other opportunities to increase profit margins likely fit within the categories described, Teichert added, also noting that improving gross margin creates one of the largest areas for opportunity.
During a presentation on Feb. 7 at Fremont County Farm and Ranch Days, Teichert looked inside gross margin and how producers can make substantive changes to their profit.
“Gross margin is the total returns from livestock minus the direct costs of livestock,” he said. “I would suggest the direct costs for livestock are very few. Basically, they’re feed costs and vet costs.”
“Vet costs aren’t going to change very much because that’s our insurance policy,” he said. “Vaccinations are fairly low-cost insurance to make sure that we have herd health. We’re not going to change that very much, and if we did, it wouldn’t change the overall cost very much.”
Marketing costs may also be a factor, Teichert said, but he noted those costs are usually minimal.
“Feed is the big driver of the direct costs,” Teichert said. “If we reduce overheads and market well, then we should improve our three key ratios for profitability.”
Teichert asked producers how many acres it takes to run each cow on their property.
With changes in grazing methods, Teichert saw one rancher drop requirements for each cow from 30 acres to 16 acres.
“During that time, he spent money on fencing and water – about $50 an acre,” he said. “When he spread that across the ranch, it seemed like a lot of money, but if we think about it, he just bought a second ranch in an area where land sells for about $600 an acre. Plus, he doesn’t have to pay property tax on this one.”
At the same time, no increases in overheads were required.
“If we can do things to reduce the number of acres required to run a cow, it has huge – and I emphasize huge – economic potential,” he commented.
Another analysis looks at cows per person.
“If we hire an employee, we often pay $30,000 a year, while also supplying ranch housing,” Teichert said. “They also have to have transport to get to where the job is – either a pick-up, four-wheeler, saddle horses or whatever we have to equip a man with to do the job. It will likely cost up to about $70,000 to keep that person on the payroll.”
Employees are a huge driver of profitability, he continued, noting the ability to run more cows per person spreads the cost of that employee over more cattle, which is important.
“Our ability to become more efficient becomes really, really important,” he said.
When looking at improving profit, Teichert also isolated several attitudes to improve profit, which he believes are essential to profitability on the ranch.
“The first is that the approach to management be both integrative and holistic,” he said.
Integrative management is bringing ideas, thoughts and information from outside of the ranch to the home, and in making decisions, a systems approach is considered.
“When we make decisions, we should try to take an approach that helps us think through all the consequences – including the positives and negatives, to balance and determine if an action is worth it,” he said.
As one example, Teichert cited weaning weights, noting, in the 1970s, producers began to chase larger weaning weights, without consider the future impacts on cow size, herd fertility or other potential results.
He said, “We have to remember to look holistically.”
Secondly, Teichert said producers must continuously improve the key resources of land, livestock and people.
“For land, I like adaptive grazing,” he explained. “We have to adapt to circumstances.”
He continued, “Principles are eternal, but practices around those principles have to fit the circumstance.”
Regardless of location, the principles of grazing are consistent – from Argentina to Wyoming to Canada and everywhere in between.
To constantly improve the livestock, Teichert noted cattle needs to be adapted the environment.
“If we select cattle that are adapted to the toughest things they have to go through, they will be more profitable,” he said, adding selection begins with the bull. “Bulls have to be able to survive in their environment, too. If I have to take care of him to get cows pregnant, do I want his daughters as replacements? No.”
“Continuous improvement of people starts with knowing the manager’s job, then providing the environment where people want to excel and the freedom to do it,” Teichert explained.
War on costs
Waging war on cost will also help producers to reach profitability.
“We have to increase grazing days and decrease feeding days,” Teichert said. “If we change the calving season to calve in synch with nature, we can increase grazing days and decrease fed days.”
Teichert encouraged feeding cattle no more than three pounds per head per day, three days a week.
He also said mature replacement heifers don’t have to reach 65 percent of their mature weight, but rather, only 55 percent of mature weight is sufficient.
“The ones that get pregnant are the ones we want,” he said.
In looking at the cowherd, Teichert said producers must reduce cow size, cut inputs and then cull the right cows.
“All the cows would live until they’re 20, if we let them, but we don’t. Longevity relates to fertility. Fertility relates to environment,” he said.
Teichert said reducing the breeding window for heifers allows natural selection to select the top heifers in the herd, while also creating a second revenue stream.
“The open heifers sell well, and the guys who want them will pay for them,” he said. “For the cows, we want a short calving season and long breeding season.”
Finally, marketing and production must fit together.
Teichert concluded, “There are a lot of factors that all come together to make our operations more profitable.”
Saige Albert is managing editor of the Wyoming Livestock Roundup and can be reached at firstname.lastname@example.org.