Utilizing financial records and indicators can help ranchers maximize profit
Sheridan − Burke Teichert, longtime ranch manager and consultant, addressed various strategies in which ranchers can better manage their ranches and ultimately increase profitability.
Teichert, a featured speaker at the 2019 Wyoming Farm Bureau Federation Young Farmer and Rancher Conference, discussed key financial records and indicators, as well as specific strategies to be applied to maximize profits.
Teichert chocked up profitability to three basic means of improvement.
“We have to increase turnovers, decrease overhead and improve gross margin to increase profit,” Teichert commented.
“To look at ranch profitability, we can’t just look at it through a per-cow or production-per-cow lens, we have to look at the whole ranch,” he said.
“Looking at profitability on a per-cow basis can be extremely distorting to whole ranch profit,” according to Teichert. “Farmers do a great job at looking at the big picture, but ranchers have to be better.”
Teichert said accurate financial records on the ranch are crucial in maximizing profitability. He recommended separating costs by category and keeping records of all sales listed separately.
“Anything tied to the land, people or the tools people need is an overhead cost,” Teichert explained. “Direct costs are almost always feed and medicine, and in most cases, feed will be the majority of this cost.”
When it comes time to sell cattle, Teichert stressed the importance of selling each cow to her highest ability.
“We don’t want to deceive our buyers, or we lose trust,” said Teichert. “If she is just a cull cow that’s fine, but if she has ability beyond, we have to market her to her highest ability.”
With profit as a primary objective of most operations, there are certain indicators to be used to gauge progress, according to Teichert.
“Total revenue is a good place to start,” said Teichert. “Once we determine total revenue, we can subtract direct costs and get our gross margin. From there, we can subtract overheads to determine net income.”
According to Teichert, total revenue is the product of multiplying average weight by price and then by head.
To determine average weight, Teichert suggested looking at long-term indicators of weight, such as pounds weaned per acre, yearling gain per acre and total gain per acre.
“The best determinant for price is the prices we have received over time,” according to Teichert. “A good record of sales over time becomes a good decision-making tool and allows us to see progress in marketing.”
To determine how many head ranchers have available to sell, they must track pregnancy rate, weaned calf crop percentages and acres per cow, according to Teichert.
“Once we determine total revenue, we can calculate gross margin, which is the difference between total revenue and overhead costs,” said Teichert. “Overheads are costs that don’t change when we add or subtract livestock. This can include equipment, facilities and labor.”
Teichert explained gross margin allows ranchers to understand the cost of adding additional livestock to their operation. These direct or variable costs are most often feed and medicine.
“Subtracting the overhead and direct costs of the operation from the total revenue will determine net income or profit,” said Teichert.
Waging a war on cost
Teichert noted if producers can reduce overhead costs without changing direct costs or revenue, they will be more profitable.
“The single best indicator for efficiency in overhead is cows per man,” according to Teichert. “It’s very likely operations have as many costs relating to the number of people on the payroll as costs related to the number of cows they run.”
He chocked it up to the simple idea when we have fewer people, we have less stuff.
“Over my career as a manager, it’s almost unbelievable the amount of overhead eliminated by reducing the number of people to run the same amount, if not more, cows,” said Teichert.
“More than anything else, the war on cost is more of a mindset,” according to Teichert. “Once we get started, having good records is a big help in knowing how much we can do.”
Callie Hanson is the assistant editor of the Wyoming Livestock Roundup. Send comments on this article to firstname.lastname@example.org.