Evaluating records is the first step in developing a ranch plan
Published on Jan. 4, 2020
Understanding the financial position of the ranching operation is crucial to staying in the game. Developing a balance sheet and income and cash flow statements are all important tools producers can use to evaluate their operations.
“As much as I hate bookwork, it is important to tackle jobs like this when we are at our best, not after we have spent the day hard at work and are tired,” says Nebraska Extension Educator Aaron Berger.
Once a rancher has finished evaluating the operation, he should seek out a fresh perspective from an accountant, banker, Extension agent or a trusted friend who is successful in the business.
“Sometimes, we are too close to see what opportunities are there,” he explains. “I would recommend seeking an opinion from an outside source and asking them what they see.”
“It does require us to open things up and travel outside our comfort zone, but it might be well worth it,” Berger points out.
The most important step in evaluating the operation is breaking it down into enterprises. For example, one ranch may have owned and rented land, a cow/calf operation, hay, oil and hunting.
“We need to figure out where value is being created,” Berger says. “We need to be honest and evaluate whether the cows can pay fair market value for the grass we have or if we would be better off to sell the cows and rent the grass to someone else. Evaluate each enterprise this same way.”
Berger acknowledges it is hard for some producers to ever consider selling their cattle. If this isn’t an option, maybe there are things that could be changed to make them more profitable.
“After we evaluate the costs to raise replacement heifers and develop them into a bred heifers, we may find it is more profitable to move to a terminal sire program or buy replacements,” he explains.
Berger tells producers grass rental rates in Nebraska average $55 to $65 a month per pair.
“This is equivalent to $92 a ton of air-dried forage, assuming the cow weighs 1,200 pounds,” he says. “I never thought I would say this, but it is almost to the point where we can dry lot a cow cheaper than grazing it, based on $100 a ton for distillers and $80 a ton for alfalfa hay.”
He continues, “For some producers, they can dry lot or take a cow to cornstalks cheaper than they can rent grass.”
During tough times, there are also management improvements producers can make to improve efficiency. Building fence and adding water sources will improve the productivity of the grass and provide more grazing for cattle. Producers shouldn’t be afraid to utilize electric fence, Berger continues.
“I would recommend finding someone who does a good job putting up and taking down electric fence and learn from them,” says Berger.
With many options available for maintaining a cow, Berger tells producers to match the cow and the available production system to the available resources.
“Most herds calve in the spring in Nebraska,” Berger says. “That could be an opportunity to partner with someone in the Sandhills who has young cows falling out of their spring calving herd and start a fall calving herd.”
He continues, “Look at the options. Crop residue is a tremendous resource in Nebraska.”
Cow depreciation is the second biggest cost in an operation.
There are situations where it can actually be bigger than feed.
Berger shares an example of a producer who purchased a bred heifer a few years back when the bred cattle market was at an all-time high.
“He bought this bred heifer for $3,200, now she is open and if he culls her, she is worth $800,” he says. “What options does he have?”
“Cows appreciate and depreciate,” Berger says. “What can I do to eliminate cow depreciation?”
The key is to reduce initial costs and increase salvage value and the number of productive years.
One option is to buy bred heifers, calve them for a few years and sell them as three-or four-year-olds when they peak in value.
Berger says producers who want to breed heifers need to keep them on an increasing plane of nutrition through breeding and use controlled internal drug release (CIDR) to get late calving cows pregnant sooner.
“I am a strong believer in a long breeding season and a short calving season,” he says. “We can’t afford to have open cows, so we need to figure out how to avoid it.”
If a producer pays $10,000 for a breeding bull, keeps him five years and breeds 30 cows each year, he may sire 150 calves. Not considering feed and other expenses, breeding expense amounts to nearly $70 a calf.
“We also need to determine the annual cost of keeping him, particularly in feed,” Berger says. “It may be worth it to partner with someone who has a different calving season and have this bull breed someone else’s cows, too. It could significantly reduce breeding expenses,” he says.
Gayle Smith is a corresponding writer for the Wyoming Livestock Roundup. Send comments on this article to firstname.lastname@example.org.