Quality does not always equal profitability in ranching operations

When the conversation of profitability comes up in ranching circles, many will cite production measures such as calving rates as their markers of profitability when this is not always the case. 

According to Dallas Mount, owner of Ranch Management Consultants and the highly regarded Ranching for Profit School, many times the most productive ranches on paper are the least profitable. 

Mount notes a lot of ranchers don’t take time to figure out if what they are doing is going to work, and the simplest thing a rancher can do is ask fairly simple questions of their business plan and decide how they will meet objectives. 

“Ranchers have to look at their objectives, how to service their overheads and how each cow contributes to paying this overhead,” he says.

Profit and quality not related

“There is no relationship between ranch productivity and profitability,” Mount states. “Some of the least productive ranches are the most profitable because they have the lowest overhead cost. There is not much of a relationship between these two things, but we can explain profitability in other ways.”

Mount notes the most correlated number between cattle and their profitability is the amount of fed-feed per cow. This number will carry the most explanation for a variety in profit between different operations. 

“If a person drives to a ranch which runs 1,000 cows but grazes 12 months out of the year, it is going to look a lot different than one running 400 cows but feeding hay for five months out of the year,” he explains.

According to Mount, if an operation is feeding hay four to five months per year, their cattle may be in better condition to express high-quality measures such as calving and pregnancy rates, but often the cost far outweighs any potential profits.

Another measure Mount notes is worth considering is the overhead cost associated with feeding hay, such as more employees and machinery, which requires maintenance. These costs would not be necessary if the operation found a way to ranch with less hay.

“A more palatable way to word this is not all productive cattle are profitable because there is a threshold for cost,” he says. “But, profitable cattle have a base level of productivity which has to be met.”

Simplicity is key

Mount notes he always encourages producers going through the Ranching for Profit program to look at ways they can simplify their operations and reduce overheads.

“A good way to look at this is how a producer can get as close to running cattle with just themself and a stock trailer,” he says. “If the operation is requiring three tractors, six pick-ups and all of the other associated overhead and maintenance, it’s a lot harder to be profitable.”

Mount notes hay tends to get picked on a lot in these conversations. However, the costs associated with growing hay can be problematic for profit margins. 

“The biggest issue I see is people who are good at raising animals and terrible at farming hay and vice versa,” he says. “This is, of course, not always the case, but ranchers tend to fall into the trap of doing everything and getting involved in too many little side operations.”

With simplicity comes finding a niche in the industry and sticking with it. 

With the rise of direct-to-consumer beef, many producers have made attempts to vertically integrate. Mount notes this can work in some scenarios, but it is often not the best option. 

“When we look at people’s books, we often find there are a couple things on the ranch moving the needle for the business,” Mount says. “Our first priority is to identify what those things are and figure out how to do more of it.”

“Someone might look at the guy who buys his calves and decide they should retain their calves a little longer. Or, they might see the guy who finishes them out and sells beef directly to consumers and decide they should get into this business as well. Before they know it, they are vertically integrated from conception to consumption, and this isn’t necessarily always a good thing,” he adds.

For example, if a producer is choosing to focus on direct-to-consumer beef, they may want to challenge the idea of owning cattle from birth.

“If we enterprise a ranch and find all of the profit is being made by taking a 900-pound animal and marketing it to a customer, then there isn’t a lot of sense in raising cattle for 18 months to get them to 900 pounds,” he says. “It would make more sense in this scenario to purchase the 900 pounders and finish them out. Producers need to stop trying to be everything to everybody.” 

One aspect many producers tend to lay to the wayside is the art of good grazing. 

“When we focus on good grazing and building soil health, we can increase carrying capacity and therefore, profit,” he says. “Grass is essentially the crop of ranchers and can really help move the needle towards profitability.” 

Callie Hanson is a corresponding writer for the Wyoming Livestock Roundup. Send comments on this article to roundup@wylr.net.