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Operating Costs

Running a ranch can be like riding a bull, according to Dave Specht of Advising Generations, LLC in Connell, Wash. 

Ranchers tie themselves emotionally and financially to their ranching operations, Specht told over 300 producers. He compared it to how bull riders tie themselves onto a bull. 

“Success in a family operation is being able to make an exit gracefully and being able to perpetuate the ranch for another generation,” he said. 

Easy answers

In Specht’s line of work, he focuses on preserving families and perpetuating legacies. He told producers when working with multiple generations, there are no cookie-cutter answers. 

“I am the pursuer of inspired questions,” he said. “The answers to the challenges in these generational ranches and how to perpetuate them lies within ourselves. I am just there to help pull the answers out. I can’t tell a rancher to do A, B and C. Every situation is different.”

“Every rancher faces questions about how to operate, how to position for the future, who should own the ranch and who has the talent to manage the ranch,” Specht continued. “While all these questions are difficult, they must be confronted.”

Communication

Specht believes the biggest threat to the future of the family ranch is the lack of positive and consistent communication within the ranch family. Specht emphasized how important it is to ask questions and implement solutions. 

“There are always a lot of questions everyone in the family has,” he said, “but no one wants to ask them.” 

Every family faces challenges from sibling rivalry, financial issues, divorce and the knowledge that the family business is a dying breed, but Specht told producers to focus on the positive. 

“We need to be advocates for all that is good about these family operations,” he added.

“Everyone will have a different perspective, and we may be surprised what we hear. For instance, a grandfather may look at things differently than what the grandchild would,” he said. 

Shared ownership

Shared ownership can be a challenge, and Specht says communication is crucial. 

Ranchers told Specht that deciding who is the chief and who is the Indian can be difficult in a shared ownership situation. 

Other challenges mentioned were agreeing on ways to make the operation equitable, agreeing on common goals and prioritizing. 

“What is important to remember is there is not a right answer for every family,” Specht said. “Each family has its own unique situation and its own set of challenges.” 

“What can become a problem is not talking about it with the next generation,” he stated. 

“Many people will spend years losing sleep over how to divide up an operation because they are afraid to have that crucial conversation,” he continued. “It is important to be intentional about communication. Don’t avoid it. Prepare what questions each person wants to ask their kids and determine what conversations they need to have with non-participating owners.”

“Don’t assume the next generation knows what the we want,” he said, “and don’t assume the next generation sees the ranch the way we do. Don’t assume anything – we have to ask.”

Specht spoke about perpetuating generational ranches during the Range Beef Cow Symposium at the beginning of December 2013. Gayle Smith is a correspondent for the Wyoming Livestock Roundup. Send comments on this article to This email address is being protected from spambots. You need JavaScript enabled to view it..


SIDEBAR:
Inspired questions

To get the ball rolling on generational transfer discussions Dave Specht of Advising Generations, LLC offered 10 inspired questions he hoped ranchers would take home and ask their families to generate crucial discussions. 

1. What does it mean to be a member of this family?

2. What is the biggest unknown regarding the future of the family ranch?

3. What is or would be the hardest thing about being a parent and an owner of the ranch?

4. What does each family member perceive as the biggest challenge regarding shared ownership in a family ranch?

5. At what age do the decisions in personal life influence how people look at the ranch?

6. What is the comfort level with having to personally guarantee the debt of the family ranch?

7. If you owned the ranch, what do you think would keep you awake at night?

8. Complete this sentence: “The best thing about being a part of a family ranch is ...”

9. What responsibilities come with owning a ranch?

10. What innovations will the family ranch have to make to stay competitive?

Specht said what will surprise ranchers who take the time to ask their family members these questions is the answers they receive.

 



W. Mark Hilton, DVM, clinical associate professor of beef production medicine at Purdue University, tells producers that their dead calf is worth nothing, but a dead calf with a diagnosis can be the most valuable animal on the farm. 

Knowing the cause of death may enable a producer to prevent future deaths on down the road. 

Accident versus problem

“I feel good when a producer calls me out to necropsy a two-month-old calf, and I open it up and find that he ate some twine and got plugged up,” says Hilton. “It’s always a relief to know it’s just a freak incident.”

“The owner may be initially disappointed because he spent money for a necropsy, but it’s a great thing to find out that this is not a herd-wide problem or a tip-of-the-iceberg situation,” Hilton added. “By contrast, if someone has 150 cows and lost seven calves in a day, they recognize this is a serious situation and usually call me immediately. If those seven calves are lost over a three-week period of time, however, the owner may not get as excited and might try to justify or rationalize or guess at the causes of death.”

“I want clients to spend their money wisely. Being able to make a diagnosis after the first or second death is important,” says Hilton. 

This might have helped prevent the other losses.

Abortion implications

Abortions are a slightly different situation. 

“When a 150-cow herd has a starting calving date of March 1 and the owner tells me on Feb. 20 he just had his second cow abort, I generally tell him not to get too worried about it yet,” Hilton explains. “If he has another one, that’s the time I get it in and try to determine what’s going on.” 

“Other veterinarians may want you to call sooner, but for me, I don’t usually send tissues to the lab until we have more than two percent abortions,” he says. 

Sudden deaths

“If a cow or calf dies suddenly – an unexplained death – I want to see the first case, and I don’t want to wait until the second or third one,” he says. 

Otherwise, the producer may regret not having checked them, if additional animals die.

“I am pretty aggressive on getting young calves necropsied because it is important to find out whether they died of pneumonia or scours,” Hilton explains. “Even if the rancher says a calf was born dead, it may be of interest to open it up and put a piece of lung into a bucket of water. If it floats, the calf was born alive and started breathing because the lungs are full of air.” 

“If the lung tissue sinks, he was born dead, and he never took a breath,” explains Hilton. 

Hilton encourages producers to take calves to their vet and have it examined. The test is very easy to do, and the result will show whether the calf breathed or not. 

“If a producer has calves born dead, the number one reason for this is too-large calves at birth, and they need to look at dystocia problems,” he says. 

Not all dystocias need help, he continued. The cow finally gets the calf out, but the calf doesn’t survive the lengthy period in the birth canal. 

Additionally, a lot of calves that are called stillborn were actually alive at birth and just didn’t get going.

Herd health

“I was in private practice for 15 years, and one of my main jobs now as a university veterinarian is to tell clients to use their herd health veterinarian,” Hilton explains. “That’s the person who knows the most about a producer’s herd.”

“Have a veterinarian out on the farm occasionally to look around. It’s amazing how many times I go onto a farm and see something that the owner doesn’t see,” he continues. 

If the producer sees something everyday, they may get used to it or become not as inquisitive as someone seeing it with fresh eyes.

Solving problems

“Once we had a herd that was having a terrible coccidiosis problem in young calves,” he said, as an example. “They couldn’t reach the water troughs and were drinking the water out in the field, which was heavily contaminated with manure.” 

Some calves like to drink out of puddles even if fresh water is available. They like to taste everything and try it out.

“We filled in those low areas that collected water and fenced out some parts of the field, so calves wouldn’t have access to so much ground water, and the problem went away,” Hilton explained. “I wouldn’t have been able to see this problem, however, if I hadn’t been out on the farm to take a look.”

“Often we veterinarians are reluctant to spend our clients’ money, but considering the amount of money a stockman has invested in his operation, spending $100 or so for a necropsy to try to prevent future losses is not unreasonable. This is a good investment in the overall business of the farm,” says Hilton. 

Sometimes producers can make an immediate management change, knowing the cause of death. 

If the animal ate some poisonous plants, for instance, they could prevent more deaths by moving the cattle out of that pasture. 

Hilton commented that any unexplained death needs to be investigated.

Heather Smith Thomas is a correspondent for the Wyoming Livestock Roundup. Send comments on this article to This email address is being protected from spambots. You need JavaScript enabled to view it..

“If we’re going to be a farmer or rancher, we have to have a lot of different things that we’re good at. We have to be a little bit of a mechanic, a little bit of an electrician, a little bit of a plumber and a little bit of a vet, but we need to have a little bit of a business mind as well,” remarks Justin Mills of Platte Valley Bank.

Having a business mind includes keeping track of the numbers, not only for conversations with the banker but also for the producer’s own benefit.

“If I never look at the numbers, how do I know if I am making or losing money?” questions Mills.

Business skills

Mills acknowledges that producers work hard, getting their hands dirty, pulling calves, setting fences, irrigating and more, but penciling out the finances can often get pushed to the side.

“The bank looks at numbers a certain way, but the producer, on the other side, may look at them with a different perspective,” he comments.

As a producer, it can feel like the bank needs endless paperwork and financial data, but Mills suggests taking a different perspective.

“We need to know how this stuff works. If I go and sit down with the banker and I’ve put all my numbers and projections together, I know if things are going to work,” he explains.

Balance statement

One of the tools producers can use is a simple balance statement, which includes information such as cash equivalents, inventories and debt possessed by the producer.

“The balance statement is going to give us a snapshot of where we are from a financial standpoint,” Mills says.

The balance statement accounts for everything the producer owns and all of the money they have in accounts or investments, as well as all of the money that they owe for payments, loans or other accounts. The final product that is calculated is then considered the net worth.

“It’s not about who has the highest net worth. It’s about how things are changing. Are the finances growing? If they are not growing, are there legitimate reasons? We want to look at the changes,” Mills states.

In agriculture, there are many valid reasons for drastic changes, and it’s possible to have a net worth that goes up one year and down the next. Using the balance statement can help producers – and their bankers – see how those numbers play out.

Projections

In addition to a balance statement and keeping records of operation finances, Mills suggests putting projections down on paper.

“Some of the same numbers we use to fill out our balance statements can also go on our projections sheet,” he explains.

He continues, “Projections are sometimes a little more intriguing because now we can start to dream. But how many of us do that in the cab of our tractors and how many of us actually put it down on paper?”

Writing down projection numbers helps to zero in on what has to get done to achieve certain goals.

“If we aim at nothing, we are bound to hit it,” notes Mills.

Filling out a projections sheet includes considering likely incomes, such as crop and livestock income, as well as likely expenses, such as taxes, utilities, veterinary bills, etc.

“I always project out about 10 years for what I am going to do,” he remarks.

Taking advantage of tools

Mills also suggests learning how to use a program like Microsoft Excel to keep track of variables and financial complexities.

“We can do projections without Excel, but if we want to utilize the technology we have in front of us, we can do a lot more with the ‘what-ifs,’” he says.

He also explains that projection numbers are not set in stone. Producers can put in their best estimates and change those as different variables affect the finances.

“Don’t feel like we have to be locked into exactly what the sheet says, but, if we put some of the numbers down, it helps us to know where we are,” he remarks.

In the same way that school children receive grades to get a bearing on how well they understand the material, producers should have some kind of benchmark to track their progress.

“We need to know what our net worth is,” states Mills.

Justin Mills spoke at the Future Cattle Producers seminar in Casper in April.

Natasha Wheeler is editor of the Wyoming Livestock Roundup and can be contacted at This email address is being protected from spambots. You need JavaScript enabled to view it..

When looking at costs related to cattle production, University of Wyoming (UW) Extension Economist John Ritten says, “There are lots of numbers to look at.”

“One thing we talk a lot about is cutting costs,” continues Ritten, “but the top part of the budget is really revenue. We can impact the bottom line by other ways than just cutting costs.”

Cost breakdown

However, costs are an important part of profits, and Ritten explains that costs fall into two categories – variable and fixed.

Variable costs account for things like feed and cow care, while fixed costs include expenses like machinery, buildings, taxes, land and depreciation.

“We should also include management,” Ritten says. “I’d bet that most ranchers don’t pay themselves a true management fee. We have to include how much we might make if we worked for someone else – and that’s not going to be just $18,000 a year, at least if we’re good.”

“People often blame overhead for the reason that they’re not profitable, but I don’t buy into that,” he says.

Determining profitability, Ritten explains, means that producers must have a solid definition of what is profit.

Profitability

“I talk about profit differently than an accountant might talk about it. We’re talking about something different than economic profit,” Ritten comments. “Answering the question, ‘Did we cover costs?’ is not the same as, ‘Do we have to pay income taxes?’ They are different.”

Ritten also cautions producers against benchmarking their ranches against operations that aren’t comparable.

“Benchmarking is a great idea – if we all use the same terms and measure things the same way,” he says. “If we compare to someone else, make sure to look at the same measure.”

In determining profitability, Ritten encourages producers to use economic profit.

“If we really want to consider the ranch profitable, we need to make money economically,” he says, and to do that, all expenses must be considered.

Accounting for expenses

When looking at the ranch, Ritten says that producers must look at all aspects, including feed and labor.

“All grass has value, whether we use it or rent it,” he says. “We need to charge ourselves for using the grass.”

Additionally, labor costs often go unaccounted for on the ranch.

“We need to account for all the labor – including the kids, aunts, uncles and neighbors – at calving, branding, etc.,” Ritten says. “We also need to pay ourselves a management fee, at least when we’re calculating profit. Otherwise, we’re subsidizing the ranch with our own time when we could make money somewhere else.”

Revenue equation

Ritten also notes that revenue includes production, as well as marketing.

“Weaning weights and percentages really impact how much money I bring in,” he says, “but marketing also matters. Two calves aren’t the same. If one is marketed well, he can make more money than the other.”

Marketing is one area where Ritten believes many producers can spend more time to have an impact on the profitability in the operation.

“We can make ourselves more money by investing time and energy into marketing,” he comments.

Fair analysis

With a look at both costs and revenues, Ritten says producers should understand that costs can be traded from operational to overhead. Ranchers also must be careful to cut costs without expecting to pay more somewhere else.

“For example, there’s a lot of talk about no more fed feed in ranching,” he explains. “In some parts of the state, that’s not feasible, but remember, there are substitutes. If we can buy one feed at a cost advantage, we should use it when we can.”

The same goes for buying versus raising hay.

“We need to charge ourselves market price. Even if I can put it up for $40, if I can sell the hay for $100 a ton, I need to charge myself $100 a ton,” Ritten says. I have to account for these costs.”

The numbers

A Kansas State University study collected costs and revenues from a subset of producers from 1987 until today, and Ritten says that, sadly, if fixed costs are included, ranchers were only making money 15 percent of the time.

“Analysis showed there’s more variation in a year across farms than across the four-year data set,” Ritten continues. “There were farms that made money almost every year. Going back to 1940, the average producer made $85 per cow per year, which is sad. But some people made $233 a cow, even in bad times.”

When looking at their costs, Ritten adds that the most profitable producers weren’t necessarily the lowest cost. Many of the top one-third of producers had higher vet costs and higher labor costs, which Ritten attributes to the use of artificial insemination.

The top one-third of producers made 49 percent more per cow than the bottom third, which is a remarkable difference, Ritten says.

“The highest profit farms wean more calves,” he says. “Production matters. These producers also get a higher price per pound or hundredweight. That tells me these people spend their time on marketing.”

“Granted, we won’t have an overnight success story,” Ritten emphasizes. “But if we can reduce costs, it’s a start.”

Ritten discussed spring calving costs during the 2016 Progressive Rancher Forum, held on Dec. 5.

Saige Albert is managing editor of the Wyoming Livestock Roundup and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

Supporting three families on the ranch is no easy task these days. However, with diversification and better management of resources, one Sandhills ranch has been able to provide for the next generation. 

Sarah Sortum says her great-grandfather homesteaded in the Sandhills in 1904. For years, the ranch was operated as a traditional cow/calf operation that was able to support three families. However, by the time Sortum and her brother were in high school, that all changed. 

“The ranch went to supporting one family, and we were basically struggling on the land,” she told fellow ranchers.

Supporting a family

After Sortum and her brother graduated from high school and wanted to return to the ranch, the family knew things had to change. 

“To maintain our families, the key has been diversification and protecting those natural resources. It has been the secret to our success,” she says. 

The move toward becoming more solvent hasn’t been an easy one, Sortum continues. 

In 2001, the family was in the hayfield when a tornado blew through. As they climbed into the pickup and sped away to get out of the tornado’s path, her mother swore she saw a cow flying in the air, but thought her eyes were deceiving her. 

After the storm, when Sortum’s dad and brother went to check on the windmills, they found over 50 cows that had had died during the storm. Most were healthy two- and three-year-olds. 

“That was devastating,” Sortum recalls. “It was a big financial and emotional hit for our family. It spurred my family into thinking in a different direction. Because of it, we now have three different revenue streams.”

Making changes

Sortum’s parents sold the ranch herd and now background calves during the winter. They also purchase short-term cows, and custom graze cattle during the summer months. 

“This diversified system has proven to be much less financial risk, it facilitates advantageous reactions to market trends, and it allows more flexibility on management decisions on the ground,” she explains. “We try to determine how much money these enterprises make per head and per acre. We also figure out how much it makes per Bruce hour.”

“Bruce is my dad, and he is the one who has devoted all this time to the ranch. The rest of us help on the ranch as much as we can,” she says. “So many times we take our time for granted or we don’t count our time. Our time is important to figure in.”

With three families living on the ranch now, family meetings have become a necessity. 

“We sit down and talk as a family,” Sortum says. “When it comes down to whether doing something is right for us or not, we look at four things. We look at production and how it will affect it. We look at how it will affect our economic sustainability. We look at how it will contribute to our conservation goals, and we look at how it affects our quality of life. We can’t be miserable.”

In the end, hopefully the family will agree whether they have made a good decision or not, Sortum notes. 

Currently, the ranch has several management goals including employing ecological processes of grazing and fire, grazing for heterogeneity, maintaining natural hydrology and controlling invasive species. 

“These goals were put in place in recognition of the importance of managing our natural resources in sustainable ways, which ultimately keeps the ranch going,” she says.

Diversifying

Another major diversification is a tourism operation started in 2001 by Sortum’s brother, Adam. Calamus Outfitters is a nature-based tourism business that is operated alongside the ranching operation, Sortumexplains. 

“It generates more income off the same acres through lodging, hunting, river trips and jeep safari tours,” she explains.

During the summer, the family offers lodging for tourists. They have two lodges and four cabins that can hold about 64 people when they are filled to capacity. 

During the day, tourists can participate in river trips and water activities, in addition to jeep rides that allow them a personal view of how the ranch operates. Guests have the opportunity to see nature, and the family also offers hunting from pheasant and upland game to deer and turkeys.

Important aspect

“Diversification has allowed us to view our resources differently,” Sortum explains. “While our grass and water are still of utmost importance to our ranch operations, we recognize that the wildlife, scenery and experience of our resources are also valuable and worthy of thoughtful planning and management.”

The ranch was also the first private land in Nebraska to be deemed as an important bird area by Audubon Nebraska. This designation has brought more tourists to the ranch to view the different species of birds who make their homes there. 

“This designation was an important step for us in our tourism business because now we are put on a public stage,” Sortumsays.

“We have an open door policy,” she continues. “We invite anybody and everybody to our place. There have been some people who came that I have been nervous about, but my dad always tells me we have nothing to hide.”

“He has always impressed me, because he reminds me that we have a healthy resource and we are doing good things on the land. It is an opportunity for other people to come and see what we do and realize that,” she says. “It has always been a positive experience. It gives us the opportunity to explain to them how raising beef on this grass supports so many species and is responsible for a lot of other important ecological functions, as well.”

Sortum says her family has found that ecotourism is a really useful tool, especially in rural areas. 

“Tourism has encouraged us to be better managers,” she says.

Gayle Smith is a correspondent for the Wyoming Livestock Roundup. Send comments on this article to This email address is being protected from spambots. You need JavaScript enabled to view it..