“No. You missed that,” Scott Johnson says, correcting a caller. He and his wife, Jean, were traversing a part of eastern Colorado on one end of a long-distance struggle with cell service. The caller had entirely missed the point Scott made about holistic management. It is much more than grass.
The template of holistic management laid over the Johnson family’s Flying Diamond Ranch, Scott explains, is a collaboration of moving parts. It considers the harsh seasons of Colorado’s semiarid eastern plains and the sustainability of the ranch’s composite Angus herd. It is management of predatory coyotes, of spring calving and scrutiny of meat markets. Most of all, it is family — this one taking its first steps into a sixth generation with five grandchildren, four born in 11 months.
“Do you follow my way of thinking?” Scott asks. “If our ROI [return on investment] is great, but someone is maimed, we wouldn’t be real proud [of our performance]. We will give up profit for safety or harmony,” he says. “The focus is on the whole. If we’re not getting along as a family, if we’re not safe, then the rest of this really doesn’t matter,” he explains. “It’s its entirety. Its wholeness. Its balance. Not perfection. But, bottom line, [we are] profit-oriented. Business is business.”
The Flying Diamond’s clean and highly viewable website uses six words to articulate holistic management: “Ranching with family. Working with nature.”
BORN ON A CATTLE DRIVE
Flying Diamond is 112 years in the making. Charlie Collins, Scott’s great-grandfather, fell in love with the land when, as a teen in the late 1800s, he trailed cattle near the banks of Big Sandy Creek on a drive from Mexico to Montana. By 1907, Collins had moved his family from Kansas to Kit Carson, where the ranch is still headquartered today.
The ranch is dominated by a shortgrass and sand sage landscape. Thick riparian areas border the Big Sandy and Horse creeks, tributaries of the Arkansas River. Culls are based on a female’s ability to wean a calf every year beginning at age 2 and succeed in 13 inches of precipitation and temperatures running the scale from below zero to above 100ËšF.
The cattle winter on corn circles in Kansas and Nebraska. “We like to rest our pastures during the winter. It’s healthier for our grass to have the cattle off and let it rest, and get a little more growth,” Jean says. Scott adds, “Having cattle on cornstalks, our day-to-day chores slow down a little bit in the winter. We can give family a little breather.”
Flying Diamond is an operation run by a family of type A personalities, Scott allows. “We’re not real chitchatters. We socialize. We have good times. We want to maintain excellent family relations. But, we’re not sitting around drinking a lot of coffee.”
GENERATIONS MANAGE TOGETHER
Scott and Jean anchor the Flying Diamond’s fourth generation. Their four adult children represent its fifth. Ownership is based on a meritocracy. The more a family member contributes, the more they own.
Jen Livsey, married to Jay, is the oldest. She is a Princeton University undergraduate and the first female graduate from the King Ranch Institute for Ranch Management. She recently opened Eastco Group, a livestock and drought insurance business. Jen oversees the rotational-grazing plan and analyzes purchase and lease opportunities.
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Will and Lauren Johnson live full-time on the ranch. A Marine Corps veteran, Will is CEO of Flying Diamond Ranches Inc.
Myles Johnson and his wife, Katie, live in Idalia, Colorado, where Myles is the K through 12 superintendent of schools. Myles is the ranch’s administrative officer, managing compliance, meetings and corporate records. Katie is a certified public accountant and manages the ranch books.
Charlie Johnson and his wife, Kaitlin, live in Kit Carson. He is chief operating officer (COO) of Flying Diamond Ranches Inc. He partners with Jen in livestock and drought insurance.
Business is organized around communications—face-to-face, weekly conference calls and a monthly executive committee meeting. Quarterly board meetings are a newer function Kirk Samuelson, Scott’s cousin, brought to the ranch. Samuelson served as COO of Fortune 500 Kiewit Corp., in Omaha, until he retired. He and Scott are cochairmen of the board for Flying Diamond. Quarterly board meetings are formal. “Ten years ago, I was the dictator,” Scott admits. “Now, no one is comfortable with that. When we talk about family harmony, that’s not to suggest there aren’t red faces and pounding on the table.”
The board meetings are to play a role in the ranch’s vitality. “You go to workshops, and you hear horror stories,” Jean says. “Families won’t talk to each other. Ranches divide. That is a threat. How do you keep a 100-year-old ranch together for the next generation?”
The board meetings have a start-stop time and a structured agenda. They often include talks by outside experts. Assignments are given before the meeting—budgets, range management, cattle movements, fertility testing and branding, selling bulls, commodity markets and new market opportunities. “There is an element of accountability brought into the operation that we didn’t have before,” Jean says. “You are held accountable. What did you say you were going to accomplish? Did you do it?”
AGREEMENT IS KEY GOAL
Flying Diamond’s meetings are collaborative. The goal is consensus. “At the end of the day, we want to come up with a compromise we can all live with. This is a new concept for us,” Scott explains.
New is a continuing education standard. Time spent in continuing education is measurable and reported quarterly toward an annual goal of 300 hours. Safety is one component. Jean is the ranch’s safety officer. She has organized horse- and cattle-handling courses. “We specifically do safety training, communicate safety and track safety by hours per year.”
Calving runs from March through May. “We try to mimic nature,” Scott says. “We calve when the deer and the antelope and the elk calve.” Cows graze on spring grasses and not supplemental feed, and the calves generally miss late-season blizzards. Predation is better managed. Calves invite coyotes in the dark of winter. Coyotes have a wider menu in the spring, when the ranch’s wildlife also is giving birth.
“Deer and antelope spend zero dollars, and their offspring have a 50 percent survival rate,” Jen told ColoradoBIZ in a February article about Flying Diamond Ranch. The goal of the ranch, she explained, is to improve the odds of survival among the calf crop but mimic nature to lower production costs.
And here, an example of holistic management: “Our guys aren’t out in blizzards. The weather is better for the calf and better for us,” Scott says.
PATH TO PRODUCTIVITY
Cattle graze only 5% of the ranch’s ground at any one time. Nearly 200 miles of single-strand electric interior fence mark paddocks typically less than 300 acres in size. Cattle graze in some paddocks no more than three days in a growing season. Stocking rates once ran 40 acres per cow/calf unit. Today, it is 30 acres per unit. “We are able to run 30% more animals. Maybe we’ll be able to get to 20 acres per cow/calf unit with more intensive grazing,” he says.
Scott traces his land-management practice to several days spent 35 years ago with Allan Savory, the guru of grazing lands holistic management. Savory’s notion was to move cattle frequently—as bison moved themselves—by way of intensive, human-directed management.
Flying Diamond has laid out 20 miles of water pipeline with the assistance of Natural Resources Conservation Service’s Environmental Quality Incentives and Conservation Stewardship programs. Seven wells pump water to 23 stock tanks. The family has an eye to tightening its grazing practices—that cattle would graze no more than 1% of the ranch’s acreage at any one time.
Few ranches are as intense, Scott says. “Everything gets more intense the more intense we get. More monitoring, quicker moves. We are not know-it-alls. But, it can be a big benefit to the resource and a big benefit financially.”
ONE GENERATION TO THE NEXT
Holistic management is one of many parts. Flying Diamond Ranch has won its share of acclaim for this approach as the recipient of the Colorado Leopold Conservation Award and regional Environmental Stewardship Award, the latter partially sponsored by the National Cattlemen’s Foundation.
Awards recognize achievement. Flying Diamond Ranch tests new futures. Its organic cuts, for example, are finding customers in San Francisco. As a member of its advisory committee, Jean learns how the College of Agricultural Sciences at Colorado State University studies water conservation, sustainability, even urban farming. But also, meatless meat.
“It sounds like science fiction to us, but maybe it’s something that’s coming,” says Jean, not setting aside opportunity perhaps born of a petri dish. The future does not discourage Flying Diamond Ranch. “We’re bullish on agriculture,” Scott says.
The Flying Diamond Ranch evolves and grows and shifts for a time beyond Scott and Jean, and perhaps beyond Jen, Will, Myles and Charles—from today to a time for five grandchildren: Collins, Sofia, Clint, Stella and Henry, growing up among the hills of Colorado’s plain.
One generation builds on another. “We think,” Scott says, “that future is pretty bright.”
Where are Your Costs?
Here is a PDF of the
Where are you at.
This study by Whitney Bowman, Dustin L. Pendell Ph.D. and Kevin L. Herbel can be found at the Kansas State University AgManager.info website. Review and summary by Aaron Berger, Nebraska Extension Educator.
Whitney Bowman together with Dr. Dustin Pendell and Kevin Herbel recently published a paper that highlighted the differences between 71 different producers with cow-calf enterprises that are part of the Kansas Farm Management Association. The paper examined both returns over variable costs and returns over total costs in 2014-2018. The authors broke out participants in the study into three groups of high-, medium- and low-profit producers. Here are differences that stood out between producers from the data when looking at returns over total costs.
- Differences in costs between operations significantly outweighed revenue differences. High-profit operations spent $259.93 less per cow than low-profit operations in this study.
- High-profit operations generated more revenue per cow, $152.32, than low profit operations.
- Major differences in costs between high profit and low profit herds were found in feed expense. High-profit herds spent a total of $418.66 per cow on grazed and harvested feed, while low-profit herds spent $543.92. This is a difference of $125.26 per cow!
- Labor, depreciation, machinery and interest expenses were all lower on a per cow basis for the high-profit operations than the low-profit operations. High-profit producers spent on average $100.95 less on these items than low-profit producers.
- High-profit operations generated on average an annual positive net return to management of $60.53 per cow, while low-profit operations had a negative return of -$351.72 to management over the five year period.
The Kansas Farm Management Association cow-calf enterprise data provides insights into the differences between high-, medium- and low profit producers. Participants in the data set have the necessary production and financial records to know what their production costs are and then can use that information to make management decisions to improve profitability. In this data set, producers who aggressively controlled costs while producing more pounds of calf to sell per cow than their competitors were the most profitable. Good production with cost control differentiated the most profitable producers from those that were the least profitable.
A one page sample budget titled Estimated Annual Cow Costs for Nebraska 2019 is a tool that can be used to help producers to begin to estimate what their own cow costs are. Good accounting and record keeping can help producers track their costs and know their cost of production.
For producers interested in learning more about this topic, a Unit Cost of Production Workshop is scheduled for February 5 & 6 at the Cedar Creek Church which is in the Burwell area. For more information contact Aaron Berger at 308-235-3122.
Interviews with the authors of BeefWatch newsletter articles become available throughout the month of publication and are accessible at https://go.unl.edu/podcast.
Some folks purchase rural land for pleasure as much as for profit. Motivated by a dream of running a hunting operation, raising cattle or having their own place to roam, they may forget that the land can help to pay for itself.
Do first things first. Most people never accomplish their goals because they focus on what they know how to do, what they like to do, what’s easiest and what’s urgent. – Danny Klinefelter (Texas A&M University agricultural economist)
“Most people ranch or farm because they love growing things, they love animals, they love being outside, or they love being independent,” says Danny Klinefelter, an AgTexas Farm Credit board member and Texas A&M University agricultural economist. “Not as many enjoy the financial, marketing and people management sides of the business. But these days, that’s where you need to focus.”
Klinefelter offers ten best management practices that can be especially helpful for new ag operators and rural landowners.
“These are things that any producer can do, but that 95 percent of producers don’t,” says Klinefelter, who is also a farm management expert with Texas AgriLife Extension. “If you’re looking for ways to get better, this list would be a good place to start.”
1. Match costs with revenues. (Book)
Too many producers treat costs and earnings separately. Focus on managing the margin between costs and revenue by looking a few months ahead. Cattle producers, for instance, can lock in the price of future inputs such as feed, and then use the cattle futures market to protect their selling risk.
“Too often, farmers and ranchers wait to get a better deal,” Klinefelter says. “If you lock in a profit, it’s hard to go broke.”
2. Play “What if?” . (Website)
Don’t limit yourself to considering most-likely outcomes. Plan for the worst. Start with the four Ds—what if someone dies or becomes disabled, what if there’s a divorce, or what if a key player departs?
Klinefelter uses insurance to illustrate the need for contingency planning. If you take off a hay crop every year for extra income, you might be able to ride out a drought. But if you produce hay and cattle in a drought-prone region, you may want to consider weighing the cost of Pasture, Rangeland and Forage Insurance against the cost of purchasing hay for feed.
“You might hate to pay the premium, but look at what could go wrong and ask yourself if you can afford it,” Klinefelter says.
3. Stay on top of your business. (Book)
“Successful managers monitor and analyze their performance,” Klinefelter says. “They’re more likely to spot problems and opportunities before it’s too late. Business problems are like cancer—they eat away at profits. But if you spot them early, they’re often treatable.”
For example, many ag operators take last year’s cash-flow budget and adjust it for next year.
“Usually, lenders won’t settle for this,” Klinefelter says. “They know that ranchers and farmers consistently overestimate projected earnings.”
Each month, check projections against current cash flow. If this month proves worse than projected, you may need to adjust your expenditures.
4. Establish priorities—the 80:20 rule. (Book)
The 80:20 rule says that 80 percent of what we accomplish is produced by 20 percent of what we do.
“Do first things first,” Klinefelter says. “Most people never accomplish their goals because they focus on what they know how to do, what they like to do, what’s easiest and what’s urgent.”
For example, if you operate a hunting ranch and prefer the hands-on work of building feeders and maintaining deer blinds over marketing, it might pay to hire a marketing professional to promote the business.
5. Conduct autopsies.
Evaluate key decisions to avoid repeating mistakes. What went well and what went poorly? What did you overlook, and which assumptions led you wrong? What did you learn?
Consider the rancher who raises purebred cattle for potential embryo and breeding stock sales. If that business model is too labor- or input-intensive, it may be time to switch to a more traditional cow-calf business model.
6. Do little things better—the 5 percent rule.
“Studies show that the most sustained success comes from doing 20 things 5 percent better, rather than doing one thing 100 percent better,” Klinefelter says. “Also, the most profitable producers tend to be only about 5 percent better than average farmers in terms of costs, production or marketing.”
He uses wheat to illustrate how little things add up. Assume the seasonal average wheat price was $7 a bushel. Others waited for prices to hit $8, but that never happened. You locked in a sure thing by forward-contracting for $7.35, just 5 percent higher than the average price.
7. Benchmark your performance.
“Most producers have no clue how they stack up against their competition,” Klinefelter says. “They think they’re average or a little above—but it’s not possible for everyone to be average or above. How do you stack up against the top 25 percent?”
Consider, for instance, that you raise cattle, and your calves have a lower average birthrate than those on similar operations. Find out how others have improved survival rates in their herds.
8. Analyze what to stop doing.
“Successful managers spend as much time analyzing what they need to stop doing as they do evaluating new opportunities,” Klinefelter says. Such analysis can lead to shedding assets, enterprises, people, land leases or unnecessary practices.
He cites the case of a family that produced milo and cotton crops that were only marginally profitable. They generated more profits buying calves and putting them on winter wheat in November, and selling them each spring.
“These brothers decided to lease their cropland to other farmers and focus on what they did best—raising cattle. It made a huge difference,” he says.
9. Use accrual-adjusted income to evaluate profitability.
“Cash-basis accounting is great for simplicity and tax management, but it’s a poor way to measure true profitability,” Klinefelter says. “Cash-basis often lags accrual-adjusted accounting by two to three years in recognizing profit downturns and upturns. By then, it’s too late to respond.”
You don’t need an accrual accounting system, however; simply prepare balance sheets that reflect the beginning and end of the period for which you’re measuring income. Include inventories, accounts receivable, prepaid expenses, accounts payable and accrued expenses.
10. Learn from the E-myth principle. (Book)
The E-Myth” a book by Michael Gerber, talks about how many people believe they can succeed as entrepreneurs, when in reality most small businesses fail. Gerber maintains that most business owners begin with a fatal assumption—that if you understand the technical side of your business, you understand how to run the entire business.
Klinefelter suggests you apply this lesson to ranching, by learning about other players that affect your operation—employees, buyers, suppliers and funding sources.
“Find the top three things that most frustrate each of these groups in dealing with a business like yours. If you can reduce those frustrations, you can become the supplier, customer, employer, borrower or tenant of choice,” he says. For example, ag lenders such as Farm Credit like to hear from customers when changes occur—don’t wait until the end of the year to contact them.
Do you manage a ranch or farm? Share your tips for running a successful business in the comments section.
This article appears in the fall 2016 issue of Texas LAND magazine and was provided by Farm Credit Bank of Texas. Visit www.landmagazines.com to read more and subscribe to future issues of both LAND magazine and Texas LAND magazine.
There are three, and only three, ways to increase profit in any business. Stan Parsons called them The 3 Secrets For Increasing Profit™ and introduced them to Ranching For Profit students in 1980. Lately I’ve seen more and more articles by industry pundits that incorporate the 3 secrets in articles and conference proceedings. They rarely if ever acknowledge the source. Worse yet, they don’t always get them right. I’m going to use this ProfitTips to go back to basics and explain the 3 Secrets.
There is a common belief that profit is a function of weather and prices PERIOD. But weather and prices are, for the most part, beyond our control. If we believe that profit is determined by things beyond our control, it becomes easy to see ourselves as helpless victims.
In Ranching For Profit we don’t accept for one moment that we are helpless. Even if we can’t influence the market or make it rain, we can create and structure enterprises to fit this uncertain and volatile environment. In selecting our enterprises and building our business for profit we need to understand the 3 Secrets:
- Reduce overhead costs
- Improve the gross margin per unit
- Increase turnover
Secret #1: Reducing Overhead Costs
Overhead costs include land and labor costs. Land and labor are broad categories. Land includes rent and the cost of maintaining fences, pipelines, building and anything else attached to the land. Labor costs include salaries & benefits, vehicles, equipment, horses, dogs and anything else that does work.
Overhead costs tend not to change much as the units of production (e.g. cows, steers, ewes) change. Think about increasing a cow herd from 400 to 500 cows. That’s an increase of 25%. Would the interest, insurance or depreciation on our pickup increase by 25%? Of course not. As much as our hired hand might want a 25% raise, raising 500 cows is not 25% more work than raising 400 cows. Sorry Charlie, no raise.
Of course, anyone with a BLM or Forest Service grazing permit pays for land on a per-head basis. It doesn’t matter. While it may not behave like other overheads, rent is always an overhead. The video at the end of this article explains why.
Reducing depreciation on our truck, or refinancing it to pay less interest will not impact the number of cows we run, the productivity of those cows or the price I get for my calves. But it will increase our profit. That’s why reducing overheads is the first secret.
Secret #2: Improving Gross Margin per Unit
Gross margin per unit measures the economic efficiency of cows, steers, sheep or whatever our units are. The higher the gross margin, the greater the efficiency. When gross margin per unit increases it means that each animal makes a bigger contribution to covering our overheads and making a profit.
To calculate gross margin we have to know two things; gross product and direct costs. Gross product is the value an enterprise produces. It’s simple to calculate:
Gross Product = (Closing Inventory Value + Sales) – (Opening Inventory Value + Purchases)
Direct costs are costs that go up and down as the number of animals in the herd goes up and down. Direct costs include supplement and substitute feed, health and breeding related costs, trucking, marketing commissions and interest on the livestock note.
To calculate gross margin just subtract direct costs from gross product. Then we divide by the number of units in the enterprise to figure gross margin per unit.
We can use different units. In livestock enterprises we usually start by calculating gross margin per animal unit. Gross margin per animal unit is an effective way to compare the efficiency of a stocker enterprise to a cow-calf enterprise, or any other livestock enterprise. Gross margin per acre is a useful tool for comparing the efficiency of grazing enterprises to farming operations.
The ranch with the highest production per unit rarely has the best gross margin/unit. Smaller cows weaning lighter calves, but requiring fewer inputs, generally have a much higher gross margin per unit than larger cows. Whatever the enterprise, improving gross margin per unit is the second secret to increasing profit.
Secret # 3: Increasing Turnover
We may have a productive cow with a great gross margin, but one cow won’t be enough to cover our overheads. We need more cows … at least we need more something!
Turnover refers to the number of units in an enterprise (e.g. the number of cows or steers that we have). A business can increase turnover by increasing the scale of an enterprise or by adding enterprises. Increasing turnover, provided that the gross margin per unit is healthy, is the third secret for increasing profit.
There are three, and only three ways to increase profit in your business. All three are in play in your business all the time, but only one of them is the most important right now. Do you know which of the three secrets is your biggest problem and which offers you the greatest opportunity? If you are ranching for profit you’d better find out!
Principles of Professional Ranch Caretakers
Lease us your ranch – We will take care of it.
Financially, Economically, Physically, and Emotionally.
We will keep the grass growing and the water flowing.
We will keep the fences tight and the improvements in great condition.
Where do you see your ranching enterprise in 1 year, 5 years, 10 years 100 years. The actions you take today will basically – dictate to what your ranch will be in the future.
- More Brains put together to find more Ideas to create more Solutions.
By Utilizing the cumulative Brains around you – You will have the resources to create a reality of where your operations is at and where you would like it to be.
Working hand in hand with our resources – we will create a vision and work to fulfill it through a focused effort. Your land will become a healthy vibrant ecosystem capable of sustaining wildlife and livestock beyond expectations.
You are an Investor – The land that you own will appreciate as it is – 1% to 3% per year. There will be sum bumps along the way, but your investment will continue to grow Even if you do absolutely Nothing with it.
- What if you make a commitment to make it better – Increase the grasses and the waters. What if your Land can be developed to KEEP more of the moisture in it and have less run off.
Partnerships – We offer to run your ranch land in this manor. Through Planned Timed Management Grazing and strategic placement of Water and Fences – Your Investment will have the opportunity to grow beyond your expectations.
Long Term Focused Commitment – is the Key to your operation being successful. We will enter into an agreement to LEASE your ranch and run it as if it were our own – To Grow and develop it to achieve optimal production by utilizing the Sunlight and Water along with professional stockmanship. This will develop more Grass which results in more Water staying on the place resulting in healthier soils and productive plants.
A Board of the best and brightest will be asked to make recommendations and be a part of developing the overall plan for the Land. Grass specialists and Master Stockmen will have a say as to how to operate the enterprise.
You have done a great job of getting your operation to this point in time. This will not be forgotten. Change happens and we understand. We will work together to develop a plan that will take your operation to the next stage.
Give us a call – 307.331.0357
It would be an honor to meet you and sit down to discuss what we together can do for your ranching operation.
Kit West – CEO Western Livestock & Grass
That’s not what I said.
That’s not what I meant.
You took it the wrong way.
Why can’t you see things from my point of view?
What I was trying to say was…
In any meaningful conversation, where what’s said and what’s heard is equally important on all sides, the truth is rarely heard simply as stated. Usually, there’s what someone says and then there’s what someone hears. It’s a miracle that we don’t miscommunicate more.
In all honesty, language and conversation is something we take for granted. But in these turbulent, divisive and also promising times, communication is of vital importance. Those who can engage someone empathetically, showing an ability to understand and share the feelings of another, can create bridges that sow divides and create thriving communities.
But you have to care.
You have to believe in something bigger than yourself or any one person or thing.
The vision and meaning of togetherness must carry greater purpose and prominence collectively…for all.
The difference between utterance and discernment, after all these centuries of communicating with one another, still leaves much to be desired. Dialogue is so much more complicated than speaking and listening. The distance between the two is separated by an incredible array of everyday obstructions: cognitive biases, experiences, emotions, and self-centeredness on every side.
The art and science of language and communication are just that…art and science. Expression and significance are often left to the senses of the beholder, regardless of intent.
Let’s appreciate that the coalescence of thoughts, ideas, and purpose create a complex stream that’s truly unique to each person. Someone has to take the first step. Someone has to see the bigger picture. Someone has to understand the other…first.
Regardless of what is or what should be and why, most times, other people aren’t going to take the first step. But that’s the true opportunity for empathetic leadership.
Don’t just try to get closer.
Don’t just listen.
Don’t just repeat what you head back to someone.
Don’t just feel sorry for someone…that’s sympathy, not empathy.
Empathetic leadership is just that…leading the way by taking steps toward someone and somewhere else. Become a bridgebuilder.
Listen and commit your undivided attention to the conversation.
Refrain from judgment and assumptions.
Consider different perspectives and angles.
Seek common ground.
Acknowledge another’s feelings and show emotional support (EQ=emotional intelligence)
Relate – show care and concern.
Mirror someone’s form of communication and nonverbal signals.
Empathetic leadership is a skill and a competitive advantage. In a world seemingly rife with divisiveness, fear, and confusion, this is exactly what the world needs more of right now…engagement, harmony, and community.
Take the first step.