Category: Time

10 Best Management Practices for Running a Profitable Ranch

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.

profitable ranch advice

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.

profitable-ranch-advice-cows

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.

WESTERN LIVESTOCK & GRASS

The Legacy of the Ranch…

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 are 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 some 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 runoff.

Partnerships – We offer to run your ranch land in this manner. 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 give input, as to how to operate the enterprise.

– Full Circle –

As Western Livestock & Grows grows – we are going to take on the next challenge.

  • The Next Generation of Ranchers – Our Youth.

Getting into (and getting out of) the ranching business is a challenge. Our average operator age is getting up to where most people are retiring. In addition, the capital cost of getting into ranching far exceeds the financial resources that a ranch can provide.

How do we work to overcome these obstacles?

Western Livestock & Grass – will take on the challenge of finding qualified young persons to take on the LEGACY of your ranch. As we lease more ranches, we will become the mentor that is needed to develop our young ranchers.

  • We will take on the responsibility of making sure your ranch is being run right.
  • We will also take on the responsibility that the next generation of ranchers is being prepared to take on the challenges of this industry.

IF THIS IS something that you would like to take part in. Give me a call. We can cover the details and determine a plan that will work for ALL of us.

Give me a call – 307.331.0357
Email – kit@ranchersedge.com

A Professional Ranch Leasing Service

Warmest Regards

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Kit West – CEO Western Livestock & Grass

COMPETITIVE ADVANTAGE

Holding on to Your Advantage –

By Kit Pharo

In last week’s PCC Update, we discussed the need to have a competitive advantage – and how to obtain one.   This article was written for the benefit of the many PCC subscribers who already have a competitive advantage.

NOTE: If you don’t have a competitive advantage, I suggest you re-read last week’s PCC Update.   We believe having a competitive advantage will be the difference between mere survival and true success in the future of the cow-calf business.

You have a competitive advantage because you were willing to step out of the status quo herd and do a better job of running your business.   However, you will only have a competitive advantage until the majority discover they can do what you are doing.   Rest assured, this will take much longer than it should.

Eventually, though, yesterday’s Herd Quitters will become the new status quo.   If you want to maintain your competitive edge, you must continue to change with the times.   You must recognize when you are in danger of becoming the new status quo, and start looking for new advantages.   This is a never-ending challenge that I love.

Henry Ford is an excellent example of a leader who fell behind.   It has been said that Henry Ford was 20 years ahead of his competition for the first 20 years of his business – and 20 years behind the next 20 years.   During the boom years of the Model T, over two-thirds of the cars in the U.S. were Fords.

Henry did what he had to do to become the leader in the early car business – but he failed to adapt and change with the times.   For example, he thought every car should be black.   He allowed his business to stagnate under its previous success.   The same thing can happen to us if we’re not careful.    Nothing stays the same!   The key to staying ahead is to adapt to change as it is taking place.

Quote Worth Re-Quoting –

“It is not the strongest of the species that survives, nor the most intelligent that survives.   It is the one that is most adaptable to change.”   ~ Charles Darwin

“It is not necessary to change.   Survival is not mandatory.”   W. Edwards Deming

Production Per Acre –

By Tim Goodnight

Shifting the focus from production per cow to production per acre has been shown to increase profitability.  It’s no secret that smaller framed cows will produce more calves and more total pounds per acre.  In addition, these lighter calves are worth more per pound.

More pounds that are worth more per pound is a win-win, right?

As simple as this concept is… status quo producers can’t seem to understand that by focusing on individual growth and weaning weights, they are limiting their profitability.  Despite the emphasis placed on growth, the status quobeef industry has not been able to increase average weaning weights over the past 15 years.   The only thing that has increased in the last 15 years is cow size.  This has led to the increased use of expensive inputs, which has had a negative impact on profitability.

So how can producers increase production per acre?  It begins with a paradigm shift.  Shifting the focus to the production and performance of the entire operation instead of the individual animal is the most important first step.  Next,you should align your operation with a program that has shown the ability to increase total production without expensive inputs.  Pharo Cattle Company has been that program for 30 years.  If you’re ready to increase your ranch’s total production and profitability, we can help.

Quote Worth Re-Quoting –

“In times of change, learners will inherit the earth – while the learned find themselves beautifully equipped to deal with a world that no longer exists.”   ~ Eric Hoffer

“Those who cannot change their minds cannot change anything.”   ~ George Bernard Shaw

The Learning/Doing Gap

Seth Godin

Our society separates them. Somewhere along the way, we decided that one interfered with the other.

Go to school for 8 years to become a doctor–most of that time, you’re learning about doctoring, not actually doing doctoring.

Go to work as a copywriter. Most of the time, you’re doing writing, not learning about new ways to write.

The thing we usually seek to label as ‘learning’ is actually more about ‘education’. It revolves around compliance, rankings and “will this be on the test?”

Being good at school is not the same as learning something.

One reason that we don’t incorporate doing into education is that it takes the authority away from those that would seek to lecture and instruct.

There are 56 million people in K-12 (compulsory education) in the US right now. Most of them do nothing all day but school, failing to bring real-life activity, experimentation and interaction into the things that they are being taught.

And there are more than a hundred million people going to their jobs every day in the US, but few of them read books or take lessons regularly about how to do their work better. That’s considered a distraction or, at best, inconvenient or simply wasted time.

The gap is real. It often takes a decade or more for a profession to accept and learn a new approach. It took gastroenterologists a generation before they fully accepted that most ulcers were caused by bacteria and changed their approach. It has taken our justice system more than thirty years to take a hard look at sentencing and corrections.

It could be because we’re confusing learning with education. That education (someone else is in charge and I might fail) is a power shift from doing, so I’d rather be doing, thank you very much.

What happens if the learning we do is accomplished by always engaging in it in conjunction with our doing?

And what happens if we take a hard look at our doing and spend the time to actually learn something from it?

When police departments invest time in studying their numbers and investigating new approaches, they discover that efficacy and productivity goes up, safety improves and so does job satisfaction.

When science students devise and operate their own lab tests, their understanding of the work dramatically improves.

Education (the compliance-based system that all of us went through) is undergoing a massive shift, as big as the ones that have hit the other industries that have been rebuilt by the connection and leverage the internet brings. And yet, too much of the new work is simply coming up with a slightly more efficient way to deliver lectures plus tests.

I see this every day. People show up at Akimbo expecting lifetime access to secret videos, instead of the hard but useful work of engagement.

The alternative? Learning. Learning that embraces doing. The doing of speaking up, reviewing and be reviewed. The learning of relevant projects and peer engagement. Learning and doing together, at the same time, each producing the other.

If you want to learn marketing, do marketing. If you want to do marketing, it helps to learn marketing.

That same symmetric property applies to just about everything we care about.

To quote the ancient rockers, “We don’t need no… education.”

But we could probably benefit from some learning.

In the middle of all this doing, this constant doing, we might benefit from learning to do it better.