During the 1990s, I helped implement Integrated Resource Management (IRM) in the Northern Plains. Part of this consisted of going from kitchen table to kitchen table analyzing beef cow herds, one at a time. Since retiring from North Dakota State University in 2000, I've continued to provide IRM Cost & Return Analyses as a private consultant, still one herd at a time.
While the primary purpose is to provide individual managers with an economic cost-and-return analysis of their herds, these individual analyses can be data based and statistically analyzed to identify profit-enhancing relationships. Some of the following conclusions are based solely on personal observations while others are based on the statistical analysis of my IRM Beef Cow Herd Databank.
Running Vs. Managing Cows
In 15 years of analyzing cow herds, I've found major differences between high-profit and low-profit herds. The primary difference is that high-profit-herd managers pay attention to more details relating to their herds. Low-profit-herd managers, on the other hand, tend to track very little, if any, detail.
High-profit managers invariably use production and business management records to compile and summarize herd and business detail. These managers are basically “managing the business of beef cows.”
Other farmers and ranchers I visit tend to monitor little, if any, herd or business data. These ranchers are just “running beef cows.”
“Managing the business of beef cows” requires the routine preparation of production and business records followed by detailed analysis of those records for potential profit-enhancing signals. This analysis is very integral to these managers' management systems and is where the management power of intensive management is generated.
The success of these top managers seems to lie in two key areas. First, management progress is routinely measured by these records. Second, their management strategies are developed from analysis of these records.
It appears that business success in these high-profit herds tends to hinge on the fact that production and financial progress is continually monitored and measured. These managers practice the old adage that “you have to measure it to manage it.”
Four Management Systems
As I've interacted with beef-cow producers across the Northern Plains, and now the Central Plains, I find beef-cow producers generally fit into one of four distinct management systems. Each is categorized by the amount of detail the producers are using to monitor their herds.
First, are the farms and ranches that “run cows.” The only data these managers save are sales slips from selling calves at auction.
Second, are the operations that “weigh calves,” perhaps even individually. They also have sale-barn slips from selling their calves.
Third, are farms and ranches that “individually identify each cow.” The herd inventory is a perpetual inventory and every female is individually accounted for.
Each female in that perpetual inventory either has a calf or doesn't have a calf. If she has a calf, the calving and weaning dates are recorded. If she doesn't have a calf, the reason is recorded.
The calves are identified, weighed and even recorded back to each cow. In fact, a cow may well have all her lifetime calf weights recorded back to her. That cow's production is even indexed against other cows in the herd with a most probable production assessment (MPPA) index. These ranchers also weigh calves and keep sale-barn slips.
And, fourth, are farms and ranches that “manage their cows by unit cost of production (UCOP).” That is, by the cost of producing a cwt. of calf. These ranchers know which cows are their high-cost-of-production cows and which are their low-cost-of-production cows.
All cows are individually identified. Calf weights are recorded back to each individual cow. Each cow is also indexed with her contemporaries. And yes, these managers also have the sale-barn slips.
When I visit these herds, the manager typically spends the first hour or so showing me the herd details they're monitoring. Then, we get go out and look at the cows. Those detailed records, along with the visual appraisal of the cows, speak volumes. These herds are truly intensively managed herds.
Detail Shrinks UCOP
When you line up these four management systems, you find that, as the management detail increases, UCOP tends to decrease. My statistical analysis shows that as UCOP goes down, profits tend to go up. My lowest UCOP herds are my highest profit herds.
UCOP gets its management power by measuring both production and economic costs. It's really a ratio of a herd's total production costs divided by the total pounds of calf produced. Minimizing UCOP, as a ratio, is very different than minimizing costs per cow. Most ranchers fail to recognize this subtle but critical difference.
No other production or economic variable is as highly correlated with herd profit as UCOP. Yet, most ranchers don't measure or monitor their UCOP.
I sense some ranchers I've met with around those kitchen tables are frustrated with my continuous preaching on UCOP. They often say, “Harlan, my costs are as low as I can get them! What are you talking about?” But what they're really saying is: “Given my management system, my costs are as low as I can get them.”
What I'm talking about, however, is employing a different management system.
Let's look at the four management systems, each represented by the individual steps in Figure 1. Note that each step on the chart slopes slightly downward and to the right. This serves to demonstrate that, given the management system, some beef-cow producers can be operating at a lower cost level than other ranchers within that management system. I did, indeed, find this to be the case in my kitchen-table analyses.
I have no problem with producers telling me their costs are as low as they can get them, implying that they're on the lower right end of one of the management steps. The real opportunity for managers, however, is to move to the next lower-cost management step on the chart, which means moving to a lower-cost management system.
The key to increased business profits is through changing your management system.
Harlan Hughes is a North Dakota State University professor emeritus. He lives in Laramie, WY. Reach him at 701/238-9607 or firstname.lastname@example.org.