With historically high prices comes an equally historic situation—shifting our mental gears to manage for prosperity rather than managing to avoid a wreck.
I’ve heard day-to-day management in ranching described as crisis avoidance. While that’s kind of a pessimistic description, it does have a grain of truth to it, if only that, on a daily basis, there are a lot of things that have to be addressed or they can cause real problems down the road.
Livestock managers are pretty darn adept at planning for potential problems, whether it be drought or the markets; after all, we’ve had plenty of practice, what with always managing risk and working to reduce costs in an effort to be in a position to handle the negatives that come down the road. One rancher told me that he is always making decisions to avoid a negative—his vaccination program is geared to prevent an outbreak of a problem; his nutrition program formulated to avoid a failure that compromises the immune system, reduces growth, or hurts reproduction; his risk management efforts designed to avoid the pain associated with a market downturn; even his genetic selection parameters are designed to avoid calving difficulty and market discounts.
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His point, in essence, is that he is great at managing for difficult times and avoiding problems; his mindset is that he is always preparing for potentially difficult times. However, his most interesting point is the difficulty he has managing for good times. Of course, certain aspects of ranch management are universal—managing costs and managing risk are equally important in good times and bad times alike.
However, with better profitability also comes greater opportunities and far more choice, which means management decisions must have more flexibility because of the bigger impacts on profitability down the road. Another rancher who is a really good thinker and very astute financially boiled it down pretty simply. This year, he is trying to raise a calf for less than $800 and sell it for more than $1200. If he accomplishes that, his operation will have returns equal to Apple. That’s a pretty cool thought.
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