Market Advisor

How To Make Your Ranch More Profitable

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Want to know how you can make your ranch more profitable? The answer is benchmarking, a powerful tool designed to help ranchers identify key management areas for increasing their ranch profit.

Benchmarking involves comparing your herd’s production and economic factors against those of benchmark herds to identify your ranch business’s strengths and weaknesses. You can then capitalize on the identified strengths while working to remove the weaknesses, one at a time. As each business weakness is removed, total ranch profit tends to go up.

Figure 1 presents the results of my benchmark analysis of a Northern Plains beef cowherd. I compared the performance of a study herd with the 2009 averages of 119 Northern Plains Benchmark (ND FBM) herds. Benchmarks are provided on both a per-cow basis and on per-cwt.-of-calf-produced basis.

The measures where the study herd beat the average of the benchmark herds are the study herd’s business strengths. Those measures where the benchmark herds’ average beat the study herd are its potential weaknesses – the areas that need added management attention.

The first review of a benchmark study should focus on identifying the study herd’s business strengths. In the case of the study herd presented in Figure 1, three strengths stand out:

  • Total livestock costs (Figure 2) matched the economic efficiency of the benchmark herds.
  • Total overhead costs (Figure 3) almost met the economic efficiency of the benchmark herds.
  • Replacement cost (females and bulls) (line 32 in Figure 1) beat the economic efficiency of the benchmark herds.

These three business strengths need to be capitalized on in future years.

The second review of a benchmark study herd’s data should focus on identifying possible weaknesses.

For example, in Figure 1, gross income averaged $628/cow for the benchmark herds and $575/cow for the study herd – a $53/cow deficit for the study herd.

Meanwhile, the study herd racked up total annual costs of $689/cow – $46/cow more than the $643/cow average cost for the benchmark cows. Figure 1 suggests that most of the difference is attributable to winter feed costs.

Economic net returns were -$114/cow for the study herd, and -$15/cow for the benchmark herds – a difference of $99. Thus, the study herd generated $53/cow lower gross income and had $46/cow higher production costs than the benchmark herds. This accounts for the $99/cow difference in net income.

My research over the years suggests that a powerful measure of economic efficiency is unit cost of producing a cwt. of calf (UCOP). UCOP combines physical production, market prices and production costs into one single economic efficiency measure.

In this study, UCOP was $101 for the benchmark herds, and $116 for the study herd. Clearly, this study herd isn’t as economically efficient as the benchmark herds.

Since the foundation of economic efficiency is based on production efficiency, let’s benchmark the production efficiency of this study herd (Figure 4).

  • The first key production measure in Figure 4 is line 6 – weaning percentage of females exposed. It’s calculated at 85.3% for the study herd and 88.6% for the benchmark herds.
  • The second key production measure is line 10 – pounds weaned per female exposed. It’s calculated at 468 lbs. for the study herd and 504 lbs. for the benchmark herds.

In both cases, the calculated numbers suggest that the production efficiency of the study herd lags that of the benchmark herds. In fact, a detailed study of Figure 4 suggests two possible production weaknesses for this study herd.

  • The 13% calf death loss for the study herd helps explain the lower pounds weaned per female exposed. That, in turn, helps explain the lower gross income per cow. In actuality, one particular winter storm accounted for most of the calf death loss. It’s still a business weakness, but there’s little that can be done about it.
  • The second production weakness is the higher tons of hay equivalent fed/cow, which helps explain the higher production costs (Figure 5). Since feed cost/cow is the single, highest-cost production item (UCOP column in Figure 1), this ranch manager should focus his first year’s management attention on his winter-feeding program.

The data on winter forage fed is presented in Figure 5. I converted the total dry matter consumed from all forages to tons of hay equivalent (based on 10% moisture). The benchmark herds consumed 3.37 tons/cow of hay equivalents, while the study herd consumed 4.15 tons.

The key question is why the benchmark herd managers can feed less per cow than the study herd manager? Is the difference due to the ration quality, a matter of cow size, or some other factor?

Benchmarking only identifies the business weaknesses; it is management’s role to determine how to eliminate the weakness. But I would recommend that this study herd manager begin by utilizing the services of a nutritionist to explore the advantages of feed testing, ration balancing and least-cost ration formulation during the winter-feeding program.

An annual benchmarking analysis is a key management action for increasing your beef cow profits over the next few years. Try it! It’s really not that hard.

Harlan Hughes is a North Dakota State University professor emeritus. He lives in Laramie, WY. Reach him at 701/238-9607 or harlan.hughes@gte.net.

What's Market Advisor?

Harlan Hughes has spent a professional lifetime helping U.S. beef producers better manage the business end of their beef cow operations.

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Harlan Hughes

Harlan Hughes is a North Dakota State University professor emeritus and author of the monthly "Market Advisor" column that appears in BEEF magazine. He also consults and lectures widely,...

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