Ranching can be a wonderful, profitable family business. If managed well, it can yield a lifetime of consistently good returns.
Profitable ranching isn't the result of one brilliant idea, a great education or a lucky scheme; it's doing a lot of little things well, consistently and methodically, for a long time. Here are some practices that have proven profitable in my life and operation.
Each time you receive a tax increase notification, go to the assessor for an explanation. Locate any inconsistencies in separate parcels and request a reevaluation; check the tax code language and determine if building uses and sizes are correct; protest discrepancies not in your favor.
If the assessor won't listen, go up the ladder until an elected official will do something to reduce the burden.
Make sure you have an estate plan and a current legal will. Many individuals end up paying unnecessary taxes due to improper planning. For $2,000-$3,000, a knowledgeable attorney can set up an estate plan that may save your heirs several hundred thousand dollars in taxes.
Barter or trade agriculture products to add income with little or no accounting or taxation. Hay, raised-food products, services and cattle can be traded for fuel, pasture use, services, labor, dental or medical care, hunting and/or fishing rights, etc. The possibilities are boundless.
Just when many producers become successful, they decide to diversify and go totally outside their scope of experience. Of all financial failures, 90% come during times of rapid expansion and diversification.
Explore the potential of feeding byproducts. It can be very profitable for those who can locate product, but research the negatives.
Each cattle breed has its own special profit traits. Good managers will utilize those breeds and cattle that best fit their particular land and environment.
Always look for the best prices. Get new ranch insurance quotes every two to three years. Let your current carrier know the policy is beyond your budget, and give copies of the current coverage to three or more new companies for quotes.
Term life insurance on key owners or managers for the amount of the ranch mortgage will assure an easy transition in the event of death. One policy should be for the appropriate amount payable to the ranch and one to the deceased's spouse. In some cases, your estate-planning attorney may want the insurance to be in a trust.
Identify your off-peak labor seasons and utilize your employees for service income during those times.
If you supply your farm employees with housing, consider providing a monthly utility assistance payment rather than an open amount. Representing perhaps 80-100% of last year's average utility monthly bill, the employee will have money left over if he or she is frugal.
Also, while it seems prudent to allow an employee to run a few of his own cattle on the ranch as an added bonus, it doesn't work. The employee never fully appreciates the owner's true cost, and the owner never learns what all his true costs are.
Utilize your ranch equipment (only own as much equipment as is necessary) for diversified income. This might include livestock hauling, brush removal, firewood sales, fence building and hunting guides.
Shop around to get the best banking deals. Bank with as many different banks as necessary — one may be more favorable on vehicles, another on raw land, one on buildings and another on equipment.
Train your bankers to trust you. Send them clippings of positive news articles about you or your family and the business climate.
Every Jan. 1, send each bank you deal with a current financial statement. Present bank balances to the penny as of the current date. Appraise vehicles at or under real value. Every banker has automobile appraisal blue book access so get it right.
When considering a new loan, go to the highest-ranking loan officer or the bank president. Junior bankers don't have authority to cut interest rates, waive loan fees or make loans without conducting expensive appraisals.
Tell the banker you're shopping for a good loan and you're ready to deal. When he asks for financials, remind him that he has your annual Jan. 1 statement on file, and offer to provide the last three years' taxes. Be prompt about providing this and any information your banker needs.
Reevaluate your existing loans when interest rates are low; call your lender for a rate reduction to reflect the lower rates.
If he won't deal, contact a half-dozen area banks — large and small. Tell them you're shopping for better rates. Don't deal with mortgage brokers; go to banks.
Avoid add-on fees as much as possible. Points, origination fees, early payoff fees, fees to buy stock in the bank, charge for a 360-day year, inflated appraisal fees, inflated title search fees and upfront payments are all negotiable.
If banks aren't receptive, go private. Banks borrow money from conservative investors who would rather draw 2% interest and avoid risk. The bank then hikes the interest rate and loans it back to the public.
Bypass the bank and go directly to the 2% lender. If properly approached, this lender should prefer first-mortgage collateral on your ranch rather than a piece of bank “CD paper.” The private individual could receive triple the bank savings rate and the rancher gets an interest reduction.
Regarding collateral, don't borrow money on cattle. Most bankers don't understand commercial cattle values; registered cattle values scare them even more. Bankers normally won't loan enough money on cattle to justify the cost of their bad judgment when advising you to buy or sell.
Weaning calves at four to six months of age has proven to be more profitable than the standard seven to nine months of age. It's especially helpful on two-year-old heifers.
Rapid breed improvement and rapid generation turnover have long been touted as the basis for cow-herd production efficiency. On paper and in theory, it sounds attractive, but it fails more than it succeeds.
Anyone can have rapid generation turnover, but only a few herds have enough breed improvement per generation to justify disposal of bred mature cows. It would require 20% breed improvement per generation to justify retaining an open heifer rather than a bred cow. Check the 20% with your own data and you will keep a lot fewer replacement heifers.
A lot of money has been lost striving for 40- to 60-day calving periods. A short calving interval forces cows to be culled that aren't calving within the target time period. Each cow that breeds a day, week or month late is replaced with an open heifer whose first calf won't arrive for more than a year after the culled-cow's calf.
Use performance-tested bulls raised by honest producers. Calving ease is more important than extreme growth. There's no place for breeds or individuals that sire huge calves requiring birthing assistance on a regular basis. Easy birthing promotes prompt breed-back and extends cow herd longevity.
Most non-profit herds use too many bulls. A healthy, fertile 2- to 12-year-old bull can breed 60 to 110 cows in a 120-day breeding period. If a producer has a spring and fall calving season, a good bull can sire 120 to 200 calves in two, four-month breeding seasons.
Own one or two, truly great bulls that produce value-added, consistent calves. Leasing bulls is also an option.
If you calve in the spring, start just before the new grass comes on. It's easier on calves and saves cow feed cost. Many producers try to calve earlier (January or February) to wean bigger, heavier calves. It makes calving a tough, cold job.
Own or lease
If land can be purchased for $2,000/cow unit, it will cost $15.51/cow/month at 7% interest for a 100% payout in 20 years. If you expect cattle production to pay for land, purchase the land if the price is under $2,000/cow unit but lease if it's more than $2,000. Never lease land with less than a six-month cancellation notice, and always lease with a written agreement.
Always shop for the best deal. Contact every licensed surveyor in the county with bid specifications; bids can vary by thousands of dollars.
Always require surveyors to place steel pins at every perimeter bend, with 4-ft., white plastic pipe for visibility. You should be able to locate those pins easily 10 years later.
Irrigation for livestock pasture can be great during drought, but the costs of power for pumping, as water tables lower, may require you to refigure costs. Purchases of irrigation systems, labor, fertilizer, pumps and reseeding may prove that irrigation for pasture production will no longer be profitable in some areas. Anyone raising less than 150 bu./acre of corn using a center pivot, however, can raise cattle on the same land for more profit (this fluctuates with corn and cattle prices, of course).
Grazing land will increasingly become more cut up by subdivisions as urban sprawl continues. Ranch management will not involve buying large land areas that cash flow, but more a puzzle placement of leasing parcels that fit together in a grazing scheme on the outskirts of suburban areas.
Usually, there's a period of time between agriculture land sales and subdivision development when developers hold the land and take advantage of agricultural tax breaks. During this time, handy, enterprising producers who can put up with trespassers can find economical grazing.
The best place in the world to sell high-quality cattle is the U.S. If you can't sell profitably at home, don't bother trying to market abroad.
If a good part of your business depends on sales over the phone, have a separate line installed the Internet. If someone in your household has a 7-11 p.m. Internet habit, forget cattle sales unless you have a separate, dedicated Internet phone line.
Promote the beef business
We live in a world that thinks cattle stink, and milk is made at the grocery store. Thus, it behooves each of us to tell our positive story locally and nationally.
Press releases and positive event promotion must be a part of every success plan. If you don't create positive press information, the opponents of animal agriculture will write the story for you.
The International Texas Longhorn Association (ITLA) has a great publication called “Event Promotion Manual.” Send $3 to the ITLA at P.O. Box 122988, Fort Worth, TX 76121.
Overall, just remember to listen to new or different concepts or information presented by experienced people; reevaluating how you do things could bring new profit opportunities. When seeking advice on beaver trapping, ask someone with lots of pelts on the wall.
Darol Dickinson is general manager of Dickinson Cattle Co. a family owned corporation headquartered in Barnesville, OH. Dickinson has bred Texas Longhorn beef-type cattle for more than 35 years.