We need to treat our farming operations as a separate part of the business.
Somewhere along the line we've come to believe we have to farm in order to ranch. We work all summer putting up hay and work all winter feeding it to our cows. Many ranchers are discovering they don't have to farm and have found that eliminating farming may help increase profit.
Farming may be a profitable part of a ranch business. But to find out, we need to treat our farming operations as a separate part of the business — even if all of the products of our farming activities are fed to our livestock.
Take, for example, a rancher who grows hay. Hay that he produces and feeds to his livestock should be “sold” to the livestock enterprises at fair market value.
By deducting the direct costs (i.e., seed, fertilizer, herbicide), we can calculate the gross margin of the hay enterprise. We should then deduct all the equipment overheads that accompany our haying operation from the hay enterprise gross margin. This result is the profit (or loss) of the hay “division.”
In “Three Secrets For Improving Profits” (BEEF, June 2000, page 8), I described how to calculate the gross margin for a livestock enterprise. The hay fed to our livestock should be counted as a direct cost when you calculate the gross margin.
Few equipment overheads are usually related only to livestock. If you have some, like depreciation on a stock truck, they should be deducted from the total gross margin of the livestock division to determine its profitability.
When comparing the profitability of the livestock and farming divisions, some ranchers discover they would be more profitable if they started grazing their hay ground and purchased hay from other growers. In other words, let somebody else farm so you can ranch.
Growing Costs Vs. Feeding Costs
There are two issues here: the cost of growing hay and the cost of feeding hay.
Our cattle are nutritionally dependent on the hay we provide because the production cycle on most ranches is out of sync with nature's forage cycle. That's not to say we don't have to feed hay to cows in some environments (though it might be wise to question the profitability of raising cows in those environments), or that hay feeding is always unprofitable.
Sometimes it is a profitable practice, but sometimes it's not. The fact is, most of your neighbors have never put pencil to paper to challenge their management, so they really don't know.
Conventional wisdom says ranchers must feed hay, especially where there's snow. But, there are alternatives. One alternative practice touted by many, including some universities, is swath grazing.
With swath grazing, forage is cut and laid down in rows. The quality of forage in the swaths under the snow can be quite high. It's more efficient than grazing standing feed, especially when swaths are strip-grazed.
Swath grazing eliminates some of the costs of making and feeding hay. The problem with swath grazing is it doesn't eliminate all of those costs. We still have equipment and labor costs of cutting fields and moving the cows from swath to swath.
Stan Parsons once told me going halfway on something like this is a little like learning to water ski and telling the boat driver to “go slow.” We don't go the whole way because the idea of not farming in order to ranch is new to many of us. But to really benefit from the potential breakthrough, we need to go all the way.
Does this mean you shouldn't have any hay on hand? Even those ranchers who have eliminated hay feeding from their operation nine years out of 10, would be well advised to have a stockpile of old bales as an insurance policy for that one bad year.
Sadly, many ranchers structure their entire business in anticipation of that bad year. That strategy often burdens them with costly practices for nine years waiting for that one in which those practices are needed. That's the purpose of insurance.
The bottom line is that you don't have to farm to be ranching for profit.
David Pratt of Ranch Management Consultants teaches the Ranching for Profit School. For more information visit www.ranchmanagement.com, contact him at 707/429-2292, or e-mail email@example.com.