When considering war on cost, the best place to start is overhead.
It’s probably apparent from my previous articles that I have a strong bias toward operational simplicity. When considering war on cost, the best place to start is overhead.
From ranches I’ve seen, here’s how I’d describe a low-overhead ranch. Let’s assume that a husband and wife with children still living at home are running 600-800 cows with a good number of the calves held over to run as yearlings. Some will be kept as replacement heifers and some will be sold.
This family operation has a place to keep its tack, some tools, some salt and mineral and only a few other things. Sometimes, because of past management, they have buildings that are unused or in some state of disrepair or serve as a place to keep a modest amount of equipment. The operation has a good, but simple, cattle working facility; a pickup they probably bought used; and a stock trailer.
There are probably a few, and only a few, horses, plus a four wheeler or a small, fuel-efficient utility pickup to do most of the checking of fence, water, salt and mineral, and for general run about. There will be no calving barn or fancy shop (unless the ranch is part of a crop farm) or other out buildings.
The less stuff you have to repair, maintain or depreciate, the simpler and more profitable you will be. A few tools, buildings and some equipment are needed. If a high level of dependability is needed, then spend enough to get high dependability. Tools you use frequently should be high quality and dependable so that you can count on them to work when you need them. When a breakdown of critical equipment or tools occurs, the downtime can sometimes cost more than the replacement or repair.
Four ratios that drive improvement
If you start with only the bare necessities for overheads, which include labor, you will have to stay fairly simple with everything else. With overheads low, I like to then concentrate on several ratios that will drive improvement in profitability:
• Cows per person is a very important determinant of profit. One person taking good care of 800 cows has to be more profitable than one person taking care of 400 cows, even if you use all the advanced techniques to supposedly improve profit.
Don’t forget that those techniques have a cost associated with them and you need to be sure there is a positive cost/benefit ratio. You should also determine if a given technique is the best way to invest your dollars.
You will also find that, except for land, many of your costs align more closely with the number of people on the payroll than with the number of cattle you have. So, if you can simplify and enable one person to take care of a lot of cattle, you will be more profitable.
I know very good small operators who have a job in town with good benefits and still run 100-200 head of cattle with very simple operations. And, they do a good job of it – not using the day job to subsidize the cattle hobby. They regard their cattle business as a fun and profitable business that adds to the family income and lifestyle.
Simplicity is the great enabler allowing you to spend your time doing that which will bring the most addition to profit. By the way, I know of a number of ranches that strive for and achieve a ratio of 1,000 cows, or cows and yearlings, per person. Most of them use contractors for some of their fence and water work.
• Acres per cow is another important ratio. Good grazing can reduce the acres required per cow and increase the number of cows on your ranch. However, it will usually require some water development and fencing.
You will think it can be done less expensively by doing it yourself, which is true if you have the time. But if you need to add a person to the payroll, be careful.
It is very probable that using a contractor will be more cost effective in the long run. While a contractor’s rate may seem terribly high, the contractor brings his own tools and equipment and only gets paid when on the job. However, if your operation is simple enough, what do you have to do that is more important and cost effective than fence and stock water?
I think that, in many cases, the highest return to our labor comes from those activities connected to grazing management – planning, fencing, water development, planned cattle moves from paddock to paddock, etc. If you set it up with good planning, it can also be simple and fun.
After about 10 years and several hundred miles of simple electric fence, I once asked a group of my coworkers if they would rather have barbed wire or electric fence to manage our grazing. There was near-unanimous support for electric fence because it costs a lot less, is easier to build, and there’s very little maintenance. Cattle don’t like to rub on a hot fence.
• Fed feed vs. grazed feed is a measure I’ve discussed in previous articles. Operational simplicity says to not feed any more than is absolutely necessary. Thousands of years of natural genetic selection developed cattle to tend themselves. Sometimes, it seems like we try to mess that up.
When you do have to feed, you might want to buy the feed or have someone else harvest it on your ranch. If you buy the feed, you’ll increase your carrying capacity without adding personnel. If you have someone harvest it, they will be paying for the expensive equipment except for the few days of a year that they are on your ranch.
Another advantage that comes with buying hay is its fertility value. Naturally you must feed it where the manure will add value to the land on which it’s applied. The fertility value in a ton of hay is significant.
Good cows should not have to be either fed or handled much. Our job is to ensure the stocking rate is appropriate and the livestock have grass to graze, good water to drink, and that they are in the right pasture to allow grazed plants time to recover and be highly productive. Replacing hay feeding with good grazing is powerful simplicity.
• Revenue per acre has an important relationship with simplicity and will be addressed in another article.
Burke Teichert, consultant on strategic planning for ranches, is retired as vice president and general manager of Deseret. Contact him at firstname.lastname@example.org.