When we talk to American ranchers, we’re always inspired by their passion for the land and the cattle they produce – but there’s another P-word that ranchers must focus on to ensure their survival and the ability to pass their ranch on to the next generation: Profit.
If a ranch isn’t profitable, it’s just an expensive hobby. Successful ranchers understand that their ranch is a business and must be run with a focus on profitability.
Sale price is only the beginning
It’s easy to get caught up in thinking that market price is the main driver of profitability. The problem is that market price is something that is beyond the control of most small- and mid-size beef operations. There are ways to take advantage of seasonal price fluctuations, and risk management tools are available, but most US producers are price-takers, at the mercy of supply and demand determinants of final price.
Net profit is the result of revenue minus direct cost and overhead expenses. This means that there is another way to increase profit on a ranch: controlling costs and overhead expenses. These “profit drivers” are important to understand and manage if your ranching business is going to be heading in the right direction.
Top profit drivers for beef cattle enterprises
Important drivers of cow-calf breeding operation profitability include:
- Feed costs
- Pregnancy rate/turnover rate
- Stocking units per acre
- Gain per acre
- Weaning rate
These profit drivers aren’t concerned with things you can’t control – such as rainfall or market price – and they are all directly related to one goal: optimizing the amount of beef produced on your ranch.
The importance of benchmarking
But how can you as a producer gain control over these very important profit drivers? One way is a tool known as benchmarking. It compares your profit-drivers against industry and regional averages and is used to set operational goals. Successful producers continually benchmark themselves to stay ahead of the game. By measuring your profit drivers against similar producers in your state or region, you can find weaknesses, excessive expenditures, and improve your gross and net margins.
Look to local extension or farm business management programs to access benchmarking data for your region. Benchmarking studies have shown common practices of the most successful ranchers include:
- higher stocking rates, and running more animals per unit of labor
- monitoring costs of production including feed and supplies
- objectively assessing pasture performance, forage production, and recording grazing days
- recording animal performance, monitoring weight gains so you understand how your cattle are performing.
You can't manage what you don't measure
It can all sound a little dry, but understanding profit drivers and quantifying them only goes part way to improving performance. The knowledge ranchers bring to the table can’t be overvalued.
An accountant scanning an Excel spreadsheet might think increasing stocking rates to match region-best breeding operations is simple arithmetic. Tom Blackford, an Australian AgriWebb user and the farm manager at Eddington, in southwestern Victoria, realizes it’s a little more complicated.
He runs over 1,000 head of Angus cattle with 10,000 sheep on the property. When we spoke to him about his plans for the operation, he told us he is looking at increasing the stocking rate – which will generate economies of scale – but isn’t rushing blindly into it.
“Finding the sweet spot is something we haven’t reached yet as we are in the early stages of a pasture development phase at Eddington,” he admits. “Obviously, you won’t get ‘more beef from pastures’ if there isn’t enough pasture for your cattle.”