In Alice in Wonderland, Alice asks the Cheshire Cat, “Would you tell me, please, which way I ought to go from here?” The Cat responds, “That depends a good deal on where you want to get to.” Alice tells him, “I don’t much care where.” To which the cat responds, “Then it doesn’t much matter which way you go.”

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The prevailing paradigm in ranching is that profit in the cattle business is dependent on the market. There’s no doubt that higher cattle prices improve the profitability of most ranches, but price gets too much of the credit and too much of the blame for ranch profitability or the lack there-of.

To show you why, we need to break things down a little.

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In a 2013 ProfitTips column I wrote about a young couple who, after attending a Ranching For Profit School, came home to meet a brick wall of resistance from the folks. The couple wrote: They were very upset when we showed them the numbers and compared them to the RFP benchmarks. We proposed several alternatives but every idea only seemed to anger and frustrate my folks. A few more years and I’m sure that will change, or is that what every younger generation rancher tells themselves?

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Have you ever heard or read something that made you wince? A little voice says, “Just let it go,” but there is something in you that just won’t obey. I received an email like that from an organization purporting to help farmers and ranchers become sustainable.

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Dear Mr. Kringle,

I am concerned about the sustainability of your operation. Your workshop may be productive, but that doesn’t mean you are profitable. Your production doesn’t seem to create any significant income. I’m also concerned that your operation is completely out of synch with nature. The nutritional demand of your reindeer when they fly must be incredible! And you demand that peak performance at a time of the year when forage is least available. I can only imagine your winter feeding costs!

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Last week I shared suggestions that Executive Link members made about what to do with the increased profit many ranchers are experiencing these days. They had a lot of good ideas, but I think the best one may have been to take this opportunity to restructure the operation for profit, whether prices are high or low.

Ironically, the best time to make change is when we don’t need to make change.

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Record cattle prices have increased the profit (or reduced the loss) for ranchers throughout North America. If you use the Ranching For Profit definition of profit many, are still operating at an economic loss (for more on that click here). With increased income you are probably facing some important decisions. Your accountant may advise you to prepay 2015 expenses or to buy new equipment or vehicles to reduce your profit and avoid paying taxes. This advice may have short term advantages, but often leads to a less profitable business.

At our recent round of Executive Link meetings I asked members to create “To Do” and “Don’t Do” lists of things that smart ranchers should consider doing or not doing with the increased income.

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When the gross margin per unit of an enterprise is healthy, increasing turnover in that enterprise will increase profit. The challenge lies in finding the capacity to add more units without increasing overhead costs. When we think about increasing turnover we usually think in terms of how many units we can run on the land we have, or what we’d have to do to get more land. Let’s see if we can stretch those boundaries to consider other alternatives for increasing turnover.

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The Three Secrets For Increasing Profit: Part 2: The Unit The most basic unit in livestock enterprises is the animal. Knowing your gross margin per steer or cow or sheep […]

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Look in any farming or ranching publication and you will find articles about cutting feed costs and improving production efficiency, but you won’t find anything about reducing land, labor and other overhead costs. There are two reasons for that. First, no one stands to make any money when you cut overheads (except you). Second, most people believe that overhead costs are “fixed.” At the Ranching For Profit School we contend that there is no such thing as a fixed cost. Thousands of our clients around the world have increased profit by radically reducing their overheads, proving that overheads don’t have to be “fixed.” That’s an essential paradigm shift if you want to ranch for profit.

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