Cash Flow

A lot of people tell me that they want to be “debt free.” They are tired of making big interest payments on land, livestock, machinery and their operating note. They have had too many sleepless nights worrying about making the next payment. They believe that if they didn’t have to borrow money they would be more profitable and financially secure.  

Free Money Can Be Expensive

Letting government programs dictate your management and set priorities can be costly. The most obvious example is probably the emergency feed program. In drought impacted areas, this program incentivizes ranchers not to destock. The result has been severe overstocking during drought, when the impacts of bad management are intensified.

For decades we’ve been encouraged to evaluate the efficiency of production by focusing on weight weaned per cow. Now some are arguing that the critical measure should really be pounds weaned per acre. But neither measure is very useful.

This is an exciting time of year for me. Thanksgiving is awesome, and I have a lot to be thankful for. But that’s not the excitement I’m feeling right now.  The excitement comes right after calves are weaned and cows preg-checked. Why is that so exciting? (I’m glad you asked.)

An Executive Link™ member brought a map of his ranch to his EL board meeting to show his board the layout of the grazing cell he planned to build. He enthusiastically explained that the cell would help him keep graze periods short while ensuring pastures got the rest they needed. It would increase stock density and improve utilization. Under the current management there were areas his herd (400 cows) never grazed. He said that once the cell was built he’d immediately increase the stocking rate by 20% (80 more cows).

One of the questions I often get at workshops is, “How many of the people who go to the Ranching For Profit School are actually doing it?” It’s a reasonable question, but it depends on what it is.

Wally Olson is a rancher from Vinita, Oklahoma. He has a profitable cattle trading enterprise based on the Sell/Buy marketing principles popularized by Bud Williams. At the foundation of Wally’s operation is an understanding of the value of grass and the value of gain. Wally is quick to point out that he doesn’t limit his thinking about “gain” to weight gain. He adds gain by taking the stress off of animals, buying small groups and forming them into truck-load sized groups, sorting to increase the uniformity of groups, moving animals geographically to areas where there may be a higher demand for a particular class of animal, etc.

He is also quick to point out that just adding weight does not necessarily add value. At a recent Executive Link meeting he showed members how to calculate the value of gain and discussed its significance.

An email I received explained,

I have set up my ranch with money from other businesses. I watched one too many John Wayne movies, admittedly – but I am also a business man. We are not adding any value to our hay by putting it through a cow. Pasture rents are $1.10 per pair per day. At current cattle prices I’m having trouble answering the question “Why do I own a cow?” especially when I consider the opportunity cost of 500+ cows!

My response:

When Pigs Fly

An Executive Link member from Nebraska sent me an email that could turn the grazing world upside down. He wrote to say that he’d crunched the numbers and his figures showed that feeding hay was less expensive than leasing pasture. He concluded that it was more profitable for him to feed his own cattle hay in the feed lot and bring in outside cattle to custom graze on his pastures than it was to graze his cattle on his ranch.