Managing for Margins Makes the Difference Every Time

The other day, the old journal that I attempted to keep our farm records in, back in the day before computers, turned up in some stuff that had been stored away for many, many years. As I sat there in wonderment and read some of those numbers it dawned on me that as much as we want to believe things have changed so much, the only difference really is the numbers have gotten larger.

I think it illustrates more than ever that the difference between making money and not making money in livestock production is the margin. In other words the difference between what goes out and what comes in.  And what determines that in large part is the system in which the operation functions.

Recorded in this journal is the price of hog feed in 1964. We bought hog feed from a man above Zachary who ran a feed mill to feed his dairy cows but also sold mixed feed. A ton of hog feed sold for $65.00. That was really cheap, don’t you think, but we sold 7 hogs for a net of $118.91.

We had bought a Duroc sow with 9 pigs from a guy in Miss. These were high dollar breeding hogs, so this sow and 9 pigs cost us $125.00. We bought the sow and pigs in December and sold 7 of the litter in March for $118.91. By that time we had spent $166.00 on feed, but by our count on the day we sold the 7 hogs we had 900 pounds of feed on hand. By Sept Old May, the original sow, had delivered 16 pigs in a storm and we managed to save 10. The two gilts that we had kept out of May had delivered 9 and 7 pigs and we saved 14 of the 16. So we had begun to believe that this would all work out.

So why are we not in the hog business today? The margin absolutely disappeared. Feed and all the other costs went up and the price of hogs began a slow and gradual decline. This is from memory but I believe that prices went as low as $0.08 per pound in other words a 200 pound hog would bring $16.00 before commission was taken out which would be about $0.80 so we would get $15.20 per head.

The lesson I learned is this:

Learn to manage what you can control.

In the case of the hog business we could not control the cost of feed nor could we control the market.

In October of 1977 we bought a herd of dairy cows and were in the business until May of 1990. Again one of reasons among many that we are not milking cows today is that the margin became very, very thin. In the fall of ‘77 and spring of ‘78 feed was selling for $125.75 per ton. We were getting $11.63 per hundred weight. for our milk. Feed costs were running about $4.74 per 100 or to put it another way about 41% of our disposal income was being spent on feed.

At this time there were 34 or 35 dairies in our area, this includes East and West Feliciana as well as East Baton Rouge parishes. Today, I believe, there are 3.  What happened? It is no mystery. You cannot build or maintain a sustainable production system with unsustainable practices.

Most of us in livestock production are in the commodity market so we are price takers which means we take what the market offers. And the most common mistake that has been made in the past was the belief that you could produce your way to success. Wrong. It was wrong in the 60’s, it was wrong from 1977 through 1990 and it is wrong today. Knowing this is the reason that we embraced Management-intensive Grazing (MIG) and rejected all that we had done before. Simply stated it did not work.

How Do We Raise Cattle Today?

And finally this brings us to today. Our creed, if that is the right word here, with our little operation is to spend the least to get the most. If grass and water and minerals won’t get it done, it don’t get done. We use very little hay and no feed at all.

Our little outfit consists of 54 acres with about half in woods. We figure that we use about 20 acres for pasture. That is what we buy seed and fertilizer for when we plant ryegrass in the fall. In the fall of 1996 we begin to build our fencing system and in January of 1997 we bought our first set of rye grass calves to graze here. We planted 8 acres of grass and bought 38 calves. In the spring when we sold the calves and figured our income from this sale, we had made enough to pay for the cattle, all of the ryegrass seed, the fertilizer, enough to pay for the fencing and energizer that Wedge had sold us, and had $800.00 left. In other words, after we had paid for everything we cleared $21.00 per head.

I figured those numbers until I could quote them from memory. There had to have been a mistake made somewhere in my calculations. This just could not be right! But it was, and if we had to continue in the livestock business without the use of Management-intensive grazing we would quit.

Since that first set of calves there have been between 650 and 700 head of cattle of some description grazed on this 20 acres of grass.  We have grazed heifers on contract for other producers. We have grazed and sold our own calves on video. We have grazed calves that were bought at the sale barn and resold there and grown cows on a contract that paid by the day per head. We have bought poor cows and grazed them from late spring and resold them in early fall. The fact that grass will grow makes all of this possible, if it is managed correctly, and without question MIG makes it possible to manage correctly.

How We Manage

Now one of the first things that we learned is to not pay too much attention to some of these numbers that you hear or read about.  For example: we heard that until you reach or surpass 35,000 lbs. of live weight per acre you are not seriously grazing. That’s not right. You can be serious about grazing with 2 head. When you begin to learn the basic principles of MIG you will also learn to apply those principles to your particular situation.

The operating principle that drives our system is very simple:

The most cattle on the smallest piece of ground for the shortest amount of time.

Our plan is to move cattle every 24 hours at least and in some instances we will move 3 times in 24 hours.

You will make mistakes, we all do, but hopefully you will learn from those mistakes. That is the reason that I say do not pay too much attention to some numbers pertaining to the numbers or amount of live weight per acre that you may hear quoted. The second group of stockers that we grazed we loaded the paddocks with too many calves. It was by no means a failure, but the gain per head was not what it should or could have been because the forage production was not enough to provide the necessary nutrition to get that extra gain. So the lesson learned was that it is very hard to get a large number in gain per head and a large number in gain per acre on the same set of cattle. Alan Nation uses the example of a see-saw if one is up the other is down.

We have found that every year is different but the constant is the grass, learn to maximize what you have to work with, this year may not be as good as last year but get all you can out of what is there. Our business is not sustained by big production numbers it is sustained by those margins that we talked about earlier so it would probably be very helpful to remember this:

The formula for profit is: Margin x Volume – Expenses

In livestock production there is no better way to create margin than to turn cattle to a paddock of green, growing grass and allow them to feed themselves.