I recently received a note from a young friend (let’s call her Peggy Sue) who desperately wants to be a rancher. Since her childhood she has dreamed of working with animals. She has learned about marketing and economics. She’s studied hard and become a competent grazier. She’s done some hard work. But she’s getting a little impatient.
“So, I’ve been looking at real estate ads all over the country, studying up on productivity of land in different places, trying to look up how many acres per cow it takes and how much each acre costs, and I just can’t figure this thing out. How are people doing it? I mean, how are people able to buy a ranch and pay for it by raising cattle?”
My immediate answer was not what she had been hoping for:
“I don’t know of anyone in America who is buying a ranch and paying for it by running cattle. This doesn’t mean you can never be a rancher—you can be. But going forward, you will only be successful as a rancher if you accept the realities of the current world. You must be able to adopt a definition of ranch and rancher that fits in the economic universe in which you currently live. And guess what? This is true for every other new rancher, too.”
Sorry, Peggy Sue.
Past, Present and Future Ranching Models
Both my wife’s and my own family trees are well stocked with hopeful people who put together ranching operations 100 or more years ago. First was homesteading, and later on there was picking up the pieces from other folks whose homesteads had failed. There was hard work and sacrifice. Fundamentally, the ranches of 100 years ago were founded on using land to grow grass and cattle. Land values were tied intimately to productive value of the land and the then-current values of the cattle market. And so, our ancestors built successful ranches.
Those days are over. The conditions under which our ancestors operated no longer exist.
Today, properties do not become available through homesteading or abandonment, and in general, ranch land prices have very little relationship to productive value. Other influences such as hunting and fishing, scenic view, and privacy are the determining factors in land price. The model described above: working hard to build functional ranches by acquiring and paying for land with cattle, is apparently not possible in today’s world.
In our own little valley, even though there is virtually no influence by hunting or fishing values or high mountain views, the value of land has now risen to the point where pastureland prices are clearly irrational. Turns out, there are plenty of people with plenty of money who just want to live in the country, and they will pay whatever it takes. In the 1980s, I told Ranching for Profit guru Stan Parsons that my chief concern with becoming a rancher was that land in my area was selling for $5,000 per cow unit. Currently, that value is more like $20,000. At $20,000, the land overhead PITI (Principle, Interest, Taxes, Insurance) is something like $2,000 per cow per year.
It should be mathematically obvious that the current land value situation absolutely precludes the possibility of becoming a rancher, if you think ranching has to look like it did 100 years ago.
So, is it possible for my young friend to become a rancher? Absolutely. But that will require her to accept a different definition of what ranching looks like and of what being a rancher means.
Going Forward: Ranchers of the Future
A principle of motion discovered by Sir Isaac Newton over 300 years ago applies directly here, I think:
I believe the trends that we have witnessed in ranching over the past 100 years or so will likely continue. These trends will determine what ranching will look like going forward, and the possibilities for present and future ranchers.
Here are some current trends to consider:
I believe the price of land will continue to escalate and will have less and less relationship to productive value. This means new ranchers will need to seek models that do not include “buying a ranch and paying for it with cattle.”
Other Input Costs
The cost of oil, iron, processed feed, and other inputs will continue to advance relative to the value of traditional ranch products. Future ranchers need to design models that place less emphasis on these things.
Our industry has become highly dependent upon technology. Whether this is a good thing or not is hard for me to tease out. That said, ranches of the future will surely include more technology. Ranchers of the future should build business models that take advantage of new technologies. This is certainly critical for businesses that involve direct marketing.
There has been sweeping change in the relationship between urban and rural populations. Our urban neighbors are ever more interested in ecological issues, animal welfare, food safety, transportation, and on and on. Going forward, this trend will result in a higher degree of regulation of ranching activities on all fronts. Young ranchers should plan accordingly.
Diversity of Products and Services
Increasingly, ranches have become more and more involved in producing things beyond just meat on the hoof. Young ranchers of the future should consider business models that include providing even more diverse products and services. Growing hamburger is a low margin enterprise. Providing sites for weddings, hunting, vacations, etc. can be very high-margin enterprises. Like it or not, this may be what opportunity looks like in the future.
The Decline of the Rugged Individual
It seems to me that image of the rancher as a rugged, independent operator has always been a bit overblown. My great grandparents (and every generation since) were highly dependent on cooperation for survival. Going forward, I believe ranching will look more and more like other industries, with intensely complicated, inter-dependent systems of producers, suppliers, marketers and customers. Ranches will offer a wider and wider range of services, and they will serve a wider range of customers. No ranch will be an island unto itself.
(The exception to this will be the ranches that are owned outright by folks who have un-limited assets, and so, can do anything they want. These may be ranches, but I question whether they are Ranch Businesses.)
The Big Question: To Own, or Not to Own
Oregon author William Kittredge wrote a fine biography called “Owning it All”, a story about growing up in the big ranch country of the American West. I think young ranchers should consider exactly the opposite course: Owning almost nothing. And here’s some of what that might look like:
Owning portable fencing, corrals, and water equipment. Renting or leasing grass that land owners don’t want or don’t know how to manage. Same goes for livestock. Selling your expertise and skills as a grass and property manager. Becoming expert in managing the accessory enterprises that ranches will contain in the future: tourism, education, entertainment, recreation, sport, etc. Note: be sure to make enough profit to fund your own retirement, as you will not be accumulating any real estate.
I could be wrong about all of the predictions above. Maybe land costs will magically revert to align with productive value. Maybe young ranchers will be able to enter the industry, buy some land and livestock and make out just fine. Maybe. But I doubt it. I think young ranchers would be well advised to conjure up a business plan that includes the parameters and limitations we now operate under, and think carefully about what the future might look like.
Best wishes to Peggy Sue in the coming year. Oh, and to the ranchers of the next 100 years, too!
Happy Grazing, Happy New Year, and a Happy Future
Stay tuned for future articles with examples of how young farmers and ranchers are building their businesses.