Here’s the One Number That Correlates Directly to Profitability

Dallas Mount has a question: “If you could only show me one number on your ranch that directly correlated to the profitability of your cow-calf operation, what would that number be?” He says that traditionally folks assume the answer is weaning weight or price received for calves. But it turns out they’re wrong.

The answer is hay fed per cow. “If you feed cows for 6 months a year,” says Mount,” it is going to be very difficult to compete on profitability with a ranch that feeds no hay or only storm feeds for two weeks a year on average.”

Mount defines profitability as gross margin per cow – “the cow-calf unit that has the most money left over from the value of production after paying direct costs.” Feed is often the largest direct cost, so there is often opportunity to reduce feed cost without sacrificing too much production.  It is a balancing act.  We don’t want to ‘starve a profit’ into a cow, but a cow herd that requires large amounts of fed feed is very likely to be unprofitable.

“Reducing or eliminating hay feeding has other benefits beyond improved gross margin per unit,” Mount adds. “The overheads required to run a business that needs piles of hay can substantially change when you get the hay out.”

According to Mount, the average ranch feeds hay for about 120 days a year no matter where they live. But in every region, there are also examples of ranchers that have cut hay feeding well below the local average. He recommends that, “If you can’t reduce hay feeding to less than 1 ton per cow most winters, then perhaps a year-round cow herd shouldn’t be part of your enterprise mix.”

Mount admits that there are always exceptions to the rule. “I’ve seen highly profitable ranches that feed quite a bit of hay. I’ve seen ranches with very low hay use that have poor production numbers and disappointing profitability. However, as a general rule, I standby the high correlation with hay feeding and profitability. If a cow-calf enterprise is going to be a part of your ranch and you want to be profitable, I strongly encourage you to design a system that eliminates hay feeding if possible or uses it only as a “break glass in case of emergency” strategy.”

As first an instructor and now the CEO of Ranch Management Consultants, Mount specializes in helping farmers and ranchers find the profit drivers of their operations. At the Ranching for Profit Schools some of the strategies they explore include:

1. Matching stocking rate to year-round carrying capacity.
2. Matching the production schedule to the forage cycle.
3. Having enterprises compatible with the environment.

If this has you thinking, you can learn more here. Everyone I know who has attended a Ranching For Profit School says it’s the best investment in their business they’ve ever made.