Millions of dollars in bad decisions are made every year as ranches manage through dry-times. Not to mention the damage to pasture heath that occurs through delayed decision making. Primarily, hope of moisture to come and emotional attachment to breeding stock, drive the procrastination of necessary decisions. Having a well-developed drought plan is something that can prevent this, but it must be done in advance of the drought.
Let’s walk through the components of a drought plan.
What is the critical date when, if you haven’t received moisture, you know you are in trouble?
What actions will you take?
Maybe you already know what class of animals will be the first to go when you hit those early trigger points. Or, maybe the trigger points call for some economic analysis to identify which animals are most likely to have the greatest gross margin and you liquidate livestock based on the analysis. The point is, you must identify the classes of animals or the method by which you will identify those classes ahead of time.
For the long-term drought strategy
Consider your stocking strategy relative to the drought risk. That’s a fancy way of saying don’t stock the ranch up to your eyeballs with animals that you love, if you ranch in a drought prone environment. Have a significant percentage of animals in a “flex” herd or “disposable” herd that are easier to ramp up and down as conditions warrant. For many parts of ranch country, we recommend 40-60% of the total carrying capacity on the ranch be devoted to a flexible class of livestock.
For it to be a real plan it must be written and communicated.
You are more likely to hold yourself accountable to it when it is written and shared. Too often we let emotions drive this decision. When in a drought it is a position of power to have grass and capacity for animals, when everyone else is overstocked and desperate.
Bail outs are not the answer!
Having a drought plan that relies on government programs and hay feeding will likely lead you down a path of disaster. Most government programs are structured to reward the least proactive operators. Hay feeding as a path to enduring the drought is a dangerous choice. For one you don’t know when the drought will end, and it is sure to take money out of your pocket with little promise of return. I won’t say it will never work, but it is safe to say drought feeding has hurt more ranches than it has helped.
Be ruthless in challenging your emotional attachment to your animals.
I won’t deny that having a home raised cow herd has advantages in experience and adaptivity. However, reluctance to liquidate cattle that we love is like a ball and chain around the neck of many ranchers.
List each class of animal and what they are worth in today’s market. Total each class separately and then total the market value of all livestock. Write out a check on a piece of paper to yourself for that amount, let’s say it is $350,000. Now pretend you have $350,000 in the bank and your ranch is in its current condition in terms of moisture received and forage in the pastures. How would you deploy that capital to create the business you want? Would you buy those animals? Maybe only some of those animals? To what degree would you stock the ranch? If you wouldn’t buy them at today’s price then this is telling you to sell them at today’s price. This exercise can often help you think more clearly and not be so stuck in “this is what I have” thinking.
Drought planning is pretty straightforward.
That doesn’t mean it is easy. A good drought plan must:
• Be tied to key dates
• Have specific triggers and actions tied to those dates
• Be written and shared with the team
• Have a stocking strategy relative to drought risk
One or two good morning sessions with your team should be enough to produce a drought plan. Review it each spring to make sure it stays fresh and still represents your intentions.
Here’s wishing you perfectly timed moisture this growing season!
Stay tuned. Next week Dallas will talk about sunk cost and status quo bias and how knowing these concepts can help us make better choices when we choose which animals to keep and which to sell.
In the meantime, you can learn more by signing up for his Profit Tips newsletter and the Ranching For Profit FirstSteps. Enjoy!