Keep Your Eye on the Prize

Have you ever looked at a group of calves, heifers, cull cows and thought, “Well… maybe we should just keep those?” If you have, you’re not alone. But acting on this type of thinking can lead to complicating your business with a lot of little enterprises that can be bad economically and financially.

When you start down this path, you can become the ‘we do it all ranch’.  The ‘we do it all ranch’ has fall calving cows, spring calving cows, registered cows, commercial cows, a group of rebreeds, weaned heifer calves, weaned steer calves, bred heifers, grass finishers, oh and don’t forget the share cows from Uncle Buck and the bulls. When the ‘we do it all ranch’ gets to the end of the year and things are tight, someone like me asks “What is the most profitable enterprise?” and the answer is a shrug.

Untangling this complicated web of enterprises is a monumental feat. It all started innocently enough, but it has led to a complicated business where it is unclear what is working and what isn’t and nothing is really operating at scale.

When you think “maybe we should keep those,” your next action should be to run a gross margin analysis on that enterprise. If you are thinking of keeping your open cows and making rebreeds out of them then run the numbers. Value the rebreeds at what you could sell them for and pretend you just bought them for that. This becomes the “purchase”. How many will die, how many will we be able to market as rebreeds, what do we think we will get? This amount becomes the “sell”. Sell, minus purchase is the Gross Product. What is the time value of the money? (this cost is often neglected) What are the other direct costs like feed, health, breeding fees etc.? Gross Product – Direct Costs = Gross Margin. How much Gross Margin will we create by running these cows?

Here’s an example of how to run the numbers. The real-life values you use for your operation will be different. This isn’t intended to suggest that these cows are a good or bad idea, they are just meant to illustrate the concept.

How does this Gross Margin per standard animal unit compare to your core enterprises? It better be stronger or you’re just creating complications in your business. If the Gross Margin is significantly better, then maybe you should be buying open cows from other people and doing more of this.

Anytime you think “Maybe we should keep those” and it turns out to be a good idea based on the numbers, than maybe you should do more of that. If you’re going to do a few, then do it at scale. Turning 10 head of weaned steers into yearling stockers is a distraction for most ranches, doing a truckload or more might make sense. The most profitable businesses generally do a few things well and at scale. They usually don’t do a little of this and a little of that.

The next time someone on your place says “Maybe we should just keep those” push back. Perhaps keeping those is a great idea. If the Gross Margin per Standard Animal Unit is stronger than your other enterprises maybe you should double down on it. If the GM/SAU isn’t, then sell ‘em, generate the cash flow, and get back to doing what you do well!

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