Maybe We Should Keep Those?
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. Acting on this type of thinking often leads to complicating the business with a lot of little enterprises which 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?
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 we should be buying open cows from other people and doing more of this. Anytime you think “Maybe we should keep those” and if it is a good idea, then maybe we should be buying more of those. If we are going to do a few, then let’s 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!
November 24, 2021 at 3:19 am, Steve Campbell said:
Happy Thanksgiving Dallas
More of your excellent thinking. I know people who have “unusual skill sets” and can turn some people’s culls into a very profitable enterprise.
It takes your “out of the box” thinking to go there.
November 24, 2021 at 8:05 am, John+Marble said:
Right on, Steve. I know those folks too, and I really like doing business with them and just hanging around them. I notice they are typically focused on a small number of very defined enterprises and they are excellent marketers.
November 25, 2021 at 9:23 am, G. John Spivey said:
Thank you the example. It is a different formula than I learned in business. Can you use this example and continue it thru net profit? I’m curious to see how you compute it.
November 26, 2021 at 12:11 pm, Tom Wolsey said:
It makes an awful difference in where you live I have tried feeding many different ways in winter but i finally bought a bale processor and it sure works for me I feed on the snow with a little grain and they lick up every bit of it. Now I dont have to spend all summer cleaning corrals on some wet years I never got it done Just harrow in the spring and Im spread an fertilized.