Cash cow: In a struggling industry, ranchers seek ways to be profitable

Posted 3/19/21

At a recent Wyoming Stockgrowers Association event, Clark rancher Lloyd Thiel highlighted something about a ranching career that illustrates the industry’s troubling economics.

“You …

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Cash cow: In a struggling industry, ranchers seek ways to be profitable

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At a recent Wyoming Stockgrowers Association event, Clark rancher Lloyd Thiel highlighted something about a ranching career that illustrates the industry’s troubling economics.

“You can decide to become a doctor. You can decide to become a lawyer. But you can’t decide one day to become a rancher,” Thiel said.

If a young person were to graduate from college and set out to become a rancher, the investment in land, labor and the herd would be prohibitively expensive. With rare exceptions, almost everyone ranching was born into it. 

The unfortunate truth is most ranches operate at an annual economic loss of 1.5% return on assets. This is not to say they’re not profitable. Ranchers work hard and pay their bills. However, when all the numbers are “penciled,” they are not coming out with a positive number at the end of the year. 

Many ranches, for example, wouldn’t count the family’s labor as a business expense. Since they live and work on the ranch, it’s not factored in as a cost. Many own the land they ranch on, so there’s no rent or other real estate investment costs. There are also opportunity costs to consider: Doing one thing with the land, means not doing another. Factoring in all these costs is where those losses show up. 

    

Paradigm shift

More than a dozen people who work in the industry came to the stockgrowers association’s Feb. 25 educational event in Cody to hear a presentation from Dallas Mount, CEO of Ranch Management Consultants (RMC). The company provides training on the business side of ranching to clients throughout the United States, Mexico and Canada; RMC says it’s helped many ranchers improve their businesses and move toward better economic health. 

Sage Askin, owner of Askin Land and Livestock in Lusk, was among those who attended last month’s event in Cody. He is also a graduate of RMC’s seven-day course “Ranching For Profit.” He described it as “life changing.” 

Askin was born into a ranching family, and his 98-year-old grandfather continues to oversee the family’s operation. Askin decided he wanted to have his own ranch, making him a rare person who starts a ranch today from scratch.

He said he had to shift the paradigm — a term both he and Mount use — away from the notion you buy land and build a herd, and the herd pays for the land. 

“That no longer exists,” Askin said.

In the beginning, Askin didn’t really know what he was doing, he said, and the RMC class helped him figure out how to make the economics work on his own operation. He saw that a cow-calf operation wasn’t going to work, so he’s branched out into custom grazing and other enterprises. 

“Most ranches are losing money economically every year that they’re operating, and you could do that for generations. If you were starting a ranch from scratch, you couldn’t do that,” Askin said. 

    

Down and Out Farms

Mount began his presentation with an optimistic outlook on the business of ranching, discussing the importance of moving up what he called the ownership mindset ladder, and away from a victim-centered approach. The further up the ladder you go, Mount explained, the more you take ownership and accountability for those aspects of the business you can control — and there’s a lot.

As a case study in ranch economics, Mount presented a letter he’d received from a ranch owner. Changing names to keep it anonymous, he called it the Down and Out Farms.

The ranch runs about 300 cattle, develops their own heifers, sells some bred heifers and puts up enough hay to winter everything. When prices are good, the business does well, but like many ranches, it’s had some lean years. 

The ranch owner’s son and daughter-in-law started getting into the business side of things on the ranch, and the son proposed they sell the herd and run yearlings; then they could raze the hay ground and just custom graze pairs for other people.

“I’ve worked my whole life to put together a quality herd that fits this ranch, and it’s frustrating me that he [the son] wants to toss all that out after being here a few years,” the father wrote in the letter. 

Mount said people issues are a common business problem in ranching, and it’s also common for different generations to have different ideas about how to do things. 

“Most of us got into ranching because we’re so good with people,” Mount joked. 

There’s common ground between these family members, he pointed out: They all want the ranch to succeed. Though profit is important, Mount said, the values of the ranch go beyond the money it makes. And the stakes are pretty high. 

“The costs of getting this wrong is the loss of everything, everything we value at our core,” Mount explained, and that’s the reason to have the hard conversations. It’s not about figuring out how to make another $50,000 a year, Mount said, because most ranchers live pretty comfortably. 

“It’s about having those opportunities for the next generation,” Mount said. 

    

The ‘hat’ process

Mount opened the books on Down and Out Farms to show the $4,000 loss after all expenses, including feed, fuel, fertilizer and paid labor. Then, he walked the group through a series of colored hats, which help decide what’s the best way to improve the hypothetical farm’s economics.

The first hat is green — the creative hat — where you come up with ideas. One idea the group came up with, among several, was to improve the hay side of the business. That idea, as well as several others, was explored with the other hats. The white hat was next, which is the hat you don to consider facts; the facts were that the hay business was costing a lot of money. 

This was followed by the yellow hat, which considers what positives could come out of the idea if it worked. That would include increased tonnage and better quality hay and more value per ton. The next hat was the black negatives, which include drought and the possibility all the extra inputs that went into the hay business didn’t result in a better yield. There is also the red hat, which considers other values — such as the fact the rancher might not like making hay. 

Askin said the presentation was a “snapshot” of what’s taught the week-long course that RMC offers. While many sectors of the agricultural industry are struggling, there are a lot of farmers and ranchers who love what they do too much to give up. They are putting up the good fight, working smart and seeking a way forward.

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