Category Archives: Home-Based Business

Ranching in the Future

Here’s an excellent article explaining the impossibility of entry level ranchers and farmers.  Unless land and agriculture prices come to a reckoning, land will be owned by the wealthy and worked by those with a passion for land management.  We are headed that way culturally rapidly given the advanced age of current land owners.  With few heirs waiting to farm or ranch, the land will sell to the highest bidder far above its production value.

Shalom!

tauna

Ranching in the Future – What Should Young Ranchers Expect?

By   /  January 7, 2019  /  4 Comments

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I recently received a note from a young friend (let’s call her Peggy Sue) who desperately wants to be a rancher. Since her childhood she has dreamed of working with animals. She has learned about marketing and economics. She’s studied hard and become a competent grazier. She’s done some hard work. But she’s getting a little impatient.

“So, I’ve been looking at real estate ads all over the country, studying up on productivity of land in different places, trying to look up how many acres per cow it takes and how much each acre costs, and I just can’t figure this thing out. How are people doing it? I mean, how are people able to buy a ranch and pay for it by raising cattle?”

My immediate answer was not what she had been hoping for:

“I don’t know of anyone in America who is buying a ranch and paying for it by running cattle. This doesn’t mean you can never be a rancher—you can be. But going forward, you will only be successful as a rancher if you accept the realities of the current world. You must be able to adopt a definition of ranch and rancher that fits in the economic universe in which you currently live. And guess what? This is true for every other new rancher, too.”

Sorry, Peggy Sue.

Past, Present and Future Ranching Models

Both my wife’s and my own family trees are well stocked with hopeful people who put together ranching operations 100 or more years ago. First was homesteading, and later on there was picking up the pieces from other folks whose homesteads had failed. There was hard work and sacrifice. Fundamentally, the ranches of 100 years ago were founded on using land to grow grass and cattle. Land values were tied intimately to productive value of the land and the then-current values of the cattle market. And so, our ancestors built successful ranches.

Those days are over. The conditions under which our ancestors operated no longer exist.

Today, properties do not become available through homesteading or abandonment, and in general, ranch land prices have very little relationship to productive value. Other influences such as hunting and fishing, scenic view, and privacy are the determining factors in land price. The model described above: working hard to build functional ranches by acquiring and paying for land with cattle, is apparently not possible in today’s world.

In our own little valley, even though there is virtually no influence by hunting or fishing values or high mountain views, the value of land has now risen to the point where pastureland prices are clearly irrational. Turns out, there are plenty of people with plenty of money who just want to live in the country, and they will pay whatever it takes. In the 1980s, I told Ranching for Profit guru Stan Parsons that my chief concern with becoming a rancher was that land in my area was selling for $5,000 per cow unit. Currently, that value is more like $20,000. At $20,000, the land overhead PITI (Principle, Interest, Taxes, Insurance) is something like $2,000 per cow per year.

It should be mathematically obvious that the current land value situation absolutely precludes the possibility of becoming a rancher, if you think ranching has to look like it did 100 years ago.

So, is it possible for my young friend to become a rancher? Absolutely. But that will require her to accept a different definition of what ranching looks like and of what being a rancher means.

Going Forward: Ranchers of the Future

A principle of motion discovered by Sir Isaac Newton over 300 years ago applies directly here, I think:

I believe the trends that we have witnessed in ranching over the past 100 years or so will likely continue. These trends will determine what ranching will look like going forward, and the possibilities for present and future ranchers.

Here are some current trends to consider:

Land Prices

I believe the price of land will continue to escalate and will have less and less relationship to productive value. This means new ranchers will need to seek models that do not include “buying a ranch and paying for it with cattle.”

Other Input Costs

The cost of oil, iron, processed feed, and other inputs will continue to advance relative to the value of traditional ranch products. Future ranchers need to design models that place less emphasis on these things.

Technology

Our industry has become highly dependent upon technology. Whether this is a good thing or not is hard for me to tease out. That said, ranches of the future will surely include more technology. Ranchers of the future should build business models that take advantage of new technologies. This is certainly critical for businesses that involve direct marketing.

Societal/Political Change

There has been sweeping change in the relationship between urban and rural populations. Our urban neighbors are ever more interested in ecological issues, animal welfare, food safety, transportation, and on and on. Going forward, this trend will result in a higher degree of regulation of ranching activities on all fronts. Young ranchers should plan accordingly.

Diversity of Products and Services

Increasingly, ranches have become more and more involved in producing things beyond just meat on the hoof. Young ranchers of the future should consider business models that include providing even more diverse products and services. Growing hamburger is a low margin enterprise. Providing sites for weddings, hunting, vacations, etc. can be very high-margin enterprises. Like it or not, this may be what opportunity looks like in the future.

The Decline of the Rugged Individual

It seems to me that image of the rancher as a rugged, independent operator has always been a bit overblown. My great grandparents (and every generation since) were highly dependent on cooperation for survival. Going forward, I believe ranching will look more and more like other industries, with intensely complicated, inter-dependent systems of producers, suppliers, marketers and customers. Ranches will offer a wider and wider range of services, and they will serve a wider range of customers. No ranch will be an island unto itself.

(The exception to this will be the ranches that are owned outright by folks who have un-limited assets, and so, can do anything they want. These may be ranches, but I question whether they are Ranch Businesses.)

The Big Question: To Own, or Not to Own

Oregon author William Kittredge wrote a fine biography called “Owning it All”, a story about growing up in the big ranch country of the American West. I think young ranchers should consider exactly the opposite course: Owning almost nothing. And here’s some of what that might look like:

Owning portable fencing, corrals, and water equipment. Renting or leasing grass that land owners don’t want or don’t know how to manage. Same goes for livestock. Selling your expertise and skills as a grass and property manager. Becoming expert in managing the accessory enterprises that ranches will contain in the future: tourism, education, entertainment, recreation, sport, etc. Note: be sure to make enough profit to fund your own retirement, as you will not be accumulating any real estate.

Decisions, Decisions.

I could be wrong about all of the predictions above. Maybe land costs will magically revert to align with productive value. Maybe young ranchers will be able to enter the industry, buy some land and livestock and make out just fine. Maybe. But I doubt it. I think young ranchers would be well advised to conjure up a business plan that includes the parameters and limitations we now operate under, and think carefully about what the future might look like.

Best wishes to Peggy Sue in the coming year. Oh, and to the ranchers of the next 100 years, too!

Happy Grazing, Happy New Year, and a Happy Future

John Marble

Stay tuned for future articles with examples of how young farmers and ranchers are building their businesses.

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  • Published: 2 weeks ago on January 7, 2019
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  • Last Modified: January 7, 2019 @ 8:40 am
  • Filed Under: Money Matters

ABOUT THE AUTHOR

John Marble grew up on a terribly conventional ranch with a large family where each kid had their own tractor. Surviving that, he now owns a small grazing and marketing operation that focuses on producing value through managed grazing. He oversees a diverse ranching operation, renting and owning cattle and grasslands while managing timber, wildlife habitat and human relationships. His multi-species approach includes meat goats, pointing dogs and barn cats. He has a life-long interest in ecology, trying to understand how plants, animals, soils and humans fit together. John spends his late-night hours working on fiction, writing about worlds much less strange than this one.

Setting Goals – Making Plans

Many of us have been caught up in discussions on social media which sometimes turn into nasty mud flinging and other nonsense.  Religious issues with many gurus often offers answers which are confusing and double-minded at best.  Livestock grazing, soil regeneration (regenerative is the goal; sustainable is out, and rightly so, since many of us have denigrated soil resources; sustaining that is ridiculous), wildlife enhancement, water quality, breed of cattle (or other livestock) are promoted with such fervor and worship to qualify as religions.

Yet, the reality of our fallen world and its natural processes, is so complex, that one size fits all does not work.  In the words of my friend Jim Gerrish, “it depends.”  And indeed it does.  Sure, there are some principles, ideas, and theories which are basic and we can learn from these.  However, the key must be to identify our own goals, resources, restrictions, and, as Allan Nation coined, ‘unfair advantages.’

You can search and find a myriad of experts ready to guide you on goal setting.  Read through them, many will help fertilize your own thoughts.   Here are a few thoughts to get you started.

  • Goals will involve family and friends- you don’t live in a bubble – be mindful and consider if your goals will push loved ones away.
  • Goals should consider the future – remember, you won’t always be 25 years old.  Work hard now,  but move into more investments.
  • Goals should include those things you want to do.  You may become successful not doing this, but there may be limited satisfaction.
  • Goals should be written down and in a place you can reference them.
  • Goals should be flexible – we cannot control the world – sometimes shifting a goal is necessary to be relevant.

Grazing livestock management schemes are confusing and challenging – like a lot of fields (excuse the pun).  When you throw in that one guru says do this and another says do the opposite, how is a newcomer to make decisions?  It is tough, for sure, but read a lot, go to a few conferences by tried and true teachers, for example  guys and gals who are or have been graziers themselves.  Networking with other producers will really help, but avoid meaningless quarrels.

Just like knowing the difference between economic (is the endeavor worth doing?) and financial (can i afford to do it?) decisions, knowing the difference between goal setting and planning is essential.  You may have great goals, but can actual plans be made to reach the goals?  And beyond that, you must ask yourself, am i motivated enough to see it through?  Don’t start a task if you don’t count the cost in advance.  These costs are beyond money – they include relationships which may be lost, declining health, spiritual or mental stress.

Change is inevitable, goals change, plans change, plans change because the goals change, goals change because of many, many factors, including age, time, priorities.  Don’t get bogged down with thinking you cannot change goals or plans, but keeping meaningful, timely, and accurate records is a must!

Happy Planning!

tauna

 

 

Consider the Future by Kit Pharo

This goes for any business, but is specifically written by a rancher to ranchers/farmers.  It is sad how few ranching businesses stay as such from one generation to the next.  Kit explains again one reason for this.

 

PCC Update

November 7, 2018

Cowboy Logic: “The future ain’t what it used to be.”

Consider the Future –

By Kit Pharo

Have you noticed that the most successful and happy people throughout history have been those who made decisions that were based on the future?   It’s true!   Successful people know that nothing stays the same.   The present is different from the past – and the future will be different from the present.   Those who make decisions that are based on the future will always have a HUGE competitive advantage over those who continue to make decisions based on the past and/or the present.

Unfortunately, nearly all people from all walks of life are afraid to make decisions that are based on anything but the past or the present.   It has always been this way, and it will probably always be this way.   Even though they can see things transforming before their very eyes, they are reluctant to make any changes in what they are doing.   It’s as though they would rather fail doing what they have always done than succeed if success requires change.   That is a shame – but it gives you the opportunity to move your family and your family’s business to a very sought-after position.

Based on what you think about the future, what kind of management decisions should you be making in your cow-calf operation?   I’m not going to tell you what I think.   I want you to do your own thinking.   You may come up with something different and/or better than what I have.   The decisions you come up with, however, need to be based on what you think the future holds.   Be bold in your actions.   Those who are slow to take the appropriate actions may lose all they have – forcing their kids and grandkids to get jobs in town.

Quote Worth Re-Quoting –

“The past cannot be changed.   The future is yet in your power.”   ~ Unknown

PHARO CATTLE CO.

Phone: 800-311-0995

www.PharoCattle.com

Facebook Pharo Cattle Company

About the Farm this Fall

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Late afternoon break from work to enjoy my workplace view shed.  Missouri is having splendid fall color this year!
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One of my pretty Corriente cows.
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Bald Eagles seemed skittish this year, thus difficult for casual snapshots.
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Another corral improvement for this year, is that i set up these old panels across the upper part of my round gathering pen.  This way, the calves could be sorted into it as they come by, whilst the cows go on by to another pen.  Worked slick as a whistle.  Someday, though, i’m going to have to get some help, these panels weigh at least 75 lbs a piece and moving them into position to hook together is getting more difficult for me.  However, since it worked, these will stay put now.
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Showing how difficult it is to shift cows from one paddock to another.  HA HA!  Open the gate and get out of the way!

 

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Buckbrush, as we call it in north Missouri, grew prolifically this year, i guess due to excessive heat and dry weather.  Bonus for the deer and many other wildlife this winter.  
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Improvements to my corral.  Here i’m hanging gates and cutting a hole in my corral to make it easier to sort off animals which need to go back in a pen rather than let loose.

 

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This gate is used to make the runway (race) more narrow for young calves.  Once installed, it reduces the passageway from 28 inches wide (for cows) to 16 inches wide (young calves).  Everything i do, i try to repurpose stuff we have.  Profit margin in cattle is too narrow to spend money unless absolutely necessary.  Here, i’ve added this black plastic taken from a busted feed bunk and drilled it onto my gate.  This way the calves don’t stick their heads between the bars.  It worked!

Have a great weekend and Shabbat Shalom!

tauna

What Is Sweat Worth?

What Is Sweat Worth?  By Dave Pratt, owner of Ranch Management Consultants

 

What is Sweat Worth?

by Dave Pratt

Most family ranches are subsidized with free, or underpaid, family labor. Sometimes the difference between what family members get and what it would cost to hire someone else to do the work they do is made up with the promise or expectation of sweat equity. But sweat is not a recognized form of currency and people counting on sweat equity usually have a grossly exaggerated idea of what their sweat is worth. This often leads to serious disagreement and disappointment.

If you are going to count on sweat equity and want to avoid the inevitable misunderstandings that happen when it comes time to cash in on your sweat, then you’d better start actually counting it. How many hours? For how many years? At what rate of pay? With what interest on the unpaid balance?

I mentioned the perils of relying on sweat equity in a workshop recently. I suggested we stop using the term sweat equity and call it what it really is, “deferred wages.” My comments apparently struck a nerve with one 30-something rancher. He approached me after the program and asked if I could help him calculate what his sweat was actually worth. He said that he’d come back to the family ranch after college 10 years earlier. He’d been drawing a low wage and banking on sweat equity. As is usually the case in family ranches, there was no formal agreement documenting exactly what his sweat was worth.

He was being paid $25,000 a year, but his compensation package included a nice home, a vehicle and insurance for his family. All-in-all a compensation package worth well over $50,000. “Maybe I’m not as underpaid a I thought I was,” he said.

I suspect that he was probably being underpaid somewhere between $10,000 to $20,000 a year. I showed him that for every $10,000 he’d been underpaid, he earned 0.1% equity in his family’s $10,000,000 ranch.

($10,000 ÷ $10,000,000) x 100 = 0.1%

I showed him that over the previous 10 years, compounding interest at a rate of 3.5%, he’d earned a whopping 1.2% equity stake in the ranch. Like a lot of young ranchers returning home, he hadn’t ever thought about how much his sweat was worth but had assumed that it would add up to a lot more than that.

Sometimes sweat equity isn’t just about compensating someone for the work they do. It’s about acknowledging the sacrifices someone may have made, foregoing other opportunities to come back to the ranch to support the family. If there are several kids in your family, but only one has invested time and energy working on the place and has shown a desire to continue the business, it may be fair to give them an equity position.  After-all, as succession planning advisor Don Jonovic points out, fair doesn’t necessarily mean equal.

But whether sweat equity is a substitute for a paycheck or acknowledging a sacrifice, we need to be clear about what we are compensating and its value. We need to convert assumptions and expectations into agreements. We need to figure out what our labor is worth (the topic of the last ProfitTips column). We need to document the value of our sweat while we are still sweating.

For more on documenting the value of sweat equity watch the video below:

What is Sweat Worth? youtube video

First Stab at Mob Grazing (UHDG)

About a week ago, despite our poor pasture growing situation due to dry and hot weather, i tried what others have done and that is UHDG or ultra high stock density grazing.  There are some who have successfully managed shifting cows 5,7,9 times a day and obtaining up to 1 million pounds of livestock per acre!  That can result in a phenomenal improvement in soil quality due to deep rooted plants and evenly distributed manure.

My experience was far different and after a couple of hours quickly realised my misgivings as to mob grazing’s effectiveness in our area.

  1. Cool season grasses often don’t have deep roots, by and large, unless allowed to grow quite tall (and mature) which results in unpalatable grazing.
  2. Mature grasses are unpalatable and very low ‘octane’ (nutrition)
  3. Laying down cool season, fine stem grasses by trampling is virtually impossible.
  4. Toxic endophyte fescue is poisonous at all stages; recent research shows the bottom 2 inches is as toxic as the seed heads.  Forcing cattle to consume it is detrimental to their health.
  5. Hot, humid weather causes some animals to suffer and they need shade – not all small paddocks can have shade.
  6. I quickly realized that i was exhausting myself setting up polybraid and posts to shift the cattle.  To the point that, instead of accomplishing other tasks whilst at the farm, i felt like napping instead!!
  7. A problem perhaps unique to my situation is the distance from the stock.   My farm is 35 minutes’ drive (via JD Gator) from our home.  Though  my solution was to shift cattle often on the days i could go up there, then give them a large break to last up to 3 days, but i found point 6 overwhelmed even that idea.

 

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This photo shows my mob at an estimated 50,000 lbs per acre.  Not even close to what is needed to see positive effects of mob grazing.  Nevertheless, i have discovered an optimal balance of dividing my 20 acre paddocks (paddock sizes vary) in half results in acceptable utilization plus gives an extra day and a half of grazing over giving access to the entire paddock.  This is very important; instead of 3 days grazing, there are 4.5 days, which over the course of 24 paddocks results in an additional 36 days rest period!

Putting dollars to that extra growth:  In normal and decent growing conditions (not over 90F and normal rainfall), cool season grasses and legumes could potential produce 8-12 inches of growth in 36 days.  An average pasture with little to no bare ground (spaces between plants) might yield 300 lbs to the inch per acre.  So, if the entire farm received that additional 36 day rest, then 400 acres x 300 lbs per inch x 8 inches growth  = 960,000 additional lbs produced.  Reduce that by 20% to get a hay equivalency and price it at 5 cents per pound, then 768,000 lbs x .05 = $38,400 worth of hay that is not needed to purchase and maintain or grow the herd.  OR, consider that as my wages for setting up and taking down posts and polybraid during the summer.  Of course, nothing is perfect or normal, so even these conservative figures may fall way short in the face of a drought or hot temperatures.  Nevertheless, there is gain to be considered IF the labor does not become cumbersome and cost more than the value of forage.

Well, this was all written on Monday the 21st of May – a week later – still no rain and temps continue well into the 90s with heat indices above 100 for several hours each day and little to no wind.  It’s muggy and hot; cool season pastures are no longer growing, so the planned grazing is relaxed already since the cows need shade and i’ve set up a paddock with a big timber patch.  Guess where most of the manure (nutrients) will end up?  Yeah, not where planned.  As usual, theories, plans, scenarios all go out the window in the face of nature.  Like any other year, we just do the best we can with the conditions we are given.

Cheers!

tauna

Ranching for Profit

I always chuckle a bit when i type out ‘ranching for profit’ because it’s almost an oxymoron!  Yet, David Pratt, owner of Ranch Management Consultants and Ranching for Profit instructor, contends that there is such a beast if we ranchers use sound financial and economic principles.

Mr Pratt’s most recent blog discusses using debt properly.  Now, okay, my mind goes immediately to the song, ‘Neither a borrower, nor a lender be.  Do not forget, stay out of debt.’  Which then led me to wonder where that came from.  I knew it was from Shakespeare’s ‘Hamlet’ (Polonius counsels his son, Laertes in Act-I, Scene-III of William Shakespeare’s play, Hamlet by saying, “Neither a borrower nor a lender be; / For loan oft loses both itself and friend.”  But what about the tune?

Completely surprised when i discovered that it was created and made famous on the TV sitcom, Gilligan’s Island, which i watched religiously when i was young.  SO FUNNY!  It is sung to the tune of the Toreador Song in Bizet’s Carmen.

The Bible also has advice on debt and teaches us to guard against being in debt, likening it to slavery and bondage.  However, debt does not seem to be a sin, but a tool to earn money wisely, but counting the cost before taking on the burden.

May 9, 2018
ProfitTips
from the Ranching for Profit School
A lot of people tell me that they want to be “debt free.” They are tired of making big interest payments on land, livestock, machinery and their operating note. They have had too many sleepless nights worrying about making the next payment. They believe that if they didn’t have to borrow money they would be more profitable and financially secure.
But the proper use of debt makes us more profitable, not less. And being debt free doesn’t make us financially secure. In fact, for most of us, short of winning the lottery, the appropriate use of debt is our only realistic path to financial security.
The problem isn’t debt, it’s our misuse of debt. The two most common ways we misuse debt are:
  1. We put finance first and economics a distant second
  2. We use debt on the wrong things.
Using debt effectively begins with understanding the difference between economics and finance. It boils down to this: In economics we ask, “Is this profitable?” In finance we ask, “Can I afford to do it?” If we are going to be smart about our use of debt, economics must come first. If it isn’t profitable you don’t have to worry about how you’ll pay for it, because you shouldn’t do it in the first place.
Smart Debt
Economics vs Finance
When RFP grads evaluate the profitability of a livestock enterprise they include opportunity interest on the herd as a direct cost in the calculation. If the enterprise has a healthy gross margin it tells us that borrowing money to expand the herd will increase profit. If we haven’t included opportunity interest in our calculation we can’t be sure if expanding the herd is a good idea.
Opportunity Costs
The other problem is that people use debt on the wrong things. There are two primary places where we put money in our businesses: fixed assets and working capital. Simply put, fixed assets are things we intend to keep (e.g. land, cows, infrastructure, vehicles, equipment). Working capital is the money tied up in things we intend to sell (e.g. calves). Most of us have most of our money invested in fixed assets. This is the biggest financial problem in agriculture. It’s a problem because when most of our money is tied up in things we intend to keep, we have relatively little to sell and generate very little income relative to the value of our assets. Making matters worse, a lot of the income that we do create gets spent maintaining the fixed assets. That’s why most ranchers are wealthy on their balance sheet and broke in their bank account.
Borrowing to buy fixed assets may be a smart long-term investment strategy, but it might cause you to go belly-up in the short term. We’d be better off to use debt to buy assets that directly produce income.
We shouldn’t be afraid to borrow money, provided the economics of our enterprise is rock-solid and we use the borrowed money to buy income producing assets.
2018 – 2019 School Schedule
Sept. 9-15, 2018
Boise, ID
at Holiday Inn Express
Dec. 2-8, 2018
Abilene, TX
at MCM Elegante Suites
Jan. 6-12, 2019
Colorado Springs, CO
at Radisson
Jan. 13-19, 2019
Billings, MT
at Billings Hotel
Jan. 20-26, 2019
Rapid City, SD
at Best Western Ramkota