Highest-Profit Ranches Good At Everything

Beefs and Beliefs

Financial data from real ranches show lowest cost always leads toward higher profit.

Published on: April 18, 2013
 

I'm working this week on stories for the June issue of Beef Producer and digging into some juicy financial data from real ranches.

I've been working with Stan Bevers of Texas AgriLife extension service again. Bevers keeps the Southwest SPA database, also known as the Standardized Performance Analysis of real cow operations in Texas, Oklahoma and New Mexico.

SPA was initiated in 1992 by some Extension Service educators and the National Cattlemen's Association, which was the predecessor to today's National Cattlemen's Beef Association. It was hailed as a wonderful new method of comparing an operation's performance across production years and between different producers, production regions and production systems.

It never seemed to catch on nationally and it takes a lot of time and effort with an economist on one side of the table and a producer on the other. Several SPA databases were started but today Stan Bevers Southwest SPA is the only one left.

I'm not going to spend too much time hacking on our industry but I suspect we were too interested in cows and not interested enough in profit to really latch onto a system so "mired" in costs and accounting.

Regardless, Stan Bevers has continued working with ranches in the Southwest through the years and he continues analyzing the numbers for some really good lessons on profitability.

One of the things Bevers does in this analysis is divide the ranches into four groups by profitability. He calls these by the statistical name of "quartiles." The group he calls Quartile One contains the most profitable operations. The group he calls Quartile Four contains the least profitable operations.

In the latest set of numbers he shared with Beef Producer I found these mythbusters:

  • The lowest-cost operations were the highest-profit operations. The highest-cost operations were the lowest-profit (really the highest-loss) operations. The two factors are exactly inverse.
  • The highest-profit operations actually posted lower pregnancy and calving rates than the other three.
  • Large size of operation doesn’t specifically beget low costs or profitability.
  • Simple weaning weights are not very different across the upper three quartiles
  • The championship for pounds weaned per cow exposed was not claimed by most profitable quartile (Quartile #2 gets that one).
  • Only the lowest-cost, highest-profit quartile is making a reasonable return on assets at about 8%.

In the end, Bevers says, the profit championship always goes to those who are lowest-cost producers and those who tend to do "everything" well. This is true for ranches running stockers just as much or more than for cow operations. The dollar is in the details.