What Management Technique Could Give You The Highest Profit?

Beefs and Beliefs

Animal gain is a powerful financial tool but recent record corn prices showed us that even good gains can't outrun excessive costs.

Published on: December 19, 2013
 

I have a running discourse with a family member about what type grass operation achieves the most profit.

Specifically, our debate focuses on high-input production with a higher-than-normal selling price versus extremely low-input, high-output production of the type I can get with planned, high-intensity grazing, regardless of selling price.

Actually, I don't think there's any contest between the two, whether in a cow business or a stocker business. In the case of the family debate I mention the outcome seems doubly true to me since the premium market he's talking about is a grass-finished marketplace. That means all the good cheaters like feeding corn are out the window, regardless of price.

Further, animal gain is a powerful financial tool, but recent record corn prices showed us that even good gains can't outrun excessive costs.

In the January edition of Beef Producer you'll find a feature story that addresses this discussion, but from the perspective of a cow-calf operation.

That story features African rancher/consultant Johann Zietsman. His figures show that tripling stocking rate over conventional on his operation more than tripled the gross margin. The term "gross margin" is a little like gross profit in that it doesn't figure in all costs for a complete net-profit figure. Instead, the main purpose for the tool called gross margin is to compare enterprises and management options.

However, Zietsman also did some interesting calculations concerning return on assets, which is an important way of examining profit per unit of the capital in service in an enterprise. This was a simplified version of ROA he calls return on margin to capital. That also showed more than a tripling effect, going from 2.8% return to a 9% return on investment for triple stocking rate.

On top of that, Zietsman said when you triple stocking rate on a cow-calf operation you only need 30% calving rate to equal the profit from a conventional cow-calf operation with an 80% calving rate.

These are particularly interesting numbers in light of the study featured one year ago in the January 2013 issue of Beef Producer. At the request of this magazine, Texas economist Stan Bevers used real numbers from real ranches in the standardized database he keeps on operations in Texas, Oklahoma and New Mexico.

Bevers calculated 30% higher gross return per herd from only a 50% sustainable increase in stocking rate. He also estimated an 8.5% increase in net profit per female. This was simply using averages, which don't reflect the better management practices of the most profitable operators in his database.

I argue that no marketing program can provide the volume of boost in profit that higher sustainable stocking rate can provide.

Here's one other key fact to remember about all this discussion: The most profitable operations in Bevers' SPA database were generally good at everything they do, including marketing, but they were always the lowest-cost producers. When you start adding tons of expensive equipment and stored forage to a beef operation it quickly becomes hard to out-earn those expenses, especially when your gains will be limited by the type of nutrition you are able to feed.

This coming year I'll be working on data for realistic stocker budgets on varied operation types and will be giving some public presentations on that. I'll also publish anything I develop that's revealing here or in the magazine.