Lower Financial Risk by Drought-Proofing Your Ranch

Plan ahead how to destock, when to destock, how to deal with higher income and how to handle the stress of drought.

Published on: Jun 24, 2012

Dave Pratt says drought is one of the greatest risks ranchers face and so he teaches "drought-proofing" as part of his week-long Ranching for Profit schools.

Recently Pratt shared this drought preparation process in a public workshop in the Texas and Southwest Cattle Raisers convention.

Pratt says drought is inevitable for all ranches in some form or fashion, yet it isn't drought that makes or breaks the operation. Instead, it is the decisions and actions of the managers during and after the drought.

Without preparation and a written plan, he says, "when you see the tidal wave it's too late."

Pratt teaches drought affects every facet of an operation: land, livestock, money and people. Therefore he says an effective drought plan has to address all these areas.

Lower Financial Risk by Drought-Proofing Your Ranch
Lower Financial Risk by Drought-Proofing Your Ranch

In each of these areas he offers some fundamental guidelines for success and then asks participants to write their own version of a plan.

You can download Pratt's worksheets to write your own plan.

People plan

Pratt says accept drought is a normal part of ranching. He adds that hauling water, feeding livestock and complaining only reinforce your feelings of panic and deplete your bank account.

Instead, he says drought is the time to implement your plans for selling stock and managing the land so it doesn't deteriorate and cost you more in the long run.

As emotionally debilitating as drought can be, it can nonetheless present opportunities, Pratt adds. You might want to change the nature of your operation, for example from a cow-calf operation to a custom-grazing operation. You might take the time not caring for livestock and travel to visit other successful operators. It may force you to cull those less productive animals you just kept justifying in the past.

Make sure all partners and employees see and understand the drought plan and have them sign it.

Money plan

In a drought, income usually increases at first because of increased or early livestock sales. Then income may fall or even plummet, Pratt says. Therefore you need a plan to create or manage cash flow and preserve your working capital. Include a strategy for low-cost production.

Before the drought consider how to match your debt ratio to the risk of drought -- in other words the higher the risk of drought in your location, the less debt you should carry.

Build equity and financial reserves during the good years and consider diversification with off-farm investments. Keep your banker in the loop like a partner.

Free money and hay are disincentives to good management and should be avoided, Pratt says. In the long run they hurt your land's productivity and make you more drought prone.

Land plan

Ultimately, your plan for the land should be to develop and maintain a high-successional ecological state. That means good ground cover and increased soil organic matter. It also includes a shift toward stronger, more productive plants. In native range this would be moving up the scale toward the midgrass and tallgrass species, depending on your location and the ecological site.

Cross-fencing and controlled, rotation grazing will help do that. Pratt says it commonly requires 25 paddocks or more per herd to move forage and soil health significantly upward.

Plants grow more slowly during drought so combining herds or decreasing pasture size will decrease grazing periods and increase recovery time for those plants.

All this means prior to drought, developing a long-term, ample and secure water supply will be invaluable to such herd management.

Livestock plan

Identify your critical rain dates. Pratt says, "I’ll bet there’s a date on your ranch by which, if it hasn’t rained, or if there isn’t significant growth, you know you are in trouble. Even if it were to rain after that date, you’ll still be short of feed."

That is your critical date and the date upon which to initiate your drought plan and destocking.

Identify a keeper herd and a secondary herd of disposable animals such as stocker cattle.

Have good production records and monitor forage so you'll know how deeply you must cut.

Write down a (order) in which you will liquidate herds and/or classes of livestock, such as stocker cattle, cull cows, early-weaned calves, bulls, heifers and second-calf heifers. It is interesting in Pratt's workshops how different ranches select different orders, depending on their operating systems and priorities. Each will be different, Pratt says.

Pratt says "never, ever drought feed." Besides the cost and uncertainty of it, and besides the damage it does to the ecology of your land, he says trying to feed your way out of drought is like trying to borrow your way out of debt.

You can find more material on drought planning and ranch management or contact Dave Pratt through his website: www.ranchmanagement.com.