For the cow-calf producer, times have rarely been so good from an economic point of view.
Recently, I have been in discussions with ranchers about what would be good investments when there is excess cash in an operation. For many of us, we have never had to think along these lines.
I have always felt that the best time to make changes in a ranch business was during a drought or after some event like a major fire. Why are they good times? Because those events are driving change anyway. Why not take advantage of destocking, for example, and change your calving season or add a yearling enterprise? Change is always hard, so if you can use other circumstances to leverage the need for change then sometimes it goes smoother. Now, there is another scenario that may give a good opportunity for change. The good times will give ranchers the opportunity to consider changes because the risk and detrimental financial short-term impacts of change will not be as large.
For example, winter feed costs are still one of the largest costs on most operations. Have you been considering moving the calving date to one that better coincides with what nature provides? If you have been calving in January/February, a change to May/June is costly for one marketing year because your saleable product will be lighter if you are in the habit of selling calves. When margins are tight, that can be a big deal for ranchers. It is certainly still a consideration, but many ranches have more financial resources to handle that now.
This article is not meant to advocate a change of calving season. That is just an example. Every ranch business is unique. There may be opportunities to add a yearling enterprise, a gravel business or hunting enterprise. Now is a great time to consider change — change that will impact the long term.
It is important to make investments in the ranch that will tend to lower or stabilize future operating costs. In recent history, corn growers know full well how prices can change. Anyone that has been in the cattle business very long knows this also. With this in mind, what improvements can be made now that will influence profitability for the long haul? One example would certainly be water improvements. On many of our Midwestern and Western ranches, improving water developments can help add to stocking density, distribution and rate. Sometimes, adding a well or pipeline is nearly equivalent to adding more land.
If you look down the road five years, what are some capital expenses or improvements that must be done? If you are like me, when I budget I always know that there would be some “surprises.” A water system that was not done well in the first place, roofing on houses or barns that leak, feed bunks that fall apart, etc. As you look down the road five years, what repairs and maintenance will need to be done or what improvements could be made to add efficiency to the business? Employee housing seems to be an area that always needs attention. Sometimes, it is embarrassing to see the type of housing that we offer our employees. As we all know, attitudes and wants are changing and benefits like good housing are more important than ever. In some ranch businesses, the whole employee benefit package needs to be examined. Employee turnover is very costly for any business.
Succession planning that includes retirement planning
There is no time like the present to address succession planning. What are the long-term plans for the business? If the business is going to remain after the current leader steps down, have good plans been made for the successor? Is adequate training being provided for the successor? Succession needs to be well thought out and developed if it is to go smoothly. What about retirement needs? Income as well as housing need to be addressed. Often when uncertainty exists, there is unease on all sides. If retirement income is clearly provided for, the departing leader’s anxiety about this is greatly reduced. Carefully crafted job descriptions can help make sure that the successors are well trained and well versed in all aspects of the business. All of us have made mistakes in management. If the successor can learn from mistakes early and have the wise counsel of seasoned experience, the business and successor is much more likely to succeed early. With careful planning, off-ranch heirs can be fairly taken care of without having to sell the ranch or split it up into units that may not be economical.
Today, we are in a different era in the beef business. In a few months or years, we will be in different circumstances again. Ranchers must be careful in planning so they keep unit cost of production stable. It could be a great temptation to do things that will increase cost of production over the long term. We have enough factors — some out of our control — that will continue to raise cost of production. Let’s all be diligent to continue to make our businesses sound.
After stepping down as CEO of Padlock Ranch, Fahsholtz founded AgWin Group, LLC, a consulting business that will offer ranch business, employee relations and continuing education opportunities.