“I don’t know how many people have told me ‘ranching for profit’ is an oxymoron,” says Dave Pratt. Pratt, whose company Ranch Management Consultants (RMC) operates the Ranching for Profit Schools, recently presented his strategies for profitable ranching to the Academy of Veterinary Consultants, a group of beef-cattle veterinarians who work with large ranches and feedyards.
The RMC website, ranchmanagement.com, includes detailed information on the business of ranching, grazing systems and ranchers’ accounts of their results. Pratt’s first presentation focused on the business of ranching, outlining how ranchers can identify and pursue the activities that contribute to profitability and scrap those that do not. His second presentation illustrated how one specific strategy — cell grazing — can enhance profits by improving resource productivity and utilization while reducing input costs.
Many ranches, Pratt says, do not operate as businesses and are not truly profitable. Ranchers often subsidize their operations with outside income, free labor, inheritance and appreciation of land to generate positive returns. But with appropriate business planning, the ranching enterprise can become profitable on its own.
In planning their businesses, Pratt encourages ranchers to consider economics and finance separately. Economics, he says, relates to the profitability of the operation and what you can do to make it more profitable. Finance relates to the capital investment, debt and cash flow needed to operate.
Focusing on economics, a first step is to define profit. Ranchers might compare costs versus expenses or beginning and ending net worth on an end-of-year balance sheet, but these measures can overlook non-cash products such as the value of replacement heifers or costs such as annual depreciation of cows.
In the Ranching for Profit Schools, Pratt defines profitable ranching as being able to show a positive return on investment after accounting for the following expenses:
• Cash rent for your land, even if you own it, since you could rent it to someone else.
• Full cost of labor, which Pratt describes as what it would cost to hire someone else to do the work you currently do.
• Interest on all assets used in production and average annual return on investment in their ranching enterprises is a positive 4.2 percent. The benchmark among the top 20 percent of Executive Link members is over 9 percent. So how do these ranchers beat the averages? Pratt says there are three ways to increase ranch profits: