By Meg Greski
Congratulations on your decision to join the regenerative agriculture movement! There will be plenty of challenges, but if you take care of your soil, it will take care of you.
Whether you’re starting a new operation or transitioning a conventional one, step one must always be to create a viable business plan. Do not “wing it” and assume you’ll just figure it out as you go along. Even more importantly than that, do not proceed when the numbers don’t work. If something doesn’t even make money on paper, there’s no way it will magically be different in real life. The purpose of planning is to save you money, time and stress and to ensure that you meet your goals.
Your business plan is bound to change as time goes by, and it should. At least once a year, you should adapt it according to what’s going on in the world and what you’ve learned. The conditions in which your farm or ranch exists are always changing. What works at the beginning of your career may not continue to work in the subsequent years. Regenerative management is all about being adaptive.
You can choose the best enterprise mix for your farm or ranch by evaluating the following factors.
GROSS MARGINS: Figure out your gross margin (revenue minus direct costs, excluding overheads) for each class of livestock, each crop and each product. Do the calculations for current enterprises, and ones you might like to add. Compare how much money you make on each enterprise with how much work, land and equipment each one requires. Divide gross margin by the number of acres the enterprise uses to determine gross margin per acre. This is a good way to compare your options and make wise decisions about what to do with your resources. Taking acreage away from a low gross margin use and allocating it to a competing high gross margin use can turn a struggling farm or ranch around.
SPECIALIZATION: Having lots of diverse enterprises decreases risk, but too often results in huge amounts of work. Choose complimentary enterprises that share the same overheads (barns, equipment, etc), use one another’s byproducts, and have a high ratio of profit to work hours. For example, if your goal is to finish and sell 100% grass beef, you might think cow-calf and stocker cattle are a necessary part of it. But what if you could buy big calves, spend a couple months finishing them out, and avoid the cowherd’s winter feed bill? You could also use the cowherd’s grass for more finishers! Put that grass into cattle that are a direct short-term source of income, not an expense incurred in the hope of future income.
CUT OVERHEADS: Your choice of enterprises and the seasons in which you operate can greatly affect overhead costs. When I switched from year-round cow-calf to developing heifers in the growing season only, my overhead costs fell dramatically. I only had to commute to my rented pasture for seven months out of the year instead of twelve. I no longer needed to buy, transport, store and feed hay. This resulted in less wear and tear on my equipment. I no longer needed some of the equipment I owned and/or hired. High utility bills from water heaters also disappeared.
FEMALE DEPRECIATION: In a May 2020 webinar, Wally Olsen shared some eye-opening numbers concerning the changes in a cow’s value over her lifetime. Every year, you must count the value an aging female loses as a cost against the income from selling her calf. Every year older that she gets, the faster she loses value. The older you let a cow get on your operation (after she exceeds her peak value at 5-6 years old), the higher the percentage of calf sale revenue must go just to cover her depreciation. Wally proved that keeping females from birth until culling as an old open cow means you have built wealth, failed to capture it, and let it disappear. The same is true for breeding stock of other species.
How can you fight this depreciation phenomenon? On an example ranch of Wally’s, a switch was made from the traditional “keep ‘em until they fail to breed” strategy to selling all females at 5-6 years old, and developing more heifers. This change caused the example ranch’s net worth to increase 6 percent, and income from cattle sales went up 44 percent. The ranch was also able to run more head on their grass because having more younger cattle means they’re smaller and eat less.
Another option is to lease cows, or raise them under a shares agreement with someone else. This insulates you from cow depreciation cost because that burden is carried by the owner of the cows.
If breeding seedstock with longevity is your primary focus, you’ll have to bite the depreciation bullet. But if your goal is to maximize profit through whichever enterprise(s) necessary, you may not want to keep too many old cattle around.
RAISE OR TRADE? In 2017, I spent close to 40 hours “desk farming” to figure out how much money I could squeeze out of my grass with cattle. Thirty-one pages of spreadsheets and 23 pages on Microsoft Word later, I was confident that I had thought of and evaluated almost every possible business model for bovine breeding stock. My numbers led me to conclude that frequent buying and selling of animals instead of keeping home-raised livestock long-term may result in more profit. Using the right enterprise, I could make as much money on a flip animal as I could on a raised animal.
TURNOVER: Turnover is defined as the number of units produced in a given time period. If you have room for 20 cattle on your place and you keep them all year, that’s 20 units. Going with a trading enterprise over a home-raised one can really boost turnover. Say you have grass to support 20 cattle, but you flip 3 groups per year. You just sold 60 units in a year instead of 20! You have tripled the “size” of your operation without having to acquire and maintain triple the land, machinery and infrastructure.
TIME IS RISK: The longer you own an animal before selling it, the more risk you take that it could get sick or injured and die, leaving you with nothing. Take the above cow-calf-to-finish scenario. If you insist on raising each one of your finished cattle from conception, you are looking at almost three years from conception to harvest. A lot could go wrong in three years.
LIQUIDITY: Three years you have money tied up in a conception-to-harvest beef enterprise. But if you bought a calf at 800 lbs and took it to 1100 lbs in 150 days (2 lbs/day gain), you will have your investment back in under 6 months. You will only incur costs and risk on that animal for 150 days, not upwards of two years. If you think you can raise a calf cheaper than you can buy one, make sure you’re really counting ALL the hidden costs of raising that calf. This includes the carrying capacity loss to your finishing enterprise due to keeping mother, calf and yearling. There is a cost of the maintenance energy used by the cow just to stay alive. There are other investment opportunities for your money that you forgo when you tie it up in a calf for 2-3 years. Even if your gross margin is higher on raising a calf than on buying and flipping, you could flip multiple groups during the time you’d be hanging onto that single raised-calf group.
THE CHANGING MARKET: The longer you hang onto cattle, the more market prices can change on you. (Even if you don’t sell on the commodity market, the value of all livestock is affected by it.) Sudden events like the COVID-19 pandemic can cause drastic unforeseen changes in the value of all assets. Learn to analyze and use the changing price relationships between different ages, classes and sizes of livestock. Use market signals to decide when to buy and sell. Don’t be dead set on doing the same thing and selling at the same time every year regardless of what the market picture looks like. Just like we need to be adaptive in grazing, we need to be adaptive in operating our businesses.
Bud Williams first popularized the concept of sell-buy marketing. It’s a method of livestock business planning in which your profit comes from selling one group of animals, and replacing them for less than you got for selling them. This is opposite from the traditional buy-sell approach, in which you buy animals and hope you can sell them for more than you spent on them. You can use a weekly market report and Bud’s calculations to see which classes of livestock are overvalued and undervalued. Sell any overvalued classes you own before their price comes down, and buy undervalued ones while you can for less than they’re worth.
DOWNSIDES TO TRADING: Trading cattle isn’t for everyone. You have less control over your genetics. Cattle that have traveled through sale barns, trucks and multiple ranches will probably require more preventative healthcare than those in a closed herd. Bringing outside cattle onto your operation may also bring disease. There is likely to be more death loss. You will need safe, sturdy handling facilities and workers with good stockmanship skills. Frequent buying and selling of cattle, and tailoring your enterprise mix to market signals, requires intensive business management.
CONTEXT: The right enterprise mix for your farm or ranch can only be determined through economic analysis and planning that is specific to your situation. If you don’t know how to create or interpret a business plan, find a consultant or farm and ranch business workshop to help you. The Ranching For Profit Schools put on by Ranch Management Consultants (ranchmanagement.com, (307) 213-6010) has been extremely valuable to me. Understanding Ag LLC (understandingag.com, (256) 996-3142) is a worldwide regenerative ag consulting firm started by Dr. Allen Williams, Gabe Brown, Ray Archuleta, and many other visionaries. Their collective knowledge, experience and resources are unmatched. You can also contact me with questions: email@example.com.