Nature has a strict culling policy. If bulls and bucks don’t breed, or if does and cows don’t wean fawns and calves, their genes aren’t passed on. Survival of the fittest.
Most commercial ranchers select for fitness too. If a cow is open or dry, she’s culled. If she’s got a bad udder or isn’t structurally sound, she’s a goner. Survival of the fittest.
It’s survival of the fittest in business too. If a business doesn’t produce positive cash flow and a decent profit, it won’t survive. It’s got to be able to compete with other businesses producing similar products.
At the conclusion of a recent workshop I started to wonder if survival of the fittest applies to ranches. Most participants were intent on learning everything they could about the three secrets for increasing profit and how to identify profit drivers and deadwood in their businesses. But there were several who seemed to have come for the coffee and donuts. Their comments and actions made it clear that they were more interested in preserving the status quo than objectively evaluating strategies to make their ranches more profitable.
Whether through inherited wealth, off-farm income or free family labor, I suspect that the ranchers who weren’t open to considering alternatives are subsidizing their ranches. In spite of losing money year after year, they are still there. So, does survival of the fittest apply to ranching?
When we think of fitness in the natural world we often think of the animal that escaped the predator’s jaws. Slower animals are culled from the herd and don’t live to reproduce. But survival of the fittest is only one part of natural selection. It’s not enough for an animal to survive, it must also produce progeny that survive. In ranching there are fewer potential successors who are willing to work for free or subsidize the family ranch with off-farm income. If ranchers can’t pass a viable ranch business to the next generation they will fail.
In contrast the fit ranches (the ones that pay a fair wage and make a healthy profit) are making it to the next generation.
On one hand it’s tragic to see a fourth or fifth generation ranch family lose the ranch. On the other hand it provides a fabulous opportunity for a new generation of ranchers who want to start ranching for profit.
Survival of the fittest in nature increases the health and productivity of wildlife. In ranching it results in livestock that need fewer inputs to be productive. In ranches it results in healthier land, higher profit, happier families and an incoming generation keen on continuing the legacy of generations before.
There needs to be a way for a new generation to start ranching for a profit. Instead of a corporation or outside interest.
> There is.
It begins with understanding that owning a business is different than
owning your job (being self employed). As Stan Parsons wrote, “If you
want to be a cowboy, get a job.”
You need to understand that a mission statement is more than pretty
words. It’s your compass.
You need a clear, shared (and vetted) vision statement that’s detailed
enough to provide a blueprint for building the economic and financial
engine for achieving your mission.
You must recognize the difference between economics and finance and
understand that economics ALWAYS comes first. Then you have to
understand the 3 Secrets (1. Reduce Overheads, 2. Improve GM/Unit, and
3 Increase Turnover.
You must put nearly ALL of your resources in working capital and not
fall into the seductive trap of conventional agriculture where >90% of
the money is locked away in unproductive fixed assets.
You can’t be afraid of debt, but you must know the difference between
good debt and bad debt.
As with any business…it also helps to get a break somewhere.
Bottom line, while many say it’s impossible to start a profitable
ranch from scratch there are people who have done it and continue to
do it. As one Ranching For Profit School graduate summed it up, “If
someone’s doing it, it might be possible!”
Survival of the fitest can also go to those that know when to not fight by heeding the credit cycle. Its quite obvious the Fed is now tightning rates and solidly in QT mode with no sign of letup while commodities are already in the hole. I happen to be located in Irrigated seed corn plus commodity grain area. Farmers are still paying rents of $200 /acre for dryland ground while borrowing money like its 2012. So I’ve downsized with only $20,000. in debt left to pay off even though my profit will likely zero after paying me a small wage. Profit becomes important in the long run but needs to be weighed against the credit cycle if the farm or ranch intends to survive in the long run. Reading Charles Hugh Smith might give some inspiration for future Profit tips. https://www.oftwominds.com/blogjuly18/profits-hostage7-18.html
> It sounds like you may be lumping economics and finance together.
Economic profit doesn’t need to be weighed against the credit cycle.
Expansion, cow ownership v. leasing v custom grazing v other
alternative enterprises, starting a new enterprise … these are
things that need to be weighed against the credit cycle, but not
profit. If you aren’t earning an economic profit year in and year out
your business model isn’t sustainable….That doesn’t mean that there
might not be the odd year (1 or 2 in 10?) when you produce an economic
loss, but a business that is built to profit only when interest rates
are low or when certain indicators hit certain targets is probably not
a very healthy business…it is certainly a precarious one.
There’s another Red Flag …
Paying yourself “a small wage,” usually means that you’d have to pay
someone more to replace yourself to do all the work you do. That
replacement wage is the wage you need to pencil in when you calculate
profit. If you aren’t using that “replacement wage” it sounds like
breaking even isn’t in the cards this year and you’ll be producing a
loss this year.
I have an acquaintance that is going broke, slowly but surely. He’s cutting timber each year to keep the ranch afloat, and this is a process that will soon come to a halt when the last tree is cut. While I feel a tiny twinge of pain personally for him, I refuse to feel bad about the “loss” of another old-time, “Reputation Ranch”. This is an outfit that has never accepted modern grazing techniques and refuses to do any kind of economic analysis. “We just do it this way” is not much of a business plan. The ranch is an ecological and economic disaster, and a place that is crying out for change. If I were younger it would be a very intriguing opportunity.
> “If I were younger” How old is too old? How young is too young? Does opportunity have an age? Any thoughts Dave?
> Butch, John wrote me personally to say he regretted using the word “age.” He should have used “stage.”
I don’t think age is the issue. I think we do have different stages in our lives. Some “opportunities” that may be irresistible at one stage of your life might look like “threats” at another. (This is one reason multi-generational family businesses are so challenging to run.)
> John, my guess is that you still find the opportunity intriguing, but it just isn’t a high enough priority for you at this stage of your life (you and I are probably at similar stages). You and I have other adventures that interest us more. .
Thanks, Dave… Excellent thoughts and analogy. Reminds me of a Darwin quote that says, ““It is not the strongest of the species that survives, nor the most intelligent that survive. It is the one that is most adaptable to change.”
Good article but, is it not better to have one or even two family members who work off the ranch to keep it in the family.
Most ranches today that are given up because it can not make a profit are sold to developers and sub divided into lots. Regarding the selling of a ranch gives an “opportunity for a new generation of ranchers who want to start ranching for profit”. They better start out as millionaires and be able to pay the taxes on the ranch they purchased.
Of course if it is purchased by a large corporation they will have the staff and the dollars and then continue to run it at a loss for tax benefits.
Then Agricultural losses and the price of food continue to rise.
An example of this loss has happen in our area. Ranches were we used to purchase our hay have been sold to developers and now we have to travel out of state to get our hay.
Ranchers I know have always tried to make a profit or break even in an impossible world. With federal regulations increasing and cost increasing profit is further away then ever.
I do not think ranchers are not interested in profit but do not think it can be done.
I have taken one of your seminaries and found it to be useful.
As a rancher I to have to have a family member work outside the ranch to keep going.
With the continued added cost we are lucky if we can break even. I watch every penny and half penny.
Last year along my expenses increase almost 200%, for products I can not cull.
If you can help me decrease that I would love to know how.
People are only willing to pay so much for our product.
Respectfully submitted
> It may be better for that family…MAYBE.
But it’s definitely not better for other people who are have the ambition and smarts to build a profitable ranch business.
The claim that most ranches are subdivided and sold may be true in some areas…but not all…and personally, I like to see subdividing ranches made more difficult. As for large corporations, I got news for you…several of the largest ranches in the US are graduates of our program and I’ve seen the books (at least on some of them) and many of the ARE run for profit.
In my opinion, THE biggest problem in making a ranch profitable today is ranchers who don’t believe it is possible to make a profit ranching. I recently met with a rancher who’s worked out a plan that make the family ranch profitable. He’s run the numbers on multiple price/weather scenarios prove it). But his 80 year old dad won’t go for it. He believes that it isn’t possible to make a profit ranching. So to protect Jr. (and maybe to avoid having Jr. do better than he did) he won’t even give Jr. a chance. Instead, Dad intends to split the property between his three kids. I don’t know if that family is better off keeping the ranch in the family, but I know that our industry is NOT!
It’s not land prices, extreme weather, uncertain commodity prices, foreign markets, interest rates, government regulation or anything else that anyone is doing to us that keeps us from being profitable. The problem is ourselves. Want proof? How’s about the RFP grads who are making a real economic profit from ranching in places where others say it is impossible?
Knowing how to ranch isn’t enough. People need to know how to build a ranch business.
Keeping the family ranch in the family by subsidizing it just makes it harder for the next generation of ranchers who know how to and want to ranch for profit.
Lots of talk about legacy ranches and farms and how to keep the operations in the family. Your question of survival of the fittest touches on what is survival and does it have anything to do with being the fittest operation to begin with. Was leaving a legacy even a thought of past generations? One of the unique things of land based agricultural production is that two streams of wealth are possible. The ongoing operational profit and the underlying land value growth. Neither are guaranteed but for a vast amount of operations the land values have bailed them out of poor operating profits. I’m old enough to remember farmers and ranchers that sold their operations and moved to town when they got old enough to quit the business, because it was the only wealth they had. It may have been sold to a family member, but more often it was a young person starting out.
Somewhere along the line we got to a place where land became too expensive for the young to buy and created this landlord tenant culture that we have today. The land quit being sold and instead the heirs became the new landlords. In our particular community a third of the land title is held by heirs that don’t live in the county or even state. All that cash rent that leaves our community except a token amount of tax is never reinvested in anything local. The stream of wealth from land value that previous generations depended on is lost to the operator. Now more than ever before, these rented land dependent operations have to be managed to make a profit for survival, but one wonders what kind of community will be left to live in.
Yes, leaving a legacy was a thought. Unfortunately, too many people thought that their “legacy” was a piece of property, a cow herd, or some other fixed assets. The most powerful legacies, the ones that endure, have nothing to do with “things” and have more to to with core principles and values.
As for high land values making it tough, absolutely. And I’m concerned about the land ethic of some ranchers who don’t own the land they use. On the other hand I know RFP grads renting land who take better care of it than the owners ever did! Even so, I’d much rather see a family member leasing the ranch from their family.
Buying a ranch and cash flow the purchase from ranching operations is a tall order. This is why anyone who expects to do it needs to explore options to capitalize and concessionize ranch resources.
Ultimately the answer is for ranchers to restructure their ranches to be profitable. If they don’t know how, or can’t, the sooner they step aside to let those who know how do it, the healthier our industry will be. Survival of the fittest.
This article reminds me of another…
https://fs.blog/2014/10/an-antifragile-way-of-life/