Don’t Confuse Strong Markets with Good Management

“I’m really good at this ranching stuff! I’ve been hitting 20% to 40% ROI these past few years, and the management before me could never even crack double digit returns.” But how do you separate good management from just the luck of the market when you’re evaluating business performance?

Ranching in recent years has been exciting, to say the least. We’ve faced rising input costs, particularly in labor, feed, interest, and land rents. Add to that market volatility and widespread drought. But boy, has the market been generous, especially the past three years. Now, a strong cattle market isn’t necessarily good news for everyone in this business. But if you own a herd of cows and either own your ranch or lease one at a decent rate, you might think ranching has gotten pretty easy lately. 

Recently I was listening to a young man who’s been buying calves in the fall and selling them in the spring for the past three years. He was bragging about the 20% and even 40% ROIs he’s been hitting. Is that good management, or just luck? Maybe it’s a little of both.

For years at Ranching for Profit we’ve been modeling an example ranch. This isn’t a real ranch, but it is based on our experience from the hundreds of ranches we get to see every year. This example ranch is a 300 head cow calf operation based in eastern Wyoming. This ranch was never meant to be a model of high profitability, just representative of a typical operation. It runs cows, raises its own replacement heifers, and puts up enough hay to winter the herd, with two people working the place full time. For years that ranch bounced around breakeven. It lost $80,000 one year, made $50,000 the next, then landed back near breakeven. In 2025 that same ranch made a $250,000 profit. In 2026 it’s projected to make $220,000. Here’s the part that should give you pause. We didn’t change a single thing about how the ranch was run. Only the market changed. This example ranch didn’t get better. It got lucky.

It would be easy for that rancher to pat himself on the back and call himself an astute business leader. If he were reporting to shareholders, he could say things like “increased profits 5,000% under my leadership” or “turned a failing business into a thriving one in three short years.” And sure, I’ll give him credit for being in the game. You have to have chips on the table to take advantage of luck. But the truth is the business is no better managed now than it was before. If this ranch expects these profit levels to hold for years to come, I’d say it’s dreaming. Anyone who has spent time in a commodity business like ranching knows the cure for high prices is high prices.  

I have no special insight into when this market will soften. Heck, by the time you read this, the tide may have already turned, or we may have a season or two left. The point is we need to be honest in how we assess business performance, both when markets are climbing and when they’re on the way back down.

At Ranching for Profit we teach the power of economic projections. Actuals matter, but last year’s actuals are like the rear-view mirror on your pickup. They’re useful. They help you stay aware of what’s behind you and threats approaching from the rear. But your economic projections are the windshield. They help you navigate the road ahead, make corrections, swerve around hazards, and stay focused on your destination. When you build a projection, you need to use the information you have today. What are your animals worth today? What is feed worth today? What price can you protect today? I’m not saying ignore market forces entirely, but playing the market Ouija board is largely a waste of valuable management time. When you review last year’s actuals, separate market “inflation” from the actual value your management produced.

Be careful about complacency creeping in due to business performance from the past few years. This business has a way of humbling us quickly. Use this run of good prices, and the cash it’s putting in your pocket, to sharpen your management now, so you have a real advantage for the years to come.