Cost management is key predictor for ranch success

PONOKA, Alta. — The ability to manage costs and spend prudently is often the difference between top performing farms and those with lower profits.

A six-year benchmarking study of bison ranches in Alberta and Saskatchewan allows producers to compare themselves to similar operations.

Most recently, a team of University of Alberta agriculture economic students segregated the financial information from about 25 producers who finish bison bulls for the meat market.

Presented March 17 at Alberta Bison’s annual meeting in Ponoka, the study determined that top performing bison ranches manage their costs better. For every dollar spent, a top performer received $1.43 in return.

Operating costs were the highest for all producers in the study.

Trucking, property taxes, fuel, repairs, insurance, utilities, barns, corrals and feeder animals were designated as operating costs. The biggest cost within that area was buying feeders.

“The top four guys are spending about 80 percent of their total budget on their feeder costs and their operating costs,” said student Alex Shuttleworth.

However, top producers spent about $300 less on feeder animals compared to higher cost producers. Further, the top producers spent more money on feed, which included grass, hay, barley, silage, salt and minerals.

Top performers spent 17 percent of their total costs on feed, while the lower end spent 10 percent of their budgets on feed. Spending more on feed resulted in better finished animals and ultimately more income.

Managing finances is part of a larger approach to profitability, said Roland Kroos, who runs Crossroads Ranch Consulting in Bozeman, Montana.

He works with cattle and bison ranchers on holistic management principles, in which the land, animals, people and finances are part of a larger plan.

“If you are not profitable right now, you better get out of the business,” he said.

“If you are in a business, you can’t allow yourself to lose money.”

Profitability potential is good for bison producers in the United States and Canada, where prices are attaining record levels. However, the market has crashed before, paying producers less than $500 an animal.

“We need to be constantly vigilant in where we believe this market is going. We need to understand the signs and maybe we are getting to the top,” he said.

“I wouldn’t bank on $6.50 a pound prices on the rail to make your mortgage payment because what happens if that goes back to $4 and you can’t make your payments.… The bison market will flatten out. It is an illusion to think we can keep growing at the same speed we have for the last five to 10 years.”

It all comes down to management and understanding costs such as infrastructure for necessary items like fences, chutes, corrals and water. There are also costs associated with winter feed, supplements and health care.

Analyzing these costs and creating realistic benchmarks for a ranch is critical. This needs to be kept simple. Few people like doing the books, and it is hard to make good decisions if the plan becomes too complex.

It also takes creativity to reduce costs.

“It’s called looking for deadwood,” he said. “There is always deadwood in every operation.”

Look at overhead costs and find ways to reduce them.

Money could be saved on winter feed if a rotational grazing system is developed. This can improve the grass and leave enough stockpiled for late season grazing or carryover in a drought.

Any business requires marketing, financial and technical skills.

“You will probably not be able to do all three well,” he said.

There is nothing wrong with getting help because there is no such thing as a one-person business.

He advises a team approach in which expertise is focused on holistic management. That style of harmonious management pulls together all aspects of the land, grass, people and money.

Producers also need to plan for profit first and develop discipline.

“Our human tendency is to spend all of it,” he said.

On the other hand, a business could run so far into debt that the only preoccupation is making the next payment.

As profit is earned, decisions have to be made on how it will be invested to expand the business.

“Operating without having to borrow a lot of money makes life easier,” he said.

“You have to be able to service those loans.”

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