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Are you ranching for profit? That
may seem like a no-brainer of a question – who doesn’t want to
make a profit – but for many of today’s ranchers it can be an
elusive goal.
California native Dave Pratt has dedicated his career to helping
ranchers find profitable enterprises in their ranch businesses.
Pratt grew up in Northern California on a small livestock
operation (his mom’s family traces their roots back five
generations in the state), and after college Pratt spent 15
years with the University of California-Davis in a livestock
Extension position. In
1988, Pratt attended a “Ranching for Profit” school taught by
grazing and ranch management guru Stan Parsons. Pratt was
strongly influenced by Parson’s ideas and began to integrate his
Extension curriculum with many of the same messages. In 1999
when Parsons decided to move back to his native Africa, Pratt
and his wife Kathy were asked to take over the Ranching for
Profit schools. Initially, they managed the business venture
Ranch Management Consultants, Inc. for Parsons, and then after
two years purchased the business. The acclaim of the Ranching
for Profit school and the successive Executive Link program
continues to grow internationally.
Here, Pratt shares some of the
fundamentals necessary for “ranching for profit:”
What’s the first step needed for ranchers to move their
business toward a better future?
“The first step is shifting the paradigm that ranching can be
profitable,” says Pratt.
To illustrate why a mindset change is necessary, he adds, “You
hear people talk all the time about how unprofitable ranching
is. Young people are discouraged from pursuing it as a
profession. When all you hear is how bad things are what else
are you suppose to believe?”
But in reality, Pratt says, “Ranching can be profitable. In fact
it can produce a return on assets (ROA) competitive with non-ag
businesses. We have plenty of alumni (from the Ranching for
Profit School) who prove that every day.”
Additionally, Pratt quotes
sustainable farming advocate and author Joel Salatin who says,
“If farms aren’t fun, are not profitable, or are too much work,
our children won’t want them.” Of this Pratt emphasizes,
“Today’s ranches must be fun and profitable.”
In the course he teaches, Pratt’s
motto is ‘healthy land, happy families and profitable
businesses.’ Why do so
many ranches today struggle with finances and profitability?
Pratt says, “Eighty to ninety percent or more of the value of
most ranch businesses is tied up in fixed assets – such as land,
equipment, or cows. These are things the rancher intends to
keep. That means there is little left over to sell, which
results in a small cash flow. This is why many ranches are rich
on their balance sheet and poor in their bank account.”
He adds, “The other problem with
these things we intend to keep (land, cows, equipment) is that
they aren’t cheap to maintain – which is also a restraint to
creating wealth.”
How can ranchers get past this financial challenge?
Pratt advises that ranchers take a long hard look at their land,
which is usually their biggest asset. “Ranchers need to ask
themselves what they are actually harvesting,” he says, and
adds, “Land can often be over-valued for grazing, so you need to
look to other values.” As
examples, he suggests doing a broad inventory of the things your
land has potential to produce such as grass, wildlife, trees,
carbon, recreation, minerals, wind energy, landscape rocks or
plants, etc. From that
inventory, Pratt says the question the ranch operator must ask
himself is “What can be done?”
He likes to offer the options
capitalize or concessionize. In this context, Pratt explains
that capitalize means to divest yourself of the portion of the
value you aren’t using. A common example is a conservation
easement, through which someone divest themselves of development
rights. Selling the ranch and leasing it back is another
possibility. Or,
concessionize would be to find a way to use that value by
developing a business enterprise that produces a cash flow.
Pratt has seen numerous examples of this – from ranches that
host fee-based cowboy tours or hunting trips to a group of
Canadian ranchers who developed a highly profitable gourmet dog
food enterprise as a market for their cull cows after the U.S.
border closed due to BSE and their culls had virtually no value.
What’s a common mistake that ranchers seem to make?
Pratt emphasizes that ranch entities need to separate their
business into each distinct enterprise (i.e. cow-calf, hay,
stockers, etc.) and analyze the profit – or loss – from each and
then make some specific decisions.
Pratt says, “Find the 2 to 3
enterprises you are good at doing and focus on those that are
profitable. Don’t do it [the enterprise] if it doesn’t make a
significant contribution to the success of the business.”
He says a prime example is the hay
enterprise. Pratt says, “The majority of ranches don’t have the
scale to justify owning the equipment for haying and all their
capital is locked up into it.” He says if producers break this
enterprise out and look at the threshold of return many of them
would realize they’d be better off buying the hay and bringing
it in. Or, he challenges
ranchers to think even bigger and find ways to reduce they hay
needed by the operation by making changes to their calving
season. He adds, “If ranchers want to slash costs and make a
difference, the single biggest thing to change is often calving
timing.”
Any final words of advice?
Pratt says many of the ranchers he’s worked with think
out-of-the-“proverbial’-box to find profit. And people
frequently call them “crazy.” But, Pratt’s response is this:
“Conventional wisdom says ranching isn’t very profitable. So, if
you’re going to follow conventional wisdom, you can’t expect to
be profitable. Instead, be crazy and you may make a lot of
profit.”
He concludes by reminding ranchers, “It isn’t the situation you
are faced with, but your response that counts.”
For more about the Ranching For
Profit School visit
www.ranchingforprofit.com. |
