Major Determinants of Profit for Livestock Operations

If you’re like most farmers and ranchers, your goal isn’t simply to produce more—it’s to build a more profitable, resilient operation that can thrive for generations. Yet many producers continue doing what they’ve always done, hoping for better results, even as today’s economic realities make that approach increasingly difficult. 

Most of my writings and speaking in recent years have been centered on improving farm and ranch profitability, with soil health and grazing management serving as two of the greatest enablers.  Thanks to several good and profitable ranch managers and other business mentors, I have been aware of these “determinants” for a long time.  But, it is only after decades of practice and ranch profitability, that I have come to know that they are truly “major determinants” of profitability.

As your choices and decisions around each of these “determinants” improve, so will your profitability.  However, you must recognize that they cannot be considered individually.  There is a tremendous amount of interconnectedness between and across these determinants.  Making changes in any one will almost assuredly make or require changes in one or more of the others. Do your best to become a systems or holistic thinker.

Your decisions will not be perfect nor do they need to be.  If you do your best with what you currently know or can learn quickly, you will make progress.  Making changes is a decision.  Not making changes is also a decision which usually means staying with the traditional or conventional way of thinking and doing things which seldom work anymore.

The list of determinants that follow is not necessarily in any order of importance or economic significance. I believe that most farmers and ranchers are very intelligent people. Yet for some reason, many have not taken time to learn or understand what their leverage points are for profitability.  They continually strive to do what they have always done just a little bit better. When in reality, they need to change some of the things they do.

Major Determinants of Profit

Enterprise choice and selection

Your choices might include cattle, bison, sheep, goats, or poultry.  If you choose cattle, for example, then you still have important decisions to make: cow-calf, stocker only, cow calf/yearling, terminal production where you sell all the calves and purchase replacement cows, or maternal production where you raise replacement heifers and sell calves or yearling.  These choices will make a huge difference in a ranch’s profitability.  

If you’re not currently profitable—or don’t see a clear path to becoming so—the logical move is to choose enterprises that drive the strongest financial return. But once you are consistently profitable, you gain the flexibility to prioritize what you enjoy most and then focus on improving the profitability of those enterprises. 

For cow-calf producers, I have found that, in many situations, terminal breeding programs where you sell all the calves (as calves or yearlings) and buy all your replacement cows are more profitable than maternal operations that produce their own replacement heifers. I hear all kinds of arguments that you can’t buy cows as good as you produce.  No, you can’t, but they don’t need to be.  Cows are cows.  Some are a little better than others.  In a terminal program, every cow can produce a calf.  In the maternal program, the yearling heifers will not produce a calf.  Something has to replace that revenue.  The only way maternal operations will compete with terminal operations in terms of profitability is if they can develop a lot of replacement heifers at a low cost and then sell a good group of bred cows (not heifers) each year at a premium price.  On two different ranches that I managed for the same owner, the maternal ranch never did outperform the terminal ranch even though the terminal ranch had several disadvantages. (I must allow that in some harsh environments it can be difficult and perhaps impossible to find cows that are adapted enough to achieve good pregnancy rates.  Raising your own replacements might be better in that context.) 

Overheads 

Overheads are often the biggest robber of profitability.  Overheads come in two categories: 1) land and the things attached to it—fences, buildings, corrals, irrigation facilities and equipment, roads, etc. and 2) people and the tools and equipment they need to do their job—trucks, horses, four wheelers, side-by-sides, tools, equipment, etc.  The decision to remove these costs is often more difficult emotionally than intellectually—it’s hard to part with that pickup and stock trailer or those two horses that we don’t need any more or that calving shed, etc.  However, in my consulting business since retirement, the ranches that have made the fastest improvement in profitability are those that were willing to make the hard decisions to get rid of unneeded overheads—even when it hurt emotionally. Seriously, we are in the business of managing overheads.  It is usually an “either/or” decision.  We need it or we don’t.  It is not easy emotionally, but so financially rewarding.

Stocking rate

If you want to improve ranch profitability, one of the greatest opportunities is in making your land more productive and profitable. Often not owning more land—it’s making the land you already have more productive. That starts with understanding the relationship between stocking rate, cow size, soil health, and grazing management. 

Cow size and milking ability

If your cows are smaller and/or give less milk, you can run more of them on the same acreage.  Several studies show that smaller cows with less milk production produce more pounds of calf per acre than larger cows giving more milk. (The smaller cows wean smaller calves, but not proportionally smaller.)  The smaller calves sell for more dollars per pound. Thus more pounds per acre selling for more dollars per pound. There might be a point at which they are too small for the market, but don’t be easily talked out of this.  Large cows have other disadvantages too—pregnancy rates are usually lower.

Soil health and grazing management  

This offers one of the biggest opportunities to improve profit. I know a good number of ranchers that have doubled their carrying capacity and then their stocking rate. Most of them will tell you that the cash requirement for stock water development and fencing seemed fairly large at first. However, when they considered that they had doubled the number of livestock they could run on the same land, they thought the “new ranch” was quite inexpensive; and they didn’t have to pay property tax on it either.  One rancher said that, while his herd size was growing, he quit feeding hay, he didn’t have to add a truck, tractor, side-by side, personnel, or other costs.  The only addition was on the days they worked cows—three to five days per year.  It took more labor on those days—either traded with neighbors or paid day-labor. The reality is that grazing management on most ranches has the greatest potential to improve ranch profitability of anything we might change.  It is also very satisfying and esthetically pleasing to be part of.

Fed feed vs. grazed feed  

Any time you put a machine between the mouth of the cow and her feed source, it has just cost money.  It may occasionally be justified, but not as often as most people do it.  The happiest ranchers I know are those that shortened their winter feeding period by 30 days, then 60 days, then 90 days, and finally eliminated winter feeding altogether.  They are not starving their cows.  They have learned how to stockpile winter grazing and how to appropriately supplement protein, salt, and mineral to get cows through.  In toughest places some have not entirely eliminated winter feeding.  Others use some bale grazing or windrow grazing to greatly reduce the number of machine days and cost.  Some quit trying to run cows at high elevations where the snow is deep for a long period of time.  They run stockers instead or move the cows to winter grazing if not too far away. Some have selected cows that are more adapted to winter grazing.  There are numerous ways to increase the number of grazing days and reduce the number of feeding days.  Economically, this is a huge advantage. Check out this recent article that I wrote on this topic. 

Calving season

A cow’s requirement for nutrients almost doubles when she calves.  It is nice when Mother Nature provides that increase on her own.  You can also avoid a lot of labor and facility costs. Therefore, the choice of a calving season for your ranch is very important economically.  When I was still naive and calving in February and March in the northern part of the United States, I often told people that “I” was calving.  Why was “I” calving?  The cows are supposed to calve.  We now simply let “the cows” calve starting in late April or May—no calving barns, jug pens, night shifts, etc.  The weaned calf crop percentage is just as good as ever and the rebreed rate is perhaps a little better with almost no hay feeding.  It’s a lot better life for us and the cattle. I could go on.  Each ranch needs to pick the time that is best for them considering goals, climate, grass production curves, etc.; but most who try are finding a late spring/early summer season fits very well. 

Herd fertility

Every cow that doesn’t wean a calf represents a missed opportunity to produce income. Ideally every cow would get pregnant early in the breeding season, then have and wean a healthy live calf and accomplish this on low inputs.  This will probably never happen for any of us; so let’s cull those that don’t.  I am convinced that the heritability of fertility is much higher than usually reported for cows raised and run on moderate to low inputs—like minimal to no hay feeding with moderate supplementation.  The truly good ones get pregnant and that is much more heritable than for those cows raised with higher inputs to “get a higher breed-up.” Cows that are truly adapted to their environment can do this with little hay and only minimal supplementation.  You can read more on this in this article I wrote. The naturally fertile ones are the money makers even if their calves aren’t the biggest.

Wise use of direct inputs to optimize profitability

Don’t let the people selling feed and supplements sell you more than you should need.  They will try—that’s their job.  The rules of Economics say that, if the marginal return from the use of an input is larger than the marginal cost, you should use it.  I beg to differ. In agriculture, where we deal with biology which is not nearly as predictable as chemistry and it is also buffeted by climate which further messes with the predictions, we need to project at least a two for one return.  In other words, I don’t want to use someone’s medication or feed supplement or fertilizer unless it will give me back at least twice what I paid for it.  Why?  Our ability to estimate is not very good; and the salesperson will always be optimistic.  Then what if the price of that input should double, and our cattle or our land are addicted to it, what will happen when we can no longer afford the input even if it was doing what we expected?  I am not saying use no inputs.  I think a low input approach is usually better than a no input approach.  I think sometimes there could be a 10 to 1 benefit/cost ratio. So, be cautious and use only the right inputs in reasonable amounts.

Marketing 

Marketing can make a huge difference.  A little time spent thinking about time, form, and place can often yield much better market outlets and pricing opportunities.  You don’t need to be a marketing expert to strive for better results.  There are experts that can help you when and if needed.  Time—what is the best time to offer my products for sale given the options in my area.  Do I know the options? Form–what is the best form to sell given my herd dynamics, climate, location, and my marketing abilities and desires—calves directly off the cow, preconditioned calves, yearlings, bred heifers, bred replacement cows, or even direct marketing of meat.  There are ranchers that expose nearly every heifer calf born on the ranch to bulls for a short time and then keep all the pregnant heifers.  This usually makes quite a few bred cows available for sale.  I know others who move late calving cows to fall calving or to winter/early spring calving to sell a bred cow rather than a cull cow.   Place—what is the best place to offer my particular products for sale?  There are many alternatives—sale barn, direct order from local buyers, video auctions, futures and options, LRP, etc.  A little time spent each week on these and other marketing ideas can yield a nice return on your invested time.

I think these truly are “Major Determinants of Profit.”  You will notice that weaning weight is not on the list.  It is not because additional weaning weight always comes with a cost.  Sometimes the added weight will increase profit; but sometimes it won’t.  

Costs can be subtle and sneaky.  As you push for higher weaning weights, cow size usually increases and sometimes milk production also.  Then you have to run fewer cows or buy more feed.  

As you work to improve these “determinants,” remember that they are interconnected and work together. Making progress in these areas will certainly improve your profitability and your quality of life.  You will also have a real sense of accomplishment from helping the ecosystem and the community in which you live.

If you’re ready to identify the biggest opportunities on your own farm or ranch, an Understanding Ag consultant can help. Our experienced consultants work alongside producers to develop practical, profitable strategies that improve soil health, grazing management, and long-term farm profitability. Whether you’re just getting started or looking to fine-tune an existing operation, we’re here to help you build a more resilient and profitable future. Contact Understanding Ag today to connect with a consultant and take the next step toward lasting profitability.