Building a foundation for financial success in ranching

Crafting a budget and financial analysis that provides what your unique operation requires in 2023.

In 1986 when I was working at Oregon State University as Extension Information Specialist and managing the commodity market news program, I met Doc Hatfield. Doc and his wife Connie owned and operated the Hatfield High Desert Ranch near Brothers in the Central Oregon High Desert. That year, 1986, Doc and Connie founded a cooperative of ranchers and created Oregon Country Beef, now known as Country Natural Beef. Doc and Connie and I became very good friends over the years as we spent many hours at the ranch visiting and talking about Oregon Country Beef and the costs of ranching and raising cows. Doc passed away in 2012, but he left a lasting impression on many ranchers in the Pacific Northwest.

The beef industry has seen a great deal of change since 1986 when Doc Hatfield and I first met, structurally and otherwise, but I think it is important to remember a rather simple statement that Doc always made. Perhaps, more times than I remember, Doc said, “the cows have to fit the ranch.” In other words, they have to be the best cows for that particular grazing resource to efficiently convert grass to beef at the “best” cost. Over the years, I have added to Doc’s statement – and, “their calves have to fit the market.” Fitting the ranch may not be a requirement of a pasture operation in the Midwest, but I firmly believe those two statements are the basic premise of successful ranching in the Western U.S.

After two years of what may be decisive herd liquidation driven by drought and economics, the momentum is building as the beef industry heads into 2023 in anticipation of solid returns to the cow-calf sector. Certainly, from the standpoint of supply, it isn’t difficult to anticipate a stronger market. However, it is still important to remember that the scope of that market strength cannot only encompass live cattle prices, but rather must extend across the entire supply chain to the point of final demand – the consumer, both in the U.S. and key export markets. While the current situation and subsequent outlook is perhaps as positive as it has ever been, it is still important to remember how easily conditions affecting that demand can change and in turn, lead to market volatility. Consequently, I think it is timely for ranchers

BY JOHN NALIVKA

to truly think about how the next 2-3 years may present an opportunity to realign their business.

I have always thought budgeting and financial analysis on the ranch are critical. It’s difficult to truly understand which decisions will have the greatest impact on the financial health of the ranch without first dissecting your financial situation. And, that requires numbers. You may have heard that from your banker when you were discussing your operating loan, but making the decision to take a complete look at costs of production on your ranch goes well beyond that visit with the banker. This is the starting point to understanding how those costs relate to your cowherd, your grazing resource, and changes in your marketing plan and making decisions to match all of the above with your operating costs. Your ranch is unique and your financial decisions rest on information that is unique to you and that ranch.

Ranching is a lifestyle, but beyond that it has to be financially sustainable. And that sustainability starts with “cows that fit the ranch” and “those cow’s calves fitting the market.” This is about successful ranch economics not carbon credits. It is no mystery that the financial viability of ranching is increasingly difficult if not impossible for many. We can all list several reasons for this, but as a result for whatever reason, at the end of the day understanding the economics of your ranch has become crucial. And at the same time, finding marketing opportunities to increase your revenue without increasing costs of production is also crucial and those opportunities are expanding with branded beef programs. I often hear about how those programs “increased my costs and I didn’t gain anything.” I totally understand that statement. My response - this is why knowing your ranch costs in order to assess how a branded program or any marketing program will impact your ranch financial situation before you make any decisions is so important.

We know the sharply reduced cattle numbers going forward over the next 2- 3 years will potentially create the opportunity for significantly higher revenue to cow-calf ranches. However, there are many factors at play that can impact that opportunity – negatively or positively. Managing that risk requires information.