Case Study: Brush Management on the Renderbrook Division of Spade Ranches

CASE STUDY: BRUSH MANAGEMENT ON THE RENDERBROOK DIVISION OF SPADE RANCHES

By Tom Davis, KRIRM Class of 2016

EXPERIENTIAL LEARNING THROUGH CASE STUDIES

For two decades KRIRM has worked to develop exceptional ranch managers through a Master’s of Science in Ranch Management. We combine classroom fundamentals in agriculture and business to complement their practical ranching and technical skills. No exercise has proved more impactful than experiential learning through case studies.

During their graduate training, each student completes at least seven case studies for partnering ranches across North America. Over the years KRIRM students have completed over 130 case studies for more than 50 ranches and ag organizations. The following example is a case study Executive Summary for a project completed by 2016 KRIRM graduate Tom Davis for Spade Ranches. This particular project originated when Wesley Welch, General Manager of Spade Ranches, contacted us to describe a brush encroachment issue challenging the Renderbrook Division of Spade Ranches in West Texas. The goal was to create a multiyear prioritized plan for cost-effective brush management across the ranch.

INTRODUCTION

Cow/calf production is the primary enterprise on the Renderbrook Division of Spade Ranches, with wildlife also providing income. Elevated cattle prices in recent years have enabled management to consider investing in land improvements that will increase forage production. Brush encroachment has reduced grazeable acres and beef production at the Renderbrook. As a result, Spade Ranches has partnered

with the Natural Resource Conservation Service (NRCS) in aerial spraying mesquite with herbicide. The remaining brush canopy is redberry juniper and untreated mesquite.

Managing redberry juniper is expensive, but can be cost effective if planned strategically. The strategic approach requires brush management in multiple phases prioritized by cost effectiveness. Soil type and juniper density/canopy cover influence the cost effectiveness of each phase. Spade Ranch management was interested in utilizing current technology to plan a cost-effective brush management program on the 120,000-acre Renderbrook Division located south of Colorado City, Texas in Coke, Mitchell, and Sterling counties.

The purpose of this project was to: 1) Determine the ideal treatment methods for juniper and mesquite on Renderbrook; 2) Forecast financial outcomes of the ecological responses to each treatment method; and, 3) Create a brush management plan for Renderbrook by prioritizing regions of the ranch for treatment based on forecasted financial return.

PROJECT APPROACH

Developing a comprehensive brush management plan for Renderbrook and forecasting its implications required several assumptions. Assumptions were established via ArcGis software, NRCS data, and financial data from Spade Ranch. Data were analyzed using a Microsoft Excel model tailored for the various recommended quantitative brush management inputs.

Prioritization. Prioritization involved ground level observations paired with GIS software output to identify the most productive soils with a brush canopy greater than 20%. The ranch was divided into multiple tracts that were ranked on Internal Rate of Return (IRR). Ranked tracts were grouped by priority so highest return tracts would be treated first. Each priority grouping had an approximate cost equivalent to the expected annual brush management budget for Renderbrook ($250,000).

Mapping. Developing maps to complete the brush program analysis required several steps, the majority of which involved use of GIS software. This software facilitated compiling ranch boundary shape files and soil layers, as well as classifying soil production potential and woody cover.

Brush Management Budgeting. Brush treatments evaluated had been used on the Renderbrook. Grubbing costs per acre accounted for operator fee, fuel, equipment maintenance and depreciation, and interest. Herbicide and prescribed fire treatment costs were extrapolated from budgets for 60,000 acres treated on the Renderbrook in the past five years. Prescribed fire costs usually range from $4 to $7/acre and herbicide cost/ acre was estimated for both airplane and helicopter application.

Forecasting Revenue. Cost effectiveness of the project depends on the forage response resulting from brush management. A juniper canopy coverage of at least 30% results in a 70% decline in forage production from its potential. Thus, clearing a 30% juniper canopy will significantly increase forage production and revenue per acre. Financial statements with Renderbrook average net income/animal unit (AU) were used to forecast additional net income associated with brush management. Maximum brush treatment/removal without negatively affecting Renderbrook wildlife habitat is approximately 60%. Treatments recommendations optimize cow/calf production without negatively impacting habitat and wildlife enterprise income.

Financial Model. A Microsoft Excel model was created to evaluate financial ramifications of brush management. The model projected a 15 and 30-year cash flow for the investment. To calculate the 30-year Net Present Value (NPV) and Internal Rate of Return (IRR) per AU, the financial model included Renderbrook annual cow and heifer costs. Assumptions included: 90% pregnancy, 2% annual cow death loss, 90% weaning rate as a function of pregnant cows, 556 lb. weaning weight, $175/cwt calf price, $75/cwt cull cow price, 1% annual revenue escalator, 2% annual cost escalator, and 5% discount rate.

These assumptions were used to project future net incomes resulting

from the 30-year brush management investment. The financial model also included a stocking rate consideration to determine the additional AU resulting from brush removal. The model incorporated treatment area, potential forage production, % canopy coverage, forage required/AU, and a forage utilization coefficient. Total treatment costs were estimated by accounting for acres treated, grubbing hours/acre, prescribed fire cost/acre, and herbicide cost/acre. The initial investment for the project was entered as a cash flow zero, along with the purchase of additional AU.

RESULTS AND RECOMMENDATIONS

Results reflect the potential monetary gain achieved by adding animal units. Other benefits may include improved livestock gathers, increased edge habitat for wildlife, and drought mitigation. The financial model shows the projected costs and gains realized from implementing the proposed brush management. Implementing the plan will require nine years to treat all nine priority areas. There are 30 tracts of land prioritized by IRR and the time sensitive implications of their canopies (Tables 1 and 2). Priorities one through four involve 11 tracts (15,050 juniper-infested acres) that should be treated by grubbing (Figure 1). Priorities five through nine are the remaining 19 tracts totaling 30,048 acres (Figure 2). These tracts are mesquite-infested and should initially be treated with herbicide followed by prescribed fire on a four-year rotation.

Years one through four. With the current annual brush management budget, completing all 11 tracts in the top four priorities will involve grubbing the proposed 15,050 acres of mid-grass prairies in approximately four years. The 30-year cash flow (Table 3) shows that completing priority areas one through four results in a 7% IRR with a NPV of $660,363 after an initial two-year cash flow suspension associated with the delayed forage response following grubbing. The additional forage will support an extra 346 AU by year six. Each additional AU is projected to have a 30-year NPV of $1,906. The projected NPV is $44/acre across the 15,050 acres grubbed. The positive 30-year NPV provides confidence in the potential for improved profitability through strategic brush treatment. Breakeven AU for the project were calculated at 246 assuming a 5% discount rate. Priority five has a higher IRR than priority four, but priority four is ranked higher because

Net Present Value (NPV): a capital budgeting tool for calculating the long-term profitability of a project using estimated future discounted cash flows.

Internal Rate of Return (IRR): a calculation that reflects the rate of return required to generate a positive NPV.

redberry juniper grows more aggressively than mesquite and in five years the IRR rank of these tracts will likely change.

Years five through nine. If priorities one through four are completed in the first four years, management should focus on treating mesquite in priorities five through nine with herbicide over the following five-year period. Every four years a prescribed fire should be implemented as follow-up treatment for sprayed tracts to minimize mesquite re-growth and to promote more palatable tobosagrass regrowth. The forecasted 30-year cash flows (Table 4) for treating priorities five through nine reveals an NPV of $556,229, IRR of 6%, and a $19 NPV/acre. The invasive nature of mesquite and tobosagrass communities alone justify implementation of an aggressive brush management program in priority areas five through nine. The additional AU forecasted from treatment with herbicide and fire is 399, with a breakeven of 299 AU assuming a 5% discount rate.

Overall, treatment of priorities one through nine requires a total initial investment of $2,245,875 over nine years. The resulting NPV of implementing treatment on priorities one through nine over the course of 30 years is $905,864, with an

IRR of 6% and payback period less than 17 years.

Recommendation 1. Grub the juniper encroachment in tracts one through 11 (priorities one through four) as soon as capital is available. Treatment of these tracts yields an estimated 30year NPV of $44/acre and an IRR of 7%.

Recommendation 2. Following the treatment of priorities one through four, priority areas five through nine should be treated. The invasive capabilities of mesquite and tobosagrass communities alone are reason to implement an aggressive brush management program in priority areas five through nine. Treating all priority areas results in an estimated NPV of $19/acre over 30 years and an IRR of 6%.

Recommendation 3. To maintain 30-year treatment efficacy, implement a seven-year burn rotation on juniper-grubbed pastures and four-year burn rotation on areas with herbicidetreated mesquite. The burn rotation on the areas treated for mesquite will also keep the invasive tobosagrass in a more palatable vegetative stage.

TABLES AND FIGURES

Table 1. Prioritization of Renderbrook juniper-invaded tracts for grubbing and follow-up prescribed fire based on Internal Rate of Return

aTract number indicates the location on the map in Figure 1 bDetermined from total acres sprayed in each tract cPriorities require an initial investment of approximately $250,000 dCalculated over 30 years

120,000-acre Renderbrook Division; Spade Ranches

one through four

Figure 1. Grubbing map (shown in yellow) and juniper canopy coverage (shown in green) of 11 Renderbrook tracts in priorities

aTract number indicates the location on the map in Figure 2

bDetermined from total acres sprayed in each tract

cPriorities require an initial investment of approximately $250,000

dCalculated over 30 years

aAdditional animal units resulting from brush treatments

bRevenue from calf sales (escalated 1% annually)

cExpenses from cow/calf production and brush treatments (escalated 2% annually)

dFirst investment in grubbing priority one and capitalizing heifers

eIllustrates a 16.1-year payback period

Table 2. Prioritization of Renderbrook mesquite-invaded tracts based on Internal Rate of Return (IRR) when treated with a combination of herbicide and follow-up prescribed fire

Figure 2. Renderbrook mesquite-infested tracts (priorities five through nine) to be treated with herbicide and prescribed fire follow-up

Table 3. Thirty-year cash flows and Net Present Value (NPV) associated with additional animal units facilitated by grubbing of Renderbrook juniper-infested rangeland (priorities one through four)

120,000-acre Renderbrook Division; Spade Ranches

Table 4. Thirty-year cash flows and Net Present Value (NPV) associated with additional animal units facilitated by herbicide and prescribed fire treatment of Renderbrook mesquite infested rangeland (priorities five through nine)

aAdditional animal units resulting from brush treatments

bRevenue from calf sales and a 1% escalator

cExpenses from cow/calf production and brush treatments using a 2% escalator embedded in discount rate

dFirst investment in herbicide and prescribed fire for priority 5 and capitalizing heifers

eIllustrates a 16.4-year payback period

King Ranch® Institute for Ranch Management CELEBRATES 20 YEARS IN 2023!

This year the King Ranch® Institute for Ranch Management (KRIRM) will celebrate its 20th year of educating the next generation of ranch managers. When KRIRM was founded, the industry had a need for high-level ranch professionals who had the skills and expertise to manage the complexities of modern-day ranching operations. That need still exists today. Our industry faces a constant barrage of new challenges every year and KRIRM continues to prepare the brightest minds to meet these challenges head on by finding real-world solutions to make a positive impact on the ranching industry at local, state, and national levels.

Over the last 20 years, KRIRM has graduated 50 alumni who manage over 8.4 million acres of ranchland and wildlife habitat. Our graduates are progressive leaders and exceptional managers at some of the most diverse ranches in the country, but they are also sought out as industry experts who provide a unique perspective. As we look toward the next 20 years, it is exciting to think about 50 or more new alumni using their professional knowledge to shape the ranching industry in our country and ensure that our heritage is not lost. Their influence on this way of life that we love is vital to successful ranching operations and the legacy we leave for future generations.

KRIRM is on a mission, and we will continue to sustain our ranching heritage through education, innovation, and outreach for the next 20 years and beyond! Learn more at: krirm.tamuk.edu