Face Profitability Head-on
Cattle folk need to focus more on profitability to ensure ranch viability and successful transition to the next generation.
Profitability is often avoided in conversations when producers talk about their operations, but that should not be the case, according to John Locke, instructor for the Ranching for Profit School offered by Ranch Management Consultants, Wheatland, Wyo. Locke addressed attendees of the Young Producers Symposium June 22 at the 2021 Beef Improvement Federation (BIF) Research Symposium & Convention hosted in Des Moines, Iowa.
“Profit is to business as breathing is to life,” said Locke, who is a partner in the Locke Division of JD Hudgens of Hungerford, Texas.
“Profit is to business as breathing is to life,” Ranching for Profit School Instructor John Locke told attendees of the Young Producers Symposium. [Photo by Jessica Wesson]
Generally, the problem with profitability is that it is the last consideration for many producers. Forty percent of businesses will fail within their first year, and only 4% will survive the first decade, said Locke, noting the statistics are applicable to farms and ranches.
The key to increasing profit might be change.
“If we do what we’ve always done, we will get what we’ve always gotten,” Locke said.
American agriculturalists are some of the most productive and efficient farmers in the world. Commodity production has increased significantly in the last 50 years despite the numerous challenges farmers and ranchers face, and that is shown through production data.
Locke pointed out that production data do not necessarily include profitability in its truest form. This sort of data also does not consider the success rate of passing down the operation.
“Of the people who want to pass their ranch to the next generation, only 30% are successful,” Locke said.
One of the biggest reasons is that profitability is not considered, which makes the business nonviable. It is also about a lack of knowledge. Heirs who are incompetent about running a business may not have the skill set needed to successfully transition the farm or ranch.
“Knowing how to grow crops and raise livestock is not the same thing as knowing how to run a business that grows crops and raises livestock,” Locke said.
He presented three secrets for improving profit no matter what the business is:
- 1. Reduce overhead.
- 2. Improve gross margin per unit.
- 3. Increase turnover.
“If our farms are not fun and if our farms are not profitable, our children will not want them,” Locke concluded. “The ultimate test of sustainability is romancing the next generation.”