When Pigs Fly

 (When hay is less expensive than pasture)

A Handbook for Ranch ManagersOne of the most important competencies of a good ranch manager is the skill to produce comparative budgets (Alternative A vs Alternative B).

Such a budgeting process should be done each and every time any such decision is made. The economy and its markets are not static. They are dynamic with ever changing supply and demand.

Planned Grazing: A Study Guide and Reference ManualWhen I was CFO and General Manager for Chihuahua Cattle Company and Quarter Circle 5 ranches, most of my days were spent doing budgets.

Since we owned a feedlot in CA but had cattle in Environmental & Natural Resource Economics: The Austrian Viewcustom lots in AZ and CO, a very typical decision was whether to send cattle ready for the feedlot to AZ or CO or feed them in our own lot in AZ.

The most profitable place changed more frequently than one would expect. This was, of course, because of volatility and differences in feed prices, vs transportation costs, and expected finished price.

By Dave Pratt via Ranching for Profit Blog

An Executive Link member from Nebraska sent me an email that could turn the grazing world upside down. He wrote to say that he’d crunched the numbers and his figures showed that feeding hay was less expensive than leasing pasture. He concluded that it was more profitable for him to feed his own cattle hay in the feed lot and bring in outside cattle to custom graze on his pastures than it was to graze his cattle on his ranch. He wrote, Am I the first person to have read Kick the Hay Habit and conclude that I need to pick up the habit? He added, This doesn’t sit well, as it is my paradigm that there is no place for hay on a profitable ranch. I joked back to him that hay did have a place…his neighbor’s place. But then I looked at his numbers and saw that he was right.

The Essence of Liberty: Volume I: Liberty and History: The Rise and Fall of the Noble Experiment with Constitutionally Limited Government (Liberty and ... Limited Government) (Volume 1)  The Essence of Liberty: Volume II: The Economics of Liberty (Volume 2) The Essence of Liberty: Volume III: A Universal Philosophy of Political Economy (Liberty: A Universal Political Ethic) (Volume 3) According to his numbers, which he’d drawn from published reports from reputable sources, pasture leases in his area averaged $27/acre while prairie hay was selling for $80/ton delivered. He calculated that, at that price, a pasture lease would have to be $18/acre to compete with hay.

The economic comparison of feeding hay vs. grazing pasture isn’t as clear as you might think. There’s the efficiency of use, the cost/value of nutrient redistribution, and several other things to consider. Of course, a bigger issue is the cost of the hay. Even bigger may be the cost of feeding the hay. Feeding takes labor overheads and usually involves capital investment in equipment. If we feed it in a dry lot, we also have to account for the costs that come with raising livestock in confinement (dealing with concentrated dung and urine).

Grazing pasture vs. feeding hay is a separate issue from growing vs. buying hay, but when forage is priced higher on the stem than in the bale it is crazy to even think about growing it. Even when hay is more expensive than pasture, most ranchers who grow their own hay, lack the economy of scale to justify the capital expense for the hay equipment they have. They’d be better off turning their hay ground into grazing ground.

Rents and custom grazing rates in some parts of the country are so high that it has turned the grazing world upside down. I think this is a temporary situation. Markets have a way of adjusting and I think the spread between hay prices and pasture rents will shift so that grazing your cows on pasture is more profitable than feeding your cows hay. But right now, in some places, the most profitable strategy may be to custom graze outside cattle or lease your grass and feed hay to your own cattle in a dry lot.

Look, up in the sky. It’s a bird. It’s a plane. No, it’s a pig.

Pig flying hay with wings2

Check out our WebSite

Check out our Online Rancher Supply Store

A Handbook for Ranch ManagersA Handbook for Ranch Managers.  In keeping with the “holistic” idea that the land, the livestock, the people and the money should be viewed as a single integrated whole: Part I deals with the management of the natural resources. Part II covers livestock production and Part III deals with the people and the money. Not only would this book make an excellent basic text for a university program in Ranch Management, no professional ranch manager’s reference bookshelf should be without it. It is a comprehensive reference manual for managing the working ranch. The information in the appendices and extensive bibliography alone is worth the price of the book.

You might be interested in this books supplement: Planned Grazing: A Study Guide and Reference Manual.

Advertisements

About Land & Livestock Interntional, Inc.

Land and Livestock International, Inc. is a leading agribusiness management firm providing a complete line of services to the range livestock industry. We believe that private property is the foundation of America. Private property and free markets go hand in hand—without property there is no freedom. We also believe that free markets, not government intervention, hold the key to natural resource conservation and environmental preservation. No government bureaucrat can (or will) understand and treat the land with as much respect as its owner. The bureaucrat simply does not have the same motives as does the owner of a capital interest in the property. Our specialty is the working livestock ranch simply because there are so many very good reasons for owning such a property. We provide educational, management and consulting services with a focus on ecologically and financially sustainable land management that will enhance natural processes (water and mineral cycles, energy flow and community dynamics) while enhancing profits and steadily building wealth.
This entry was posted in Ranch business planning, Ranch Economics, Uncategorized and tagged , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s