The power of a gross margin in beef production
It was 2001. I was a young man who was starting my farm from scratch. I had just started a family, led a small herd of cattle, and worked far too many hours on and off the farm. Have you heard the saying that a farmer works eight hours a day to feed your family, then he works another eight hours a day to feed his? Well, that was me, except it was over eight hours from the farm. I hate this saying. It really hit me one day as I was trying to give grain in the morning and evening. I realized that I was feeding my animals four hours apart. I was working too hard and I was not moving forward. Why was I broke? Why couldn’t I make my payments?
I was desperate. I heard a rumor that there was this school called Ranching for Profit and it could transform your farm. But there was one problem – it was a weeklong school, and the tuition was $ 2,500, plus all travel, hotel and food costs. Ouch. I can’t afford this. A week off and find $ 2,500? I had a friend from college who was in the same place as me – working extremely hard but with no money. He worked off the farm and with his parents on the farm. Not only was he broke and couldn’t afford school, the farm needed him.
I decided to sell four cows and take school. My friend couldn’t come. I walked away, green as grass and swinging towards the fence to see if I could overturn that farm.
HEART STROKE ! I was so overwhelmed with information, emotion and passion. It has been an amazing week for me. That was almost 20 years ago, but I still feel the emotional overload I had from being there. I was a young man who started a family. My job was to provide for my family and I failed. I’m not too proud to say that there were a few tears that flowed that week.
Along with the course content, the networking that accompanies events like this is half the education. The people I met and the knowledge I received were worth their weight in gold. What an amazing group of people. Someone from school offered me a job setting up and running a ranch. I had another investment in the land for me and also had 300 head of cattle sent to me for custom feeding, just from the network. No one will ever tell me that networking is not worth your time at a conference or school.
There were so many ideas that I took home, but one stood out. I learned how to do a gross margin analysis. I was never taught this in school, not even in the agricultural college that I attended. It was a whole new way of seeing the farm. Imagine, do you actually plan to pay for your work on the farm?
As soon as I got home – you guessed it – I went back to work off the farm. Back to the same old routine of making a living. My friend called me and I told him how powerful the school is. The following weekend, he drove over 500 km to come and see me. He asked me to teach him what I learned. It was the best thing that could have happened to me. I had to teach what I had learned. We sat for two days and I struggled to remember what I had learned and tried to remember how the numbers all fit together. I ran into it and at the end of the second day we put his family farm into a gross margin analysis.
I still remember him sitting at the table. He let his head fall into his hands and there was silence. I didn’t know what to say, so I stayed silent. Margin told us he was LOSE $ 300 / cow. I wasn’t sure if he was crazy? Or sad? Did I do something wrong? Finally, he looked up at me and he had tears in his eyes. “I thought we were making money,” was all he said. “Honestly, I thought we were making money. I saw firsthand the power of a gross margin.
All this week after work, late at night, I ran my farm using the margin calculator and found that the cows were losing the most money to me. In my environment, the small tailor-made herd of cows that I managed gave me the best margin and my cows were losing money. I think the biggest benefit to understanding the economics of your business is that the decisions are so easy to make. His decision was to retire from the purebred business and focus on commercial grass and cattle. My decision was to focus on custom grazing and sell my cows. Different decisions but similar results. Both farms started to make money.
I would like to share with you some fantastic news. My friend transformed this farm. Over the next few years he was able to buy back 14 quarters of land that the bank had previously taken over, and within a few years he quit his non-farm job. I’m happy to say that he still has a successful farming business today. I think the gross margin analysis was the most important breakthrough my farm has ever seen. I guess if you asked my friend that was his too. I’m proud of you mate!