If you want to be a successful rancher, your focus shouldn’t be on your production practices.
“Out of all the things we do on the ranch, production practices are one of the most interesting, sexy things that people want to hear about — but it’s not the most important thing that we do,” said Amber Kenyon, who operates Greener Pastures Ranching with husband Steve.
“Economics and finances are behind everything we do.”
Economics have “veto power” over production practices, she said.
“We might say, ‘Hey, we should get this new piece of equipment,’ but if there’s no money behind it, you’re not going to profit off of that,” said Kenyon. “We could spend a lot of money on production practices and go broke doing it.”
The couple uses a gross margin analysis to decide what pays, and what doesn’t.
“Basically, we look at all the profit centres on our farm, and we take off the expenses from that and we see how much of a margin that’s going to make,” said Kenyon.
And when calculating gross margin, they make sure to include their labour.
“I know a lot of farmers don’t do that, but we think it’s important to be paid for our labour and our time,” she said. “If you were out doing any other job, they would pay you for your labour.”
The couple also includes “opportunity costs” on their equipment.
“If you have a $300,000 tractor in the field, that’s going to cost you money. You could be investing that money somewhere else and possibly making a lot more.”
Producers need to look at “absolutely all the expenses coming into the farm,” she said.
“We use a cash flow chart for that, which is basically just an estimate on what we’re going to have as income for the next little bit and what we’re going to use to finance the farm,” said Kenyon.
“Our finances are our cash flow. You could end up in the long term doing a practice that will make you money, but if you don’t have the finances to cash flow it, you’re not going to get very far.”