DES MOINES — The key to profitability in the cattle industry could come by rejecting a lot of the paradigms that have been followed over the years.
John Locke, manager of J.D. Hudgins Inc. and instructor for the Ranching for Profit program, spoke to producers at the Beef Improvement Federation’s research symposium and convention here June 22.
He says producers who focus solely on profit may be missing the mark. Locke defines a profit as having the ability to pay cash rent for land, paying all labor costs as well as other production costs, all while making a return on investment.
This is a challenge, he adds, citing an industry average for return on assets at -1.5%.
Part of this, Locke says, could be the belief that ranching is more lifestyle than business.
“I’m sure you’ve all heard that, but if the business is great, then the lifestyle is going to get better,” he says.
He says farms have continued to break even or lose money over the years. He says off-farm income, free labor and inherited wealth have allowed people to stay on the farm despite the lack of profitability.
Locke says to achieve a profit, three things need to happen — a reduction of overhead expenses, an improved gross margin and increased turnover when it comes to marketing commodities.
Locke says 40% of businesses fail in the first year of operation, and 96% fail within a decade. When it comes to cattle production, much of that occurs because of how the operation has been traditionally managed.
“We worked in the business, but we never learned how to work on the business,” Locke says.
Franchise business systems have a 97% success rate.
“Some have worked on that business, and they figured it out,” Locke says. “We need to learn how to do that.”
The Pareto Principle works just as well in cattle production, he says. This is a theory that says 80% of consequences come from 20% of the causes.
“You need to spend 20% of your week working on your business,” Locke says.
He says producers also need to keep in mind that in the long run, their value comes by providing a service to customers.
“Is it good enough to tell ourselves that we are feeding the world?” Locke says. “We are meant to serve other people. That’s a piece of the pie that I think is missing in our industry.