Eliminating costs is always better than reducing costs

[Ben H]

Kit Pharo put this up on his website, mentioning it in the most recent PCC Quickie, it's from the September issue of Stockman Grass Farmer

http://www.pharocattle.com/extrastuff/Spf99_Eliminating_costs.pdf

Grassroots of Grazing: Eliminating costs is always better than reducing costs
by Jim Gerrish
Last month we reviewed how continually rising costs force us to keep our management strategies
always one step ahead of the next price increase. Fuel and fertilizer costs are a couple of the
biggest culprits in the current cost-price squeeze. It seems to me we give too much attention to
reducing costs and not nearly enough to eliminating costs. If you just reduce costs, you still have
to wrestle with the same beast every time that particular item makes another price leap.
Most of you know both SGF and Jim Gerrish devote a lot of time and energy towards the goal of
making and feeding no hay. This is a prime example of eliminating a cost rather than just
reducing it. If hay is no longer a necessary ingredient in your livestock operation, it is a cost you
don’t have to manage anymore. If, on the other hand, you just reduce hay feeding from 120 days
to 45 days, it is still a cost you must contend with.
I’ve seen a lot of producers who were very proud of the fact they had trimmed their hay feeding
way back from what it used to be. But did they sell their equipment? No, they still have it and
rather than making 500 tons of hay a year, they only make 150 tons. A lot less operating cost
generated every year, but no real reduction in the overhead cost of owning equipment. The cost
per ton of hay is now likely to be even higher than it was before. If the equipment had been sold,
the overhead cost would also have been eliminated and the income from equipment sales could
have likely financed much of the fence and water infrastructure development.
Another downside of keeping the equipment is you can easily be tempted to start making hay at
the drop of a hat. Got a little extra grass this year? Bale it up. Made some extra hay last year?
Let’s feed a little longer. Pretty soon you’re right back in the same rut. Enslaved by the hay
paradigm.
What did Agamemnon, King of the Greeks, do on the shores of Troy? What did Hernan Cortes
do on the shores of Mexico? They burned their ships so there would be no going back. If they
had been really serious businessmen, they would have sold their boats to some other conqueror
and used the income to finance their further adventures. The moral here is don’t just burn your
equipment, market it in an effective manner.
There are some regions where year-around grazing is very easy, while there are other areas where
even I’ll admit it to be a much greater challenge. In those areas you might be faced with the
question of making the hay you need or buying it. If hay can be bought routinely for under
$60/ton, it’s hardly even worth discussing the options. At today’s N-P-K prices, a ton of hay
contains almost $60 worth of fertilizer without even considering the calcium, magnesium, sulfur,
iron, zinc, and other trace minerals as well as the roughly 800 lb of organic matter that will get
excreted on your property. At $60/ton, you’re either getting the hay or the fertilizer for free. Take
your pick.
If hay is costing between $60-100/ton, you’re still ahead to buy hay as the latest university
figures suggest just the operating cost to harvest a ton of hay to be between $35-40. Lots of
farmers who insist on putting up their own hay use the argument they can do a better job of
‘putting it up right’. If you do it yourself, you may be spending that $40 to put up rained on, over
mature garbage. Buy the hay and you actually have better control over quality.
In some parts of the US and Canada, the cost of buying hay is two to three times what it was just
a couple of years ago. Currently in our neighborhood, hay right out of the field is selling for
$140-180/ton. In areas where hay costs this much, I have a little bit harder time making the
argument to buy your hay. It makes the argument for eliminating hay a lot more convincing,
though.
Last month I used nitrogen fertilizer as an example of another input cost that may have priced
itself right out of practicality. Some farmers and ranchers wonder how they can ever get the
production they need without using N fertilizer. Many of you who have heard me speak at
conferences already know there were only three times we ever used N-fertilizer in the 23 years
we were on our grass farm in Missouri. Did we have low producing, thin pastures? No, we ran
twice the county average stocking rate. We ran on legumes and an effective nutrient cycle. Yes
we limed some pastures and used phosphorus, potash, sulfur, and boron when needed. Last
month we talked about those nutrients as being long term investments in contrast to the very
ephemeral nature of N fertilizer.
We can talk all we want about cost reduction, but the real step forward comes when we embrace
cost elimination. I don’t believe Mother Nature worries too much about what the banker thinks
she should do. One more reason to look to Mother for an example.

[mytfarms]

Sort of reminds me why I own his cattle and try to learn from his philosophies.

[Triangle Bar]

Well, Kit has made some interesting points, but what may work for his (and others) operations will not work for everyone. The same can be said of what breed of cattle works for one rancher wouldn't be a good match for another rancher's operation. Sooner or later mother nature is going to dump a blizzard on your operation. That stockpiled feed comes in pretty darn handy during a time like that. Also, finding hay to buy and get it delivered in a timely fashion during such an event is a problem in it's self.

In my area, custom hay operators are charging $25-35 per ton. Here we enter the age old question of 'How much do you have in your hay'? Well, hay is selling for $100/ton but it only cost me $30/ton to harvest it.....but I could sell it for a $100/ton. Hay from your own operation is a known quality and quantity.

I can't help but wonder if he is going to eliminate his mineral feeding (I'm assuming he does feed mineral). After all mother nature has provided rocks and bones of dead animals for cows to lick & consume. I'm sure we've all seen cows chewing on bones, to get the minerals out of it.

Sorry for a long post.

[mytfarms]

Yep, Kit's philosophies don'twork everywhere. He does claim to be the most opinionated rancher in America, but that is an arguable point.

[per]

I think the philosophy behind his philosophies work everywhere. The logistics are different in all cases. He is trying, sometimes in vain, to get people to think outside of the box.

[Doug Thorson]

The biggest trouble with Kit's philosophy is he has never had to pay for land on feeder calf prices. I run half again more cows than I could if I didn't hay them for 4 months and my land payment, taxes and rent is still $200 per head.

[leanin' H]

What Kit is saying is that if you don't HAVE to feed hay Don't feed hay. DUH! Does anyone feed hay just for fun? Exercise? Because the calf check was so amazingly high ya need to spend a bunch before the wife does? And he's saying don't fertilize at all unless ya have to? Why else would ya? He makes a lot of sense but some times he sure is Mr. Obvious. If you don't have winter range, live in a cold climate and would like to actually continue to be in the cattle buisness it's my humble opinion ya might want to feed hay. And here's a news flash. If your yield is way down on your crops, your soil is poor and your enjoy seeing seeds grow taller than the belly of a blow snake try improving your soil with fertilizer! I need my own website and should teach this stuff to folks in seminars!

[Big Muddy rancher]

[Big Swede]

When I attended the "Ranching for Profit" seminar a few years back, Dave Pratt challenged us to think outside the box and consider the possibility of grazing year round, buy some hay to keep on hand in case of a bad stretch of weather, selling our haying equipment and actually ranch for profit and not just in years when the price of calves were good but every year. Think about it, I know it's hard but seriously think about not buying fuel, repairs, updating equipment, insurance, labor, hell there's probably 20 other expenses if you really thought about it but you get my point.

Matching the cows requirements to the growing season, that is summer calving, is another step in the process. Cow size was never brought up in our discussion, but if your cows are taking care of themselves they better not be too big.

Cross fencing and water developement to promote diverse species of native grass is a must and probably a first step. Rest and regrowth of the range is what the buffalo did for centuries and the reason the prairie was so good when the settlers first came to the Great Plains. Barbed wire was the culprit for the decline of the native range because the grass never got enough rest and regrowth because the livestock couldn't migrate like the wildlife used to.

For those of you still with me, the others thought I was nuts after about the second paragraph, tell me the downside to this train of thought. I don't know what percent of your herd you would need to downsize to match your grazing capacity to your numbers. I'm sure there are some out there that are doing this already, is there a ballpark figure to the extent you would need to reduce your herd? Another point that Pratt emphasized was in the case of drought, be proactive and not reactive. That is have a date in mind that if you don't get rain, start destocking right away and never, never try to feed your way out of a drought.

As the price of inputs keeps skyrocketing and the price of calves keeps going down, this type of approach gets more attractive all the time. There are some ranches that have been doing OK for a few years because of the good calf prices, but recent events have put a dark cloud over the whole ranching community, no matter where you live.

Now I know this is radical thinking for most of you because tradition tells us to put up hay all summer and feed it all winter. I myself am about 3/4 of the way through this process, but I can't or should I say haven't sold all my haying equipment yet. Yes, there would be less calves to sell, but with little expense I know we could be more profitable. And before you say it can't be done it is being done not too far from your place, I guarantee it.

I look forward to your comments.

[Big Muddy rancher]

Swede I hear you. We now use our breeding pastures once every three years. Quite the change in grass growth. Some of the ranch is used every year but only dormant season and some rotated so not used every spring if possible. I have winter grazed my cow with only supplement protein"BUT" not able to every winter which can be expected in this area.
Would love to have a haying free summer.

[Soapweed]

[SMN Herf]