Own No Land, No Cattle, No Risk: Why Custom Grazing Works
By Steve Kenyon
BUSBY, Alberta: I’ve heard that some people like to think outside the box.
When I started ranching, I didn’t even know that there was a box. I did not have a traditional background in ranching so when I started, I did what made sense. One of the biggest breakthroughs I had early on was that I learned how to do a Gross Margin Analysis and how to run a cash-flow. Understanding numbers sure makes it easier to make decisions when push comes to shove.
I will admit, today, my ranch is a little different than most. I don’t own the land. I don’t own the livestock. Heck, I don’t even own a tractor. Greener Pastures Ranching Ltd. is primarily a custom grazing business running other people’s cattle on other people’s land. We run between 750 to 1400 head on any given year. We custom graze on multiple different pastures in the summer and we usually custom graze a herd or two in the winter as well. This will be either with swath grazing, crop residue grazing or bale grazing.
Why don’t I have any “skin in the Game?” (Yes, I get accused of that quite often.) I used to own cows, but years ago, I ran a Gross Margin Analysis and the numbers showed me that in my area, in my situation, I was making more money running custom cattle than I was running my own herd. It was an economic deci- sion to sell my herd. Every day that my cattle were grazing, there was an opportunity cost that I could be earning a value with custom cattle. That opportunity cost means that I need to charge my cattle that same value on paper. At my custom graz- ing rates, my cows were not profitable. I’ve been a custom grazier ever since.
Another reason why I don’t own the livestock is because of risk. If I owned a herd today, I might be able to lower my costs enough, or get a bit more gross revenue to make a bit of a margin on most years. BUT, then there is always the bad year. A severe drought hits and there is not enough grass and I am forced to start feeding early. Oh, and hay prices probably would sky rocket. Or a disease hits, or markets crash or poor pregnancy rates or my most expensive bull up and dies or one of the other 476 things that can go wrong on a ranch. (Every year two go wrong, but which two?)
In one bad year, I could lose all the profit I made during the previous five. It is like taking one step forward and two steps back. As a custom grazier, I do not have market risk, I do not have death loss risk, I do not have disease risk, I do not have production risk. On that dry year, the price of hay does not affect me. I can send the cattle home when I am out of grass. I mitigate the risk on that dry year as well with a well planned advanced grazing system. We plan for drought every year.
Don’t get me wrong, there are a lot of successful traditional ranchers out there who have done well. But did they do well at ranching? Or was it something else that helped them create wealth? I have looked at a lot of gross margins over the years and most farms have been subsidized in five ways. Direct government subsidizes, inheritance, off farm income, unpaid labor and the big one, land appreciation. I am not saying any of these are wrong, but when you break down an operation and look at the economics, you need to be honest with yourself and be able to give credit where credit is due. How did you earn your wealth? Was it from ranching or was it from land appre- ciation? Or was it from off farm income? The numbers will tell you.
Another risk factor I have is the Animal Keepers Act. In Canada, we are fortunate enough to have this Act which is a law that gives me the best “insurance” I could ever ask for with no premiums to pay. It is a lien of possession on my custom cattle that allows me to sell a customer’s animals at auction if they do not pay me for my services. I’ve never in 25 years actually needed to use it but I have had to remind a few customers that I could. My lien comes before the bank so it is an amazing insurance program that makes sure my fees get paid.
Another criticism that I have faced is why I don’t own land? I live 45 min outside of the 5th biggest city in Canada and the value of land far exceeds what agriculture can afford to pay. It is much easier on the cash-flow to lease my pasture land. As Allan Nation stated many years ago, land is a great investment with after tax dollars. It is very hard to pay for it out of cash-flow. I do have some other investments in land, they are just not in agricultural land.
If that is not enough for you, I have one more reason why I am a custom grazier. This is the big one. He owns the cattle on a thousand hills. I am merely a shepherd.
New Interntional Version, Psalm 50:
9 I have no need of a bull from your stall or of goats from your pens,
10 for every animal of the forest is mine, and the cattle on a thousand hills.
11 I know every bird in the mountains, and the insects in the fields are mine.
The way I look at it, it is my job to manage the whole system and all of His creatures within it. Every cow, every sheep, every dragon fly. It is my job to manage every spider and every dung beetle. It is because I am simply His shepherd. I am blessed in my life to have been given a job that allows me to spend time managing His whole ecosystem. This includes every plant and all of the soil organisms as well. It is not just about the livestock. I just happen to use the land and the livestock to finance my path as His shepherd.
As always, God bless.
Steve Kenyon ranches in Busby, Alberta, Canada, and can be reached at skenyon@greenerpastur- eranching.com. Www.greenerpas- turesranching.com or on Facebook at Greener Pastures Ranching. His book The Calendar of the Year- Round Grazier is available from the SGF Bookshelf
