AoR 127: Ranch Financial Success is Bigger than Per-Cow Profits, Clay Worden & James Rogers

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>> Welcome to The Art of Range, a podcast focused on rangelands and the people who manage them. I'm your host, Tip Hudson, range and livestock specialist with Washington State University Extension. The goal of this podcast is education and conservation through conversation. Find us online at artofrange.com.

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Well, welcome back to The Art of Range. We've got James Rogers and Clay Worden back on the podcast today. And this is going to be kind of a Capstone episode in our ranch finance series. And we want to pull together some ideas on the ties between profitable ranching and rangeland conservation. And James and Clay are the guys to do it. They've been involved with whole ranch management for a long time, where some of us, like me, just play around the edges, pushing on rangeland ecology or animal genetics or fire science or whatever. And as much as I try to be a competent generalist, my intellectual home is land and plants. And so I tend to think that if we maximize or optimize rangeland health, ranch financial health will follow. But I think from the rancher's perspective, rangeland health seems to be more like a prerequisite for financially viable livestock operations. In other words, you could have healthy rangeland and still not experience profit, because of all the other factors in ranch profitability. But you probably can't have really unhealthy land and still make a go at it in the livestock business. At least not in rangelands. And I'm aware that it works the other way most of the time, that if you have a profitable ranch, then people feel like they can afford to care about conservation. So, regardless of which direction we come from, it's still important to talk about ranch management for financial health, and so we're going to talk through some concepts that James and Clay have developed from years of both managing and advising ranches. And I think eventually healthy ranches. James and Clay, welcome back.

>> Well, it's great to be here today. I think you said that well. I think land management and the economic results are not necessarily hand in hand, but two things that are critically important to help today's ranchers be successful.

>> Yeah, thanks, Tip, for having me back. We always are trying to keep this idea of kind of managing the whole. And I certainly have a developed need of those concepts. There's people smarter than me that have come before. We're standing on the shoulders of those people, really just continuing to kind of send that message out and help support that message. It's not easy to keep all of that stuff in balance, which is kind of the social, economic, and ecological aspects of ranching. So, we're just glad to continue that conversation.

>> Well, Clint Black said one time that if you're going to steal something, forget where you got it. So, when I say developed, I mean you have been working with and adding your own ideas to other people's ideas, and really that's how any good ideas get developed. There's really not much new under the Sun. So, I want to take a few minutes to set the stage, continue to set the stage for the conversation, since this is a range podcast, and listeners who are not ranchers may wonder why they should care about ranch finance, because I'm saying that they should care, even if they aren't directly managing ranches, but work with ranchers. If we zoom all the way out, privately owned ranches are critical to maintaining ecosystem services that support human life. You know, at the global scale, I think the necessity of both wildlands and agricultural lands is obvious. If we don't have organized food production, then humans scramble for existence competing for scarce resources. And agriculture makes food a little less scarce and requires cooperation so that we the people are collectively supporting each other. But also without large areas of I guess what I would say uncultivated lands, we would have a pretty significant and probably catastrophic contraction of animal diversity, wild bird diversity, a loss of soil stability and water cycling on a scale that's difficult to imagine and unpleasant to ponder. And that's what was feared by some of the population bomb crowd from 50 years ago; Paul Ehrlich and the like. But most of us who are in this radical middle, Richard Knights' radical middle, feel the dilemma of these two, these two sides. Charles Mann, who is the guy that wrote 1491, also has a good book called The Wizard and the Prophet. And he describes this tension between the wizard, who's concerned about global scale ecosystem processes, like healthy oceans, with the wizard, who wants to use human ingenuity to technologize our way out of food scarcity, and so that we have room to use less from wildlands. And I realize I'm a broken record here, but I really think that ranches run well, or a case where we can have this cake and eat it too. We can produce valuable food, valuable both culturally and economically, in the same space where we're actively conserving open space, wildlife habitat, and all of these large scale ecosystem services that we hear a lot about now. A cornfield is not sage grass habitat, but a commercial cattle ranch often is ideal habitat, where we have healthy shrubs and grasses and forbs and sometimes trees, supporting all manner of wildlife. And private lands are often the best stuff, because people tend to set up shop in the richest parts of the land. And so from a wildlife perspective, the approach has often been to buy those lands when the ranching business peters out. But I would rather see ranching businesses succeed economically and ecologically. And as you guys well know, this is a business model where those two things are not mutually exclusive, they're synergistic. Jerry Holechek wrote an article about 15 years ago making the case that keeping working lands working well is a matter of national security. But the pressures on those, on these land rich and oftentimes cash poor family businesses, and that's what most [inaudible] operations still are, I think, the pressure to do something different with that most valuable asset is tremendous. And this ties in with some of the things that you've been saying, James, about the value in a ranching operation, and how to make it work, because the value is not in the check you get for calves every year. It's in the value of that land. So, that's kind of a course outline of what I see as the really big cultural pieces. And I think it's, I would say it's scientifically established, at least in the United States, that in ranching is the preservation of western landscapes. And that's actually the title of a journal article from 2005. You know, we've got numerous metaanalyses coming from different directions that have identified land conversion as the primary threat to rangelands, not poorly managed grazing. And the continued function of these large landscapes is threatened by conversion. And what usually prompts conversion is tough financial conditions. So, if we lose ranching, we don't get a nature preserve, we usually get houses or wine grapes or golf courses. So, I want to talk through, what's the big picture to keeping ranches operational, because I think all these motivations are important. But, of course, you know, you zoom all the way back down, and there's pretty close personal motivations to keeping ranches profitable as well. One of the main causes of divorce is money. And the main reason why kids don't want to take over the ranch is money, and the stress associated with not having a profitable business. So, that's a longwinded way of getting around to having a conversation about ranch finance. But I do want to come in with that big picture in mind, and to say, what do we do? And I say we, I realize we can only do so much, and a lot of those require individual decisions on individual operations. But if we collectively care about it and talk about it, I do think that that goes some way toward at least legitimizing well done livestock production.

>> Tip, you've just, I mean, teed up a thing I've been pondering about a lot here lately, just as we traveled around the country, and then helping some landowners figure things out. And we tend to, it's easy for us to dive right into operations. But it's this bigger view, kind of stepping back, that I think is really important. And I think as [inaudible] said, you know, there's things I know, there's things I don't know, and then there's things I wonder about. And so maybe this conversation says a little bit more about the wondering about, because [inaudible] believe, you know, I grew up with a dad who was a rancher, didn't really have anything, was able to leverage the value of real estate to eventually own a ranch that's free and clear. And he did in a single generation lifetime. So, the value of that real estate is what got him his ranch, and is what actually probably, because that ranch isn't strapped with a lot of debt, is going to be able to, you know, keep that ranch viable for many years into the future, because it doesn't have a bunch of debt that it's  but it wasn't the cattle that necessarily paid for that. It was really the value of that real estate. And so there's a  

>> Yeah. Just a quick comment there. I think that's a really intriguing point, because a lot of people, and I think concluding ranchers, are always hearing cutting costs getting hammered, like this is the main thing you've got to chase down is how do we reduce input costs and feed less hay and extend the grazing sustain, and all of those things are important. But they, yeah, I think there's a bigger picture that you're getting at, which was somewhat new to me when we started talking about these things as part of this project, and I think it's worth talking about that some more.

>> Yeah, so this, you know, we'll get Clay involved here, because he's got a lot of knowledge on some of this stuff, but this, I'll just tell this one short story of a guy in Wyoming that we've been trying to help. And he is in the middle of a migration [inaudible] his ranch. It's a gorgeous ranch, beautiful, sits at the foot of the Rocky Mountains, and, you know, the wildlife migrate through there, and there's lots of ideas to try to even potentially increase production on that ranch by improving efficiencies of irrigation, maybe putting in some alfalfa fields. And as I kind of step back and set up on this hill kind of looking at that landscape and where they were proposing some of this irrigation efficiency, which, you know, we think about it from an agricultural standpoint, to be able to take a little bit of water and turn it into a lot of hay, seemed ideal. But in the context of this migration corridor, I was sitting there looking at it, going, I mean, for one, a view [inaudible]. I mean, this is a gorgeous ranch sitting at the base of the mountains. Like would pivots really look good in that? I mean, would you get that same sense of what that view really was? And then couple that in with a migration corridor where mule deer are moving through that. If you put a bunch of alfalfa pivots in there, would that actually disrupt the mule deer wanting to keep going, or would they end up getting stopped because of this attraction that was there? I mean, my sense is that actually that wildness is what is all the value in that place, for the future of the wildlife migration corridor, but also the future value of that asset. And so sometimes we can't always look at, you know, increased efficiencies in agriculture as the end all. We kind of have to step back and look at what these assets really are. And, therefore, you know, where can this particular rancher, partner, or find opportunities to value what that ranch really is as open space? It is private ground, and it's surrounded by public land, it's in a critical migration corridor. This is where like habitat leasing and finding alternatives besides just ag business, to be able to generate money for these ranches, to make them intact, and to keep those wild places wild. Because the push would be to try to increase all the efficiency out of that water, and put a bunch of pivots in, and try to increase the number of units that might be able to be ran on that operation. But finding, establishing what are some of these other resource opportunities to generate money is something to consider, I think.

>> Yeah, I think, James, you bring up a point that Tip said earlier on this diversity. And you're really talking about just not the economic, not the environment, but the sociology of this whole, wholistic ranching. And when you think about diversity, it's an amazing attribute in all aspects of our life. If you think about your investment portfolio, you know, it's not very prudent just to buy one stock. People diversify. And I think that's one of the things that ranchers have learned over time is diversifying that revenue stream that you just talked about, rather than simply try and maximize, it's more of how do we utilize each of the various aspects to contribute. But the hindrance, I think, is our own unconscious bias that we all bring. Well, this is how granddad has always done it. And so we've got to do it that way. And I think what we've learned through many of these podcasts and talking through it is really having an open mind and looking at how folks do things maybe in a different geological or geography than they're at, or perhaps looking at alternative revenue sources, cutting costs, as a bean counter, I love to see people cut costs. But it's nearly impossible to save yourself in the prosperity.

>> Yeah, I like the way that you've categorized these things, James, into you've got different kinds of land value. You know, if you're in a large scenic location up against the Solitude Range or something, you've got a different kind of land value than if you've got a section of ground in rural Missouri somewhere on the outskirts of St. Louis. But you might have some tremendous natural resources in that location, just different kinds of, different kinds of land value, and different kinds of economic pressures. What are those different categories of things that people ought to be thinking about, which include operations, and whether or not you're spending 60% of the ranch revenue on a hay pile every year?

>> Well, I really think you still have the land value itself. And then there's these other resources that are actually there. And when you, I think sometimes we always think of operations, as I mentioned earlier, we're in the livestock business. But there's these land asset values that are there that sometimes we're not really ever focused on. Or we don't consider them because we're not, the ranch isn't for sale. And yet I think that's a piece that we just have to keep in mind, you know, sometimes, as Clay mentioned, we kind of get caught up in our own little paradigm and our own little box. But that perspective is still helpful when you think about land as one of the, probably the biggest investments you've ever made, or your granddad ever made, was the land itself. And then, of course, these other resources that are out there. I mean, having the perspective of going from, you know, rural Nevada, where there's 87% public land, and these really small pieces of private ground, that are really pretty valuable, extremely valuable actually for how that landscape actually functions, whether it's because of water resources, or sometimes it's mineral resources, or even the habitat that's in those smaller pockets of private ground, or you get into places where there's a whole lot more private ground, and that are connecting these bigger, larger, you know, from Yellowstone down to the Red Desert, and these big migration corridors, and all that private ground in between, every one of these lands have different resource values, just depending on where they're at, where they're located.

>> A little bit ago, I alluded to this three legged stool that people have talked about for long enough that maybe it's become a buzzword that has no meaning anymore. But I still like the word sustainability, meaning, you know, what are the things that are necessary in order for ranches to continue operating? And I do think that the three legs are still valid. If what we're doing isn't environmentally functional or stable, or worse, is environmentally damaging, then eventually that won't continue, it won't persist, it won't be sustainable. And the same thing with society, only maybe on a little bit longer time scale, meaning that if whatever we're doing to manage natural resources is not acceptable to society, and doesn't work for the people that are the ones doing it, then that won't continue either. And the third obvious leg is economic sustainability. If it doesn't pay for itself, you can only, you can only subsidize things in a generic sense, I don't mean necessarily government subsidies, but if a ranching operation is not financially viable, then there's only so many ways to prop that up until it just eventually collapses, financially collapses. Do you think those are still good ways of thinking about this, or is that too simplistic?

>> I was going to let Clay take that one, but here's the thing. I know, and I don't know, there's things you wonder about, and I know people get really kind of highly critical over ranch operations being, you know, cash flow, and it all works, and you've got to tighten things down and make it work, and that's the only way you're going to survive, and, you know, that off farm job is of no good. And if you can't make your ranch run, then you can't make your ranch run, and you better get out of the business and step aside and let somebody else that knows how to do it. And, I don't know, I just, I've just seen people work really hard and get really smart and pretty creative about how they can continue to keep that landscape working. And sometimes that's partnerships with NGOs. Sometimes that's your wife working in town and getting good health insurance because she's got a great job in town. Or you being resourceful and working on weekends, and you have a full time job. But whatever we do to keep these landscapes open, and keep this, I mean, to me, I'm just passionate about rural communities, and these rural landscapes, and keeping them intact. And so I know we can get really focused on, and we will, and we have, right, we've talked a lot about this, you know, how do we really pay attention to our costs? But I can tell you, it's getting harder and harder and harder for us to just keep cutting costs as they are. And there's so many headwinds against us with interest rates and kind of the market volatility. And I know we've got some tools, and we want to be really resourceful for all the tools, but sometimes that resourcefulness is creating another business, or working from home, doing something else, or going to town and getting a job with some really good insurance, or some of those other things. So, I don't know, that probably doesn't really play into what you were talking about. But I just, I know I've caught myself being kind of critical of ranchers really paying attention to things, bullet I also know the reality of that. The margins are really tight. And you do have to get pretty creative to make these landscapes work if it wasn't a ranch that was just handed to you, or, so anyway, for what it's worth.

>> Yeah, I think I saw, I saw a report from the Economic Research Service of USDA a little while back. It might have been some summary data from the most recent census. But as I recall, they were talking about profit margins, and the report said that 40% of medium sized farms report 10% profit margin or less. I'm almost surprised that it's not more than 40 if 10% was the cutoff.

>> Well, I think what I'm excited about in this sustainability discussion is that economics are part of it. And as the CPA of the group, you know, everything runs off the checkbook. When the checkbook is empty, it's tough to get the environment what it needs, or society what it needs. And, like James, I'm passionate about these rural communities that have been the backbone of this country for so long. And it seems like the fringes is what drives policy. But those that are living this every day, they understand that that economic leg of the stool is part of the sustainability. And, as you said before, I think you've got to have the bias that most agricultural producers are trying to do the best they can with their environment and their land. Because when the land becomes unproductive, it does them no good any longer. And most of the time, there's been a family on that for generations. And so making it work economically is getting harder and harder when we're dealing with commodity pricing mechanisms for most ag products. And when you've got a commodity pricing, you've got New York traders that can enter the market. And they don't really care what the margin is. But helping families understand what their margin is or can be, understand what their break even points are, helps them make smarter decisions. And then helps them make those decisions. Do we need an off farm income? Is there a way to leverage some of our resources in a non traditional fashion? And I've seen this happen time and time again. And society, you know, continues to amaze. I've seen ranches that have used some sort of conservation easements. And you initially think, well, you put that on and it really devalues the future of the land. I've seen the land appreciate as much or more as other land, even with a conservation easement on it. And that's kind of counterproductive to what people think. But what's going to happen economically in the next five, ten, fifteen, twenty years? One doesn't know. And so I think having a diversified view of your operation, understanding both the environmental and the economic side of it, gives you a much better chance of being successful.

>> Yeah, we talk about a ranch making it, or being successful, or making a profit. But profit's not as simplistic as I think most of us think of it as just being revenues minus costs. How do you guys describe profit in ranching operations?

>> I'm going to let James talk about this. But one of the things that I think over the last 20 years, I've convinced James of, is part of the way you make money is by volume or yield, the units, the turnover on an operation. You know, how quick can you convert that operating cycle into cash? And agriculture is typically a once a year. But James, do you want to speak about that a little bit?

>> Yeah, I think we've talked about it in some of our prior podcasts, but, I mean, it is true, it does come down to units. And a lot of times when we just talk about the cattle operation, you know, it's finding that optimization of the number of units that you can run. The big driver in, or what we see with ranches, with overhead cost, just that sheer keeping the lights on, keeping the family fed, keeping the buildings up, the upkeep on the buildings, keeping the trucks maintained, you know, some of that overhead. And so anytime we can, I mean, it's every ranch economic guy will tell you that, you know, you've got to get down to cutting those overhead costs as much as possible, because those really dilute or increase your cost per unit. Because we can only get so many units out of most of these ranches before we start going the other direction, where we might be hurting the ecology of an operation. But finding, I mean, the right kind of animals, you know, on that landscape, I would say is a big thing. And just really reducing and optimizing that number, understanding what our production capabilities are. And then really reducing that overhead. I mean, those overhead costs are typically what kills operations rather than the direct costs. The direct costs tend to be actually fairly minimal. Assuming you're putting your employees into your overhead costs.

>> Yeah, I think, you know, as we have talked in the past, really understanding those numbers. And a lot of time, it's easy to look at, you know, what the cash deposits were, and what the expenses were. But when you can correlate the economic activity with the volume, the units, the yields, your calf crop, you know, how long your animal is on a pivot, or in a pasture, and really start correlating those, it's amazing of how you can make some small tweaks that can increase your margin.

>> To what extent is that different on different kinds of ranches? You know, if you've got, again, I'm a novice on this, even though we've been talking about it for a while, but, you know, a ranch that's got 200 mother cows and one employee, you could probably run twice that number of animals with somewhat the same overhead. Am I thinking about that correctly? If you had the land base for it?

>> Yeah, I think, you know, I think what most folks that I see fall into is, well, this has always been a cow calf operation. We're just a cow calf operation. And so that's what we're going to be is a cow calf operation. And I think sometimes you've got to look at things a little different. And perhaps being a cow calf operator isn't the most economically advantaged way to use that land. And I think of James' dad as an example for that. I mean, he was a cow calf operator. And then he became more seasonal. And I think he became more profitable as he had more seasonal activity on his ranch. So, I think it gets back to just opening the dialogue to what are the options, what are the animals, what are the size of the animals, you know, so oftentimes I get, I understand that, you know, we're paid on pounds, but people are focused on how many pounds can you put on an animal. And if you think about putting a steer in a feedlot, well, if you feed him out to 1,800 pounds, that costs a lot more than feeding him out to 1,450. And so is that extra pounds, the cost, the time, worth a different margin result than maybe just getting him to 1,450 pounds? And the same thing happens in the cow calf operation. They'll try and have the heaviest calves you can. They put more pressures on cows, the land, the resources, the dollars. And so I think it's really breaking your operations down with both the activities and the economics and measuring those against each other, and then running some what if models to say, well, what if we did something a little bit different? Think about, you know, everybody tilled their ground for years. And then the no till came along. People are like, well, that's not going to work well. Now, it's working pretty effectively. And I think there's other changes that have happened over time that some folks may be slow to adopt that could help control expenses. But in this economic environment of really runaway inflation that we've experienced, you know, interest rates at the level they're at now, it is putting tremendous pressure on the ag operations. And so managing those costs are critical. But at some point, you can only cut costs so far.

>> You mentioned enterprise diversification is one way to increase revenue. What are other ways to think about increasing that margin?

>> Well, when you talk about enterprise, that's one of the things that James and I have always kind of focused on is, you know, what complementary activities or operations could you have on your land base? And I know James came one year to me and said, hey, I think we ought to put some goats on an operation. And my first reaction was, yeah, I don't think that's a good idea. And the more we looked into it, and the more that we studied that, it could have been and was, ended up being an economic driver on that ranch. And so I think that's just one example. But I think understanding if your cow calf operation, that might be one enterprise. Or maybe your background in calves, that could be a second enterprise. You know, or maybe you're producing and selling some hay on your ranch. There's a third enterprise. And so really breaking those activities and enterprises down, and, again, marrying that with the economic activity within those, really shines a light on, you know, what is more profitable than maybe another activity?

>> And I would just follow that up with just, I mean, we've got to think about what kind of variables, well, not just what kind of variables, but what kind of opportunities that we have. And I think Clay mentioned diversity as being one of those things. I would say a lot of ranches that I know that are pretty successful have things pretty dialed in with, you know, they might be balancing their cow calf operation with a stocker operation, so the big driver in how many stockers they run is based on what kind of weather they're having, or how productive that ground is on that particular year. And so, Tip, as you and I have had tons of conversations about this, when we're in this western landscape, rarely do we have the opportunity within our public land grazing allotments to have that same kind of flexibility, where we can kind of ebb and flow with the market. We tend to be kind of stuck in some kind of a prescribed grazing system that only allows so many AUMs, or whatever, and you get yours like last year where we had unprecedented moisture, and a tremendous opportunity for ranchers to be able to step into the market, maybe stock up their ranches a little bit more, without doing, I would say very calculated step into the market, buy some cattle, leverage that abundant resource that was out there, which was a lot of grass and a lot of water on a year like that, and increase revenue for that one year that can help offset some of these other increased expenses that they have been having. And so just understanding those data points, you know, kind of your production for inch of rainfall, you know, your opportunities, where your costs are on your break even for buying cattle versus raising cattle, just some of those things are really important to know as you try to keep your ranches profitable.

>> You know, one of the things that I think gets overlooked is some of the, I'll call it the hidden expenses, you know, when you buy that tractor, put in some new barns, fence, there is a cost to that. And depending on if you're a cash or accrual basis taxpayer, that may or may not show up in your profitability. But you've got this depreciation factor that comes in, you know, kind of a systematic way to take the cost of infrastructure and spread it over time. And really understanding that piece of your business as well, because, you know, we could all show up and be profitable in a couple years if we put in zero effort or emphasis on the infrastructure or equipment or adding to the livestock. But that's a necessary piece of having long term sustainability on your ranch. And so understanding how those capital costs flow through your books and your checkbook is another key aspect to really understanding the profitability of your operation.

>> Well, that's such a critical piece. I mean, it couldn't be a bigger thing to focus on than right now with these inflated costs of equipment. I mean, even cows. If you were stepping out and buying cows right now for $3,000 a head, that capital investment, those calves, the amount of money they need to bring for you over the next five to ten years to be able to pay for that cow have just doubled from what they were two years ago. And so those bigger investments, like equipment or livestock, that are getting bought, getting bought in a market today, it's a big question is if that, you know, if those are wise investments right now. And, I mean, I would caution people that maybe they're not, right? I mean, maybe those aren't, these aren't the best times to make some of these big capital investments of our operation. This might be a great time to liquidate those cows and take advantage of that market and take some custom graze cattle and not put a pay or whatever it is if you think you need to get a new tractor or lease a tractor or something for a few years before you make those investments right now. When the market softens back, it might be, you know, you have some cash in your pocket. And obviously there's some tax considerations and all of that. And that's where a good accountant will help you make some of those decisions. But when you're making big investments in what we already recognize as a pretty inflated market, that puts a big strain on that depreciation aspect.

>> I think Harlan Hughes said one time that, he was an economist from North Dakota State, I think, you guys might know better than I do, but he said that historically has kind of been the cow calf way to buy high and sell low. And that historically kind of drove some of the ten year cattle cycle. I want to say I saw a headline the other day that cow inventory is at the lowest point in quite some time. Any thoughts on how that plays into current thinking?

>> Well, what's interesting is I have seen that statistic, and it's been, you know, on the national news, kind of as a headliner. But what's more interesting is I saw a survey the other day that cattle ranchers are not bullish on growing their herds, despite us having the lowest, you know, cattle numbers, I think the risk is outweighing the return in the current environment. And to what James was talking about, I'm not sure ranchers are going to step out and, you know, buy those replacement units. And they're likely not going to retain as many female calves because they're worth so much. And so I think we are in one of those cycles that's going to be interesting to see how it works out. And the retail consumer at the grocery store is already feeling the fatigue of the cost of groceries, yet they're really not high enough, or the flow of the retail price isn't flowing all the way back to the rancher to make sure that rancher has adequate return for that risk that he's got to take in terms of, you know, buying infrastructure that can put more food on the tables. So, it's an interesting cycle that's got interesting dynamics. If you look back in the history, you know, boy, when the cattle numbers were low, cattle ranchers beefed up the herds, and to some degree, beefed them up too much, and then price fell. And then cattle herd shrunk, and then price came back up, and then they, you know, beefed the herd up. And the same thing is happening to corn and soybean and cranberries, I mean, farmers have not been real strategic on making sure we've got the right amount of production for what the consumption is going to be. But that's another topic. But I think it's going to be interesting to see, do ranchers step out and try and add to their herds over the next couple years, given the economic challenges they're experiencing.

>> It's interesting, you know, just in the times that we are, I mean, the most recent kind of prices that we've seen at these all time highs was 2014 and '15. And I think it was predicted it was going to last for three or four years, and it lasted two, you know, so people, I mean, ranchers are notorious to be pretty optimistic. Of course we had lower interest rates then. It was easy to retain, continue that operating line of credit, and retain more heifers to build back faster, or speculators were out buying heifer calves and turning them into breeding heifers, because they had cheat money to work with, and all that comes down to, again, weather, and what kind of feed resources are available, and what the price of corn is, and all of those things. So, I'm not, like that is a whole other world that I don't necessarily get into. But I do think on average, over time, I saw my dad do that. I saw my dad, not always try to hit the high part of the market, but he hit the growing market when he sold his cattle. Maybe he wasn't at the peak, he was on the rise, or maybe just over the fall, but got into a pretty regular pattern of selling on the higher market and replacing his inventory on the lower market and filling custom grazing in between. I ran into a guy that's out of Colorado or Nebraska. He does the same thing. And I was just asking him, like, how do you know when the market is going to be high? And he's like, I don't worry about when it's going to be high. I just, when it's high enough, I liquidate my cow herd. And when it's low enough, I replenish my cow herd. And I have enough relationships in between, you know, in my network, and he works really hard at that, that he custom grazes, you know, for about five years. And then he ends up in the cow business for about five years. So, in a 10 year cycle, he's in the cow business for about five years. And he's in the custom grazing business for about five years. And I was kind of reflecting on my dad kind of did the same thing. And as he's aged, he's now pretty much just in the custom grazing business, I mean, he's changed his business model to be very low risk, he just, he doesn't even own the stockers any more. But he, anyway, it was just kind of interesting for me to reflect on that a little bit. Sometimes those things were happening, and I wasn't really putting the why or how my dad was trying to position himself or leverage the market to his advantage. But he really was. So  

>> You know, and I think one of the things that goes into that equation that might hold some folks back from moving in that direction is just their genetics that they've developed over the years, and the importance of the genetics. And, you know, what if we do liquidate out? And I don't think these liquidations have to be 100%, you know, save some seed stock, and save, you know, some cow calf operation. You can diversify without going all in or all out. And then, again, maybe it makes more sense to go all in or all out. But it gets back to that understanding the economic reward and benefit for each of these, and being able to model out kind of what it should look like. I'm a big proponent of developing budgets. And no one enjoys putting a budget together. But if you develop a budget on a new enterprise, kind of like James was talking about, sell the cows, and let's go into stock, what would it look like? And what would your cost structure need to look like? And then that helps you make that decision of, you know, whether that's a solid economic move or not.

>> You're saying run the math first, and then see whether you can make the operation fix that or not.

>> Yeah, most people run the operation, and then they look at the checkbook and they see if the math worked. And I think that's absolutely upside down. Let's run the math first, and then when you do run the math, you know, reduce your numbers about half, because most of us are super optimistic on how it's going to end out. So, be conservative, be realistic with those numbers so that you can make an informed decision.

>> And I would say, I would just kind of reiterate what Clay is saying there, in a lot of the places that we work, I am actually, I guess not surprised, but surprised how few people budget kind of their annual operations for the ranch. It's such a great tool. And it takes some discipline. And just having worked really closely with Clay for a lot of years, like that was something he pressed upon me early on. And I can't tell you how valuable that is for, you know, when we're talking about economics here, and we can budget our grass as well as our time. But it's so like just surprises me that people can, you know, have the ranch calendar, have their grazing moves, but they don't have any clue about like preplanning their economics for the year through a budget. And I just think that's just a /TKPWRAEULT, I mean, if people want to start somewhere, take your revenue that you had last year, your expenses from last year, and put it into a preplanned budget, and look at what you're expecting your, what the current cost of things, and the current market, you know, what you're expected to do. If you do that at the beginning of the year, I can promise you it changes the conversation. It changes some of the decisions you're making. And it just makes you be a more proactive manager. And I actually think ranchers do a really good job with grass in that, but not with their checkbook so much.

>> And there's some sophisticated tools out there, Tip, to help folks with that. And one of the ones that I'm becoming a little more familiar with is that LRP program. And played around with that a little bit last year. Some people used, you know, the futures account to hedge some of that risk. But last year when you saw the calf prices, you know, shoot up substantially, it really did allow a farmer, a rancher, to lock in some of his calves at a higher price, and take some of that risk off the table. And so I think understanding what tools are available, understanding, you know, how to use them, how to look at them, I would encourage folks to just do it at a small scale, just so you can understand how it works, and then decide if it's right for your operation or not. But I think understanding there are tools out there similar to that, and it may even, for those that don't do the PRF insurance, you know, another opportunity to layer something onto your dirt that could generate a return, I think, you know, you're missing opportunities if you're not exploring those avenues.

>> That's a good idea. And going back to your point about planning, Don Nelson was WSU's extension based specialist for a long time. And he loved to say, prior planning prevents poor performance. And, you know, just like any plan, you don't usually end up following plan A. But you don't get to plan B or C, which is the one that actually pans out, without having plan A. And it seems like budgeting is like that. Reality may not end up exactly matching the budget, but the plan will get you a lot closer to profit than doing no planning at all, and not using any of these tools, and just doing what you've always done, and waiting to see what comes out the other end.

>> So true you are.

>> Oh, it's so true. And my dad always said there was something about piss poor performance. So, planning [inaudible] probably not appropriate to put in the podcast, but it's true. And I think it still comes down to even using some of these other tools, like Clay was saying, LRP, and understanding the market, like if you don't know what your cost per unit is, you know, it's like, why would you plan, you know, plan a loss, right? You want to know, and you want to understand some of the stuff as you go into that planning process. But I would say the plan becomes actually probably not as useful for most ranches, because of the dynamic systems that we're working in, with market volatility, and weather, you know, things like that. But the planning process was unbelievably valuable. And if you can even, you know, like keep that perspective in mind, because sometimes everybody already knows that this plan is probably going to change, but the very fact that you're going through that process was actually really valuable. It reminds me of, you know, having, working with the ranch that we have, some liability waivers. And you think, well, why do we have a liability waiver for people to come over to our ranch to brand or to do whatever? And it really wasn't the liability waiver, because it was only worth the dollars that somebody would hire an attorney to overcome what was on the paper. But what it did was it forced the conversation. So, when you hand somebody a waiver, then you are saying like, hey, we just want to recognize that what we're doing here today is dangerous. There's horses, there's people, there's livestock, you know, cattle involved in this process. And so we just want to recognize, we're going to do everything we can to be safe, and that may mean that I ask you to get off your horse, or that may mean that, you know, your horse isn't going to be able to be used today, because of things. And I just want to have that conversation so that everybody recognizes that we're doing this. And it's the same thing with a budget in that process. When you sit down and you look at it, it really wasn't the plan or the outcome, but it was the conversation that actually you started to have that made you more aware and kind of I think your feet planted firmly on the ground as you're going into that year, anticipating that weather's going to change, market's going to change, and you're keeping your eye on those things, so you're just I think just more in tune.

>> Yeah, and my experience has been that cow calf producers, especially owner operator situations, are, you know, run their money sometimes a little bit like a household, where you don't always know exactly where your money went. And maybe this is true confessions time. But I'm 46 years old and just started last year collecting all of our grocery expenditures to figure out, it felt like more was going out than what we were budgeting for, and that was causing a problem, so I started, you know, accounting for every single grocery expenditure. And we found that we were spending about 30% more on groceries per month, and that's being careful about it, than we thought we were. And I think a lot of, you know, these small agricultural businesses are like that. You're not tracking some of those expenses closely enough to really know what's going out, and to catch where it may not, it may be that you need to spend that amount of money. But if you're spending that amount of money, those are dollars that can't go somewhere else.

>> I think that's a great example. I had my wife keep track of some of the horse feed. We feed seven or eight horses here. And, you know, did it cost more to do the cubes that she uses, the compressed bales, the alfalfa bales, you know? And just the exercise of going through what did those various forms of feed cost, and how much is she using, was super helpful for us in terms of just making some different decisions. And I think it's down to that basic tool, as you just said. Pick a part or two of your ranch, and go look at the costs and see what you're spending in that area, and compare it to what you spent the last couple of years. And then have a dialogue of could we do something different. Is there a way to be more efficient or spend less money in that area? And the same goes with, you know, supplements. I mean, I've seen supplements that have been incredibly successful and worked really well, and I've seen some folks spend a lot of money on supplements and perhaps haven't got the results. But if you haven't measured how much supplement you're using, how much it's costing, and what the animal weight or health or outcome that you're looking for, how can you determine, other than the sales guy saying it works, whether it works or not? And so I think it really does, in this environment, that's tougher and tougher to be successful, a person has to get more discipline in analyzing their data so that they can make informed decisions.

>> I would just reinforce how valuable a budget really is when it comes down to those kind of things. Not only because the analysis is really important. But when people show up at your place, and they want you to spend money on what they have for sale, and you can straight face, look them in the eye and say, you know what, I'd love to consider that, but I'll have to run it through my budget, and my budget is an important tool that I use, it takes all the pressure, you know, personally that you're not buying that from that person, because I think as ranchers, we're very relational, and we have a hard time saying no. But all of a sudden this budget becomes that thing that we filter things through. And when you can look at somebody in the eye and say that, that relationship can still preserve, while the budget can kind of be the bad guy. And then you can genuinely look at that budget. And I would say from year to year, sometimes these supplements work. And from other years, they won't work, just based on other things; market conditions, there are alternative feed costs, there are all these things. And that's why we just have to be attentive to our own business and not just let necessarily salesmen, I mean, their job is to sell the product, and so we want to have a system in place where we can analyze these costs. And then that budget kind of can act as the bad guy, so to speak, and so those relationships can be preserved.

>> I would say one of the benefits of, at least in the Northwest, of people having some exposure to wholistic management and Allan Savory's stuff is controversial, is that is in terms of land management, my impression is that the biggest change to the people that did some of that, and I'm mentioning it because Don Nelson did quite a bit of ranch outreach on planning, it made ranchers into planners, and made them think about what they were doing and why instead of just doing it because they've always done it. And, you know, I don't know that many people that are using the Savory method, whatever, whatever that even is. But I know a lot of people that are doing much more intentional financial and pasture and range planning that weren't previously, because of, because of some of that stuff. And I want to go back to one thing that you said in some of our workshops that may be worth reiterating, and then we'll try to finish this up, but you said, James, that longevity is likely the most misunderstood economically relevant trait. And I wanted to, because I feel like I don't have a good handle in my head in exactly what you plenty by that. I want to come back to it. I'm aware that a lot of ranchers are, because they love their cows and they have this investment in having developed their own cows, they're committed to them. And so they often tolerate open cows. And that can, if that gets, if the number of cows that don't breed back gets very large, that can be economically devastating. But pregnancy is something different than longevity. What do you mean by the statement that longevity is the most misunderstood but economically relevant trait in the cow herd?

>> That's good to clarify that, because I think, for one, I mean, we have to, have to understand that longevity really is still assuming that we are still putting constraints, you know, like fertility, and, you know, disposition, or [inaudible] or feet problems, you know, mobility, those constraints on our animals. And so if we are putting those constraints on, and that animal survives those and lives a long time on our ranch, it's the whole idea of this, you know, kind of idea of depreciation. When you have a factory that lasts two years, and you've spent $3,000 for that factory, versus that factory that lasts 10 years and you spent $3,000 on that factory, assuming that the residual, or the salvage value out of that factory is the same at both ends of those [inaudible] so that longevity factor is really, really important. I still believe that, you know, I mean, and maybe it comes down to all of these things that we've talked about, you know, before, you know, I think longevity plays into a lot of aspects of this thing. But the longevity in cattle is extremely misunderstood because depreciation and the cost of that, of what it costs to replace that animal, no matter how good she was, no matter how big a calf she raised, or no matter how early she calved, if she eventually falls out after two or three years, and we have to replace her, then actually that's cost us a whole lot more than we understand. And so you can't understand depreciation if you don't understand longevity. And I actually believe that people think their cows live a really long time. But, on average, cows in America are living less than five or six years. And if those cows can live two or three years longer, I actually believe that makes a big difference. I had this really interesting conversation with, I'm going to forget who, it was a guy at Kansas State University, and we were talking about, you know, kind of fertility, like early maturing, and longevity, or somewhat antagonistic in livestock, the difference between bos indicus and bos taurus animals. You take like brain influenced animals, it's nothing for a brain influenced animal to live 20 years. And yet they're pretty infertile, or pretty slow maturing in the very beginning of their life. And so you have an animal that may not breed as a 2 year old, but by the time they're 3, 4, 5, 6, all the way to 16, 17 years old, they live a long time, they tend to be pretty functional for that period of time. Versus animals that we get to breed early, you know, at two years, and have a calf, and yet, and then they fall out of our program, and we've got to replace them in five years, I actually think there's something to consider there, especially, in my opinion, in rangelands, like having animals that understand a landscape and can live in that landscape and do a good job on that landscape for many years, are more profitable than, you know, these super hyped up genetics that are early maturing, breed as a 2 year old, and have big calves, and they're washed out by the time they're four or five years old.

>> That's really intriguing. That's a shocking statistic. If somebody asked me, what was the average beef cow age when they quit producing, or get shipped off, I probably would have said eight to ten years.

>> It would blow you away. I mean, think about the dairy industry. It's like, I think it's two and a half, you know? Because they expect so much out of those cows in the early part of their life, you know, to calves start milking, feed, feed, feed for maximum production, and then cows basically become almost infertile, or start slowing down production, and then it's like get out of the way, we've got another cow that needs to come in and replace you, and so, anyway, in these rangelands, I think we do underestimate, I would just like to say, I really appreciate these big landscapes and big rangelands, because I've worked a lot in those places where like the intellect of those cows in those landscapes and that institutional knowledge, so to be in and out of the cow business is much harder, and I do think there's value in having a cow herd that can stay in a place, in a landscape, and raise their heifer calves in that landscape, I think there's a lot of value. I can't put dollars and cents to that. But I do appreciate it, and I think that there's places in certain contexts where it makes sense to kind of ride these cycles, and that may make it more profitable for you, but there's other places where maybe you've got cows that that institutional knowledge of that cow herd on that landscape, and then being able to live a long time in that landscape with low input and low replacement costs, is a value too. And so I think understanding your context, and what you're operating in, and finding those advantages, those unfair advantages on your ranch operation, are what's really, really important. And everybody's a little bit different.

>> Yeah, and I think your point of finding that unfair advantage. But the way you find that is accumulating records. Most people have their cow records, and stock [inaudible]. They find those genetics that last a long time and produce income a long time. That might be a fair advantage in one area that's not in another. But without that recordkeeping in that process to look for that, it sometimes goes unseen.

>> James, did you ever run into Don Nelson? Because one of the things that he loved to say was you can't manage what you don't measure. And, of course, he never interviews anybody, but you're fond of using that, and I think it's accurate, and it's a good admonition. And I'm curious if you ever ran into Don Nelson years ago.

>> I did not. But I ran into Clay Worden years ago, and he said you can't manage what you don't measure, so I have become a measurement junkie a little bit, you know, making sure we're measuring the right things for the answers, or the questions that we have. So, but, yeah, I would attribute my understanding of that from Clay Worden.

>> Got it. Bean counters, unite.

>> Yep.

>> No, that's a good full circle comment. It reminds me, somebody asked me a while back, what was my favorite episode? And I think one of them was probably episode number four. And we're at like 125 now. Episode number four was with Fred Provenza. We were actually got a chance to visit him when he was still living in [inaudible] Montana. And we talked about managing for animals that fit their environment, and what all of that means, and some of the challenges in that. And that still feels like something that's pretty critical, especially in a rangeland setting, where you don't have the ability to, you know, pay to prop up, you know, more I guess high performance genetics. And when I say performance, I tend to think of, you know, performance relative to the landscape. And so I don't even like using that word. But, yeah, having animals that both can thrive in the resources that you have available to them, and being able to do it for a long enough period of time, that those animals have landscape knowledge that is passed onto their offspring, is pretty valuable. And more valuable when you're dealing with a large variable heterogeneous landscape.

>> Yep. It is, it really does come down to understanding your context and your unfair advantages. And, I mean, I just think that that's fascinating. You know, these, what is it, the Criollo cattle that are coming out of Mexico, that they've been using?

>> Yeah.

>> I may not have said that right, but they're using down in Arizona, and in actually terminal crossing them on cattle, you know, like a Charolais or something that's got more beef production, or ability to produce more pounds of beef, but they just leverage that animal that's more adapted to that environment to be able to  and when we think about rangeland health and having cattle that work well in rangelands, sometimes those aren't necessarily the biggest animals, I would say, and they're probably not the highest producing animals, but we can leverage terminal sires to be able to still be relevant in the marketplace, but also relevant in the ecological place as well. And so, I don't know, I see the value of understanding your context and your unfair advantage and where you can, you know, be creative to keep yourself in the business.

>> Yeah, I know a couple ranchers that have some Corriente mother cows. And they breed them to a low birth rate Angus bull. And the calf is, you know, performs really well, does good in a feedlot, and ends up, you know, being almost as valuable as, you know, say a straight Angus or a black baldy, or, you know, whatever cross, conventional cross you want, when you've got a 7 or 800 pound mature beef cow that uses, you know, 100% slopes, and costs a lot less to keep, there's an economic advantage there. And those animals fit certain environments.

>> Having been around like, as Clay mentioned, one operation that we looked at and helped on was we used goats. And then rangelands, these really arid landscapes, I think if your cows can look a whole lot more like a goat than a beef cow, you're going to actually have more success. There's just something about them lighter, thriftier type of animals, what is it, New Mexico State, that have done all the work on hill climbing? You have bottom dwellers. And there's just a lot to all of that that I just, I mean, I know a lot of your audience is built on, you know, some of the rangeland scientists and public land grazers and stuff, and so I just think that there's a lot to that. And we can let the market dictate what kind of animals that we have there. And I think we need to be really, really aware and make our own decisions on what kind of animals actually can use that landscape and keep it in good health and, you know, so it's just important to have that knowledge, and, yeah.

>> Clay, you had a quote a little bit ago that I wanted to see if you could repeat it, if you can remember it. And we may close up around that. You said something like layer something on your dirt that increases revenue opportunities. What was the rest of that sentence?

>> I don't remember the rest, but the gist was really, you know, don't limit yourself to what your dirt can produce. And I think I used earlier that example of I've seen some ranchers put some conservation easements on. And the assumption was that it was going to cap the long term value of that land. And what I've seen and witnessed is maybe it doesn't cap the long term appreciation of that land, or slow it down, for certain buyers. And I think the same is what James is saying, you know, the land itself is incredibly valuable, but what is layered on top of it, and the revenue sources that you can generate on top of it, is really what we see that separates those that are highly profitable from those that are less profitable.

>> No, that's a good word. And I think the only thing I would add to that, as we close out here, is go get some help. There's quite a few people around that can help do some of this planning and budgeting and keeping records and understanding your costs and your revenues and opportunities to do something different. And many of those don't cost anything. But even if it does cost something, it's a pretty good investment to spend $2 to make 10. And that can often be the way it goes with doing a little bit of planning goes a long way, particularly with agricultural finances, I think. And so I guess that's a concluding comment on this ranch finance series is there's a lot of information out there, and a lot of people, I think more so than there even used to be, to help figure this out.

>> Yeah, I would agree. I think it's been a great dialogue over the last year or so, as we just have explored some of the ideas that really bridge from our academia land management, and the academia economic side of it, to kind of say, how do these work hand in hand that we give ranchers the best chance possible to be successful? And success looks different for different folks. But be able to maintain that land, enjoy the livelihood, and produce healthy products for the world to enjoy. And so anything we can do to further that dialogue or help people make smarter decisions, it's been really exciting to be a part of.

>> And I would just say, I mean, just having been working in this business basically my whole life, there's a lot of, I would totally agree with you. There are so many resources out there. And I would say those resources come in all shapes and sizes. And I'm obviously a big proponent of the private industry, but I think that there's a ton of opportunities with NGOs, I mean, honestly, there are some federal programs that are out there that are providing tools for ranchers to be able to do things. I think there's your peers that are doing some incredible things. And hopefully some of those stories I can think back on, Jack Southworth, and some of the insight he's brought to this conversation. So, I think there's a lot of peers that are out there doing some incredible things. I just appreciate having this conversation on a platform where ranchers can just be encouraged to get the help that they need. There's help about everywhere. I have learned a lot of my stuff, honestly, outside of the agricultural industry, and bringing it back to the agricultural industry. And so always don't ever be afraid to, and, you know, it's whatever, it's reading books, it's going to seminars, it's having a conversation with some guy on vacation that's sitting on the beach, and he's in a totally different industry than I am, but I can glean things from those people of how they look at their business, and the opportunities that are there. So, there's help everywhere. A lot of it is just taking the time. So, thanks, Tip, for putting, allowing us to come in and listen and share. And it's been really fun.

>> Yeah, I really appreciate you guys. This is a unique, I still feel like a broken record, but I really think that this industry or this kind of enterprise of raising food on naturally occurring landscapes is a good, it's a good endeavor, and it's a good message. And I think there's a lot to talk about there. Animal husbandry is probably the oldest style of agriculture on the planet. In 2026, we're governing to celebrate the International Year of Rangelands and Pastoralists. And in many ways, you know, this doesn't look a whole lot different than it did 5 or 10,000 years ago. You know, we're trying to make animals match their environment and produce well at low cost. And there's nothing new under the Sun. And I think it's a good story to tell. And I really appreciate the way that you guys have helped people do that better. Thanks, again. And we're going to finish it out.

>> Thanks, Tip.

>> Thank you.

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