PUREBRED CATTLE BUSINESS IS A JOURNEY, NOT A DESTINATION

by: Stephen B. Blezinger
Ph.D., PAS

A few years ago I wrote an article entitled “So You want to be a Purebred Cattle Rancher. . .” I was amazed at the follow up calls I received from this article and still get calls and e-mails even to this day – generally 2-3 per week. It is interesting who the folks are that are making the inquiries. A lot of times this is someone who has inherited the family farm or who has decided to invest some of their hard-earned dollars into farming and ranching property and would subsequently like to start “running a few cows.” Unfortunately, in many situations these folks have really great intentions and some good ideas but jump into this thing, spend a LOT of money and in just a few years decide to fold up their tent and go somewhere else. The average lifespan for many purebred operations, based on conversations with a large number of professional ranch managers is about 5 to 7 years. The reason for this, in most cases, is that things have not worked out how the owner would like and they now need to get out because they don't want to “lose” any more of their hard-earned dollars. The 2009 Purebred Reference issue is a great opportunity to revisit this topic and address the pros and cons of this whole issue. This is especially true given the economy we are in at this time and the need to spend and invest our dollars wisely and with significant forethought and planning. I will warn you now, however, that some things that will be said will not be what many folks will want to hear. But what you will find here will be the TRUTH and from my perspective that is what so many of the people getting involved in this business may never hear until they are so far into it that changing paths becomes a major endeavor. On the other hand, if you have been a rancher all your life, this article may be elementary to you or it may give you some opportunity to reflect on how and why you have gotten to where you are.

Ask Yourself Why You Want to do This

Just because a new cattle producer is, in fact, new or has been away from the industry for a while does not mean that they have to come into an enterprise with their eyes closed. However, what I have recommended to numerous individuals wanting to undertake such an endeavor is to first sit back and reflect on why they are interested in getting into the cattle business and to be honest with themselves. Whoever you are, you need to ask yourself, “why do I want to do this?” Here are some thoughts that have been passed on to me as to reasons individuals, families or business groups have decided to enter into this sector of the cattle business. There are no wrong answers or reasons. One or more may be applicable to a new cattleman (or maybe even an existing producer who is questioning his involvement):

1) It's something my family has always done and is part of my heritage.

2) I like the lifestyle and/or it's just something I'm interested in.

3) I've inherited the family farm/ranch and would really like to get it running again.

4) I've got a number of friends in the business, looks like they are making some money and I'd like to take a shot at it.

5) I feel like there is a certain amount of prestige or glamour to being in the cattle business and my friends will be impressed (these folks have obviously never had their arm up in a cow trying to deliver a calf a 2:00 am in the middle of a rainstorm on New Year's Eve, or have had to clean up a good case of foot rot).

6) I feel like it would be a good hobby or leisure activity (please see the note on No. 5 above).

7) The outdoor activity is good for me, its good for my family – it's therapeutic.

At one time there were a lot of tax incentives to owning a cattle operation so this drove a lot of these types of programs. At one point in time ˝ the doctors, lawyers and stockbrokers in New York City had a pen or two of cattle on feed. Unfortunately this is not so much the case any longer and you definitely need to talk to your CPA before venturing in. As mentioned, there are no wrong reasons, but it is very important that you evaluate WHY you want to be there. Also remember that they need to be your reasons and not some bill of goods that someone has sold you. If it is your family making the decision to take the plunge it is essential that EVERYONE be on board because at some point it will affect everyone in one way or another. And finally, no matter how much homework and planning you do, fairly soon in the process, Murphy's law will come into play. Above all, if you are entering in because you think this is an opportunity to get rich quick (or get rich at all), stop now, take a couple of asprin and go lay down until the urge passes. Most, if not all producers will tell you, making huge amounts of money in this business will not happen. This is not meant to be discouraging, only factual. Plus there are added “values” that come into play here as you are building an operation of this nature (go back and take a look at the previous list). In many cases what you will build are long term assets that should appreciate over time.

A Common Scenario

What I see in so many cases is a scenario that plays out along the lines of the following:

1) An individual or family has been successful in another line of work or business. Doesn't matter what they have just been blessed and have accumulated a certain amount of money. This is not always the case but is probably the most common.

2) At some point, they are introduced to the cattle business (they may have grown up in it and are looking at coming back, they may have friends or acquaintances involved, they may have land or inherited land that was used for producing cattle or livestock in the past, etc., etc.).

3) They decide that they need to begin a cattle operation. In many cases this is after talking to someone that is already involved that for what ever reason, “sells them” on the idea and on the fact that a given breed is “the next big thing.” Doesn't really matter how they get to this point, only that it happens.

4) They already own or they buy a piece of property reasonably suited for running cattle. It may already be in great shape or it may be a “fixer-upper.” If it requires some improvements, this is where the cash out-pour starts. Very seldom have I seen this process take place without some “over indulgence.” Some improvements or expenditures take place that are not necessary but the individual or family becomes concerned about image – they need to be perceived as a substantial operation or that they are serious about this. In some cases it becomes a matter of “look how much money I have invested in this.” I know of one ranch that evolved in this manner where the owners spent $60,000 on painting the fence along the road and buying every piece of equipment they thought they might even possibly need before they even took a serious look at what their cattle operation was producing (not a lot at this point).

5) They decide on a particular breed of cattle (see no. 3) and start attending production sales. They may also buy cows, heifers, pairs, bulls, etc. private treaty from individual producers. In a lot of cases it is from the individual that “sold them” on the idea to begin with. In general, at this point in time they end up spending a phenomenal amount of money on the cattle they will use to initially stock this operation. In so many cases they do not know what they are buying (genetics) or how this will play into the big picture of things. Worse than this – they have NO idea how they are going to sell (marketing) the cattle they are now buying or are ultimately going to raise from these initial animals.

6) Somewhere in the process of 4 and 5 they decide to hire a manager. It is assumed that this manager has at least had some experience and background in this process. From experience though, I have seen that in these cases it is not uncommon for the new ranch owners to NOT screen their applicants thoroughly enough. Or they end up hiring someone that they do not trust to handle the business. This is one reason that references are very important in addition to a good resume'.

7) They are now deep into the thick of things. They have spent a ton of money on the ranch, fixing it up, buying the cattle, buying equipment, hiring management and labor. The cash outpouring has become a deluge (imagine a fire hydrant that someone has opened completely!). The early stages (first 1-2 years) are tremendously expensive unless some resources are in place already.

8) By about the end of year 2 and getting into year 3 the new purebred ranching operation has some of its own cattle on the ground and they have begun looking at how these cattle can be sold/marketed. They soon find that it is much easier to buy cattle at the high prices (sometimes overly inflated) than it is to sell these cattle for the same prices. Seldom does one see a fairly new, start-up operation sell its cattle for the same money that they paid for these animals or rather their sire(s) and dams. This is where some real disillusionment begins to set in.

9) Over the course of the next few years unless the owner and/or his manager really takes the bull by the horns, so to speak, and begins a very aggressive marketing program that involves not only getting the cattle sold but making sure that they are producing the “right” kinds of cattle (genetics, phenotype) that are in demand, the likelihood is good that both the cattle and ranch will get a for sale sign posted out front. The typical statistic is that ranching operations of this nature have a lifespan of 5-7 years and over that period, the owner will spend large amounts of money that will not be recouped.

This is not the prettiest picture and unfortunately many readers may recognize themselves in this description. Let's move forward and look for how we can improve this picture.

Who are the Successful Purebred Cattle Producers?

Most of the purebred producers who are the “movers and the shakers” in the industry have been involved in the cattle business for quite some time. A successful purebred or “seedstock” producer is not someone who woke up yesterday and decided to go out and buy a herd of purebred cattle. Secondly, they are involved in the particular breed they are in for one or more reasons. 1) The breed they produce is one they have been working with a long time. It may be a breed they grew up with. 2) A lot of time and effort has gone into developing the genetic line(s) of cattle they are producing. They have paid attention to detail and are selecting for specific traits that are of value to the breed and to the industry. 3) There is some type of marketing plan in place. They know how to get their cattle sold.

Number 3 is probably, in my opinion, the number 1 success factor for successful producers. I will emphasize this and underscore this factor and if you get NOTHING else from this article, this should be your take home message: As you get into this business you need to know, up front, how you are going to sell your product. I cannot emphasize this enough because this is where a great deal of the disillusionment comes into play when someone gets involved in this business. They make investments in property, equipment, labor and finally the cattle themselves but then do not have an effective means of selling what they produce (generally heifers or bulls). In many cases the reason they got in is because they have developed the idea from others that huge amounts of money can be made from the word go or they see how some animals sell at various sales. In planning to move into this sector of the industry you MUST have a marketing plan from the onset. I will say this again – you must have a marketing plan from the onset.

The folks in this business that are successful may not have a showplace or drive the latest model truck or have a fleet of new John Deere tractors. What they do have is a plan, a management and marketing program and a goal. They know what they want to produce and how to get there. They understand that this is not a “get-rich-quick” scheme. They use sound, solid management practices that include good genetic selection, good breeding, good nutrition and good marketing. AND they understand that it takes ALL of these to build a sound program. Finally, they pay attention to detail, dotting their I's and crossing their T's.

Taking the Necessary Steps

Regardless of where you may be in this process there is always room for improvement and doing things better. Lets take a look at some things you should consider if you are at the entry or the early stages of this program.

1) Go back and look at the first list in this article and decide WHY you are giving this consideration or are involved in a purebred cattle operation. Remember that there are no wrong answers unless you are getting in because someone has stroked your ego or that has sold you a bill of goods.

2) Remember that building an operation of this nature is some thing that you need to have a passion for. Without a passion you will get tired of it soon and realize this is not something you want to spend money on. You can always tell the areas where a person has passion. Just look at their calendar and their checkbook – where do they spend their time and money.

3) If someone is pushing you to buy this or that, STOP. Ask why they are pushing and what are they getting out of the deal.

4) Consider again, why you are choosing the breed you are choosing. Look at breed growth over the past few years. What are it's strengths (great gains and feed efficiency, superior carcass quality) and weaknesses (high calving weights, mediocre milking ability, poor disposition). Don't choose a given breed because you think they look “pretty” or because they occupy some niche market that appears to be paying large dividends. Niche markets can be exceedingly difficult to get into.

5) Remember that this is something that takes time. It will not happen overnight and if you try to make it happen overnight it will cost you a HUGE amount of money. Like so many other things, the development of a purebred cattle operation is a journey, not a destination. It never stops evolving.

6) Homework, homework, homework. You cannot ever learn too much. The more you understand about your operation and the breed you are considering or have chosen, the better off you are. Take your time and do this up front, before you invest the first dollar.

7) Develop a business plan and a marketing plan. A business plan just makes good sense, it means you have thought about how you are going to move into this new endeavor OR move forward in an existing endeavor. This will be especially important if you anticipate borrowing money to fund a portion of this. A marketing plan helps you understand who you can sell your product to. As a purebred breeder your market opportunities include other purebred breeders, commercial breeders, terminal markets (cattle not to be used for breeding). You will have to get the word out about what you have and some of this will require advertising – newspapers, trade papers, breed journals, websites, etc.

8) As part of your business plan you need to develop a production plan. This will outline, genetic selections (short and long term) breeding programs, nutrition, herd health, general management. All of these components are important. If you think one is less important than the other, let it slide for a while and see how quickly it will come back to bite you. These also have major effects on your day to day production costs and overall animal performance.

9) Recognize that there are other “values” to the development of an operation of this nature. Remember that it may be some time before you are profitable. What does it mean to your family at present? What will it mean in the future? Is this something you enjoy? What about the rest of your family? Is this a part of an estate that you are building for your future generations? The list goes on but it is important to recognize these questions and to give them long term consideration.

10) Seek guidance. This is especially true if you are hiring a full-time manager. This person needs to be experienced and know the industry. Equally important this has to be someone you can trust and not second guess their decisions. Finally, talk to other producers, your accountant, real estate advisors, veterinarians, nutritionists, production consultants. Assemble an “advisory board” that you can go to that can help you make informed decisions.

Conclusions

As I've have stated before, there are no wrong reasons for getting involved in a purebred cattle operation as long as they are YOUR reasons. The results can be extremely rewarding but recognize that there will be frustrations and setbacks in the process. Remember – it is a journey, not a destination.

Dr. Steve Blezinger is a nutritional and management consultant with an office in Sulphur Springs, TX. He can be reached at 667 CR 4711 Sulphur Springs, TX 75482, by phone at (903) 885-7992 or by e-mail at sblez@verizon.net. For more information you can visit www.blnconsult.com.







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