And I'd like to be able to give you a recipe. I'd like to be able to give you a silver bullet that could solve all your problems. But, ladies and gentlemen, after nearly 30 years of teaching in different parts of the world, I've come to the conclusion that there is no silver bullet.
There is no easy recipe. As we sit here this evening and as we look at all these different things, I think we have one thing in common, and one of the things in common that most of you have is that you read the Stockman Grass Farmer.
I'd like to say that, in fact, Alan Nation has been a beacon, a light that has drawn a lot of people of diverse interests together from different point of views. And I'd like you to join me in a tribute of thanks to Alan and his staff, Carolyn and everybody else on the Stockman Grass Farmer, in a tribute of thanks for what they have done for us in helping us to find a different way.
So would you please make a case of the city of the company? Okay, that said. And thank you for that. That said, I have a presentation this evening which, as Alan says, I change my mind quite frequently and quite often, and when there's a new idea, I look for a different way of doing it.
I'd very much like to be able to give you that recipe, but there isn't one. So what I am going to offer you in turn is I'm going to say that essentially this is a lifelong experience for all of us. It's a question of lifelong change.
Small bit by small bit, incrementally, we don't have all the answers. Quite honestly, if I had all the answers, I wouldn't be standing up here in front of you tonight. The point is that, ladies and gentlemen, we all need to pull together to make our little contributions, the contributions that we can, to make this whole thing go forward.
Pete, if I could have those lights just for a minute, please, I'm going to show you some slides. I'd rather not work from slides, but the problem is that sometimes it's easier from your point of view.
Too dark, too dark, lighter, thank you. Can you see that from the back? Can everybody see that well enough? You don't have to see a heck of a lot. But basically, what we're going to be doing is talking about the alternatives.
There are alternatives to losing money. That is the title of what I have to say. Now, before I go on again, I need to ask you a question, each and every one of you. I'd like a show of hands for those of you who are totally dependent upon the livestock industry for making a living.
You have no other sources of income. Thank you. I would estimate that that's about 15% of the audience, and I'm surprised that it's that high. Ladies and gentlemen, we have in this country approximately 1 million cow cash producers.
Of those million people, 93%, the last set of statistics that I saw, have 50 cows or less. 50 cows or less, an average of 19. Now, you know, and I know that it is impossible to make a living on 19 cows.
However, those same people produce almost 60% of this country's beef. That is a fact that unfortunately is not recognized by the NCBA or any other cattleman's association. We have problems. We have major problems in uniformity.
We have nearly 140 different breeds of cow in this country. And yet, for all the boasts that we make about being John Wayne and the rest, we are hobby ranchers. In this industry, U.S. ranchers are structured to fail economically, financially, and biologically.
Now, I would like to be able to spend some time this evening at a later point making the distinction between finance and economics. They are two totally different subjects. And they have two totally different solutions.
Most of you are only surviving because you have a positive cash flow. That positive cash flow does not necessarily mean that you are economically viable. In other words, if you have to pay cash rent on the land that you run your livestock on, interest on the capital that you have invested in your cows and your machinery, pay all your labor costs and pay all the other expenses, how many ranches do you think there are in this country that would survive?
If they had to pay cash rent on land, capital invested in cows. You know something? We are the only industry in the world that does not expect to make a profit. We go into business without the intention of making a profit.
Did you ever think about it like that? So, you see, we have done more than that. There's more to it. Modern man has walked across the face of the earth and he has left the desert in his footprint. If you could travel with me, as I do, to many different countries in the world, you would see exactly what I'm seeing.
How do you feel? Is our land better off today than it was 50 years ago, than it was 100 years ago? We cause a deterioration, and we're causing a deterioration every day because we're trying to squeeze that last bit of profit out of that business.
Much of what we've done over the last 50 years is increased production. I think you'd agree with me. Our conception rates are much greater. Our weaning rates are much higher. Our disease rate is much lower.
We've increased production. We've also increased our use of fossil fuel. We have increased our overheads because of the machinery that we have and the capital that we have invested in all kinds of fossil fuel technologies.
We've degraded the land. But ladies and gentlemen, despite the increased conception rates, despite the increased weaning rates, despite the supposedly better capital that we are producing, are we making more money?
So, what has the value been of this increased production that we have? That our universities keep promoting and pushing and saying that this is going to be the answer to all our problems? And are we better off than what we were before?
Which livestock producers are going to survive in this industry? Believe it or not, it's those 93%. It's those small producers who are going to survive. And the reason that they're going to survive is they don't have very high overhead.
The land that they live on is their home. They work in town. The vehicle that they drive to work is their ranch vehicle. On the other hand, we have the recreational ranchers. Ted Turner, his colleagues from Hollywood.
All of those people who have very deep pockets and are ranching because of some kind of image that they're trying to satisfy. They don't really care whether they're making money or not. What about those in between?
What about you? Where do you stand? If the great majority of branches in this country really don't care whether they make a profit or not, what does it do to those people in between? And you know, I've tried to guesstimate how many ranchers there are in this country who truly depend upon ranching for a living.
Would you like to hazard a guess with me? If out of a million, 93% have 50 cows or less, that leaves us 70,000. Of the 70,000, we have many who are in the business for recreational reasons and for image.
I guess that we're down to about 20,000 rail ranchers in this country. And I'm not sure that I'm not being overly optimistic. So what about those people in between? Those in most danger, the way that I see it, are the full-time livestock producers.
Those who are production-oriented and who boast about their weaning weights when they go to the coffee shop. The small to medium producers who have 250, 300, 500 cows, those people are in danger because they don't have a big enough business to survive.
Large producers, like King Ranch, with very high overhead, they can't survive either because economically they're structured to fail. And people who think about ranching as being a cowboy activity, there is no room for cowboys in our business, ladies and gentlemen.
If you want a rope and you want to use cutting horses, that's something you do on weekends. But for God's sake, keep those damned horses away from the cows. All right, I want to give you just a little very brief introduction to economics, and we're going to talk economics in just a bit.
First off, we're going to pretend that you and I are going to get into the ranching business together. We're going to make five assumptions. And the first assumption is that we have no land. The second assumption is we have no cattle.
The third assumption is we're so busy doing other things that we have no time to run the ranch ourselves. The fourth assumption is we have no money. The fifth assumption is we do have a very wealthy uncle.
But he's not prepared to give us one single cent. But he is prepared to stand guarantee at the bank for any amount of money that we would like to borrow. Right? So we have to borrow every penny that we're going to put into this business.
Fair enough? Okay, what do we need first? If we're going to get into, are we going to get into the livestock business together? Is that what we want to do? What do we want first if we're going to get into the livestock business together?
Apart from a plan and having to go see the bank, we've done all that stuff. Land. Okay, we want some land. Are we going to buy the land or are we going to lease the land? Why? Cheaper. Let's think about that, shall we?
Well, are we going to, do we intend to be in the land business or do we intend to be in the livestock business? Livestock. Is there a difference between being in the land business and being in the livestock business?
Is it possible to be in the land business without being in the livestock business? Is it possible to be in the livestock business without being in the land business? Okay. Ladies and gentlemen, most ranchers in this country only survive because they are in the land business.
Think about it. Think about it. If it wasn't for inflation in land value, and if we couldn't keep on going to the bank and borrowing against that inflating land value, would we still be in business? Okay.
So, the moment that we go out there and lease that land, we incur an expense. It's called rent. So we have a rent, and we're going to rent a ranch. Let's not rent by the acre or rent by the beast. Let's rent by the ranch.
So we're renting the whole ranch. Okay, now remember, we were so busy doing other things that we didn't have time to run the ranch ourselves. So the next thing is a cowboy, right? We need a hand to help us take care of this livestock operation about.
How much are we going to pay him, ladies and gentlemen? $1,000 a month? $15,000? Come on, give me an answer. What do you think? Two, three? $3,000? Somebody must be a cowboy around here. Okay. $2,000.
This go for two. We're going to pay him $2,000. That is $24,000 a year. Ready? Is that the end of the expense as far as that man is concerned? Workman's comp, FYCA, payments, social security, health insurance, add another 25 to 33% to that figure.
And you'll come pretty close to the add-ons to the salary. So that's putting us pretty close on $30,000. Who pays for the house? Him or us? Who pays for the utilities? Him or us? You ever seen a cowboy without a pickup?
You know what it costs to own and to operate a pickup for a year? $8,000 to $10,000. Hey, this $2,000 a month cowboy is looking like he's beginning to cost us like $40,000 and $45,000 a year, right? So it really doesn't make any difference whether it's a cowboy or yourself.
That's pretty damn near what we need today to have a modicum of a reasonable kind of living standard, isn't it? $40,000 to $45,000. By the time you take into account, the house costs, the vehicle costs, all those other things that we tend to forget about.
That's what it costs us. Now, ladies and gentlemen, on average in this country, we have 250 cows per man, on average. I'm talking about the bigger ranches. I'm not talking about the 93% smaller ranch.
So, 250 cows, $40,000. $50, divided into $40,000? $160 per cow in labor-related costs alone. What's our income? Nothing yet. You're quite right. We don't have a damn thing up there. Okay. But even if we did have, we're looking at a $300 income per cow.
Maybe, if we're lucky, today, we've got $160 more than 50% of our income tied up in labor-related costs. Okay, so what's happened is this, that we have got rent and we have got labor expenses, right?
We've still got to have a telephone so the cowboy can tell us, talk, call us and tell us when the cow died. We've got to have a lawyer to keep us out of trouble. We've got to have an IRS man to tell us how much tax money we save because we're in the capital business.
And our costs, we still have zero income, right? And those costs go up and up and up. And they're going to constitute somewhere between 65 and 85 percent of all the expenses on the typical ranch in this country.
65 to 85 percent are going to be overhead. Not fixed costs, ladies and gentlemen. So when the economists tell you that those costs are fixed, the economists are wrong. They are not fixed. They are overhead.
These are different. They can be changed. That's why they are not fixed, and that's why we call them overhead. Okay, now the big day comes and we go out and we buy ourselves our first cow. Let's say she costs us $500 and she's a bread cow.
Remember, we didn't have any money. Where did the money come from? We borrowed it from the bank, you remember? Okay, so what do we have? We've incurred another expense the moment that we buy that cow.
What was it? Interest. At least $50 tied up in that cow in interest costs. Whether we own the cow, whether we've got it paid for, whether we inherited her, or whether we had to borrow the money to buy her, we still have $50 worth of interest tied up in that cow.
We call that a direct cost. It's direct because if we have two cows, it'll become $100. Three cows, $150. And every time we add more cows, we add more interest, right? There are other direct costs. What are they?
Feed, vet and medicine, marketing expense, bull costs. Those costs go up and up and up as we add more and more cows. So, there go our direct costs. And up they go. More and more as we add more and more cows.
Now, that first cow we bought, remember her? She calf, ladies and gentlemen. And you know what? The calf lived. And we sold it. And we got $300 for that calf. And so we have some income, ladies and gentlemen.
And somewhere back down here, we've got about $300 worth of income. Right? Are we in business? What do you think? Well, of course we're in business. Are we happy in the business that we're in? Hell no.
You've got a pointer. Let me see. It might be better than Michael. God, all this damn technology that you've got to live with. I'll tell you, it's unbelievable. Okay. All right. So, thank you, Alan. What do we need, ladies and gentlemen?
We've got one cow that produces one calf. What else? What do we need? A hell of a lot more cows, right? So let's add some more cows. God, two. Okay, so we add more cows. And now, you see what happens is that our income goes up, up, up, up.
And if we're damn lucky, we will get to the point where we have enough income to cover both the overhead and the direct costs. We call that break-even. That means we'd be able to pay rent on the land, all the labor expenses, the lawyer, the accountant, the telephone, and the direct costs, the interest on the capital investors, the feed costs, the vet costs, the bull costs, et cetera, et cetera.
And we still have covered, we've got enough income to cover all those expenses. That's called break-even. How many ranchers do you think there are in this country who break even today? Isn't it dismal?
Isn't it a dismal thought that out of a million ranches in this country we have just about as many as you can count on the fingers of one hand and maybe you can add your toes of the people that can actually make money, that actually break even economically.
Now that doesn't mean to say that they're bankrupt. Financially they are surviving. Financially they are surviving because they have more cash in. They are not charging themselves for their land, right?
They are not charging themselves for the interest they've got tied up on the capital invested in the cow. So financially, it's not the cows that are making money, it's the land business that is making money.
And it's the inheritance that we got on the cows that's making our money. We're living on that income. Now, ladies and gentlemen, it takes about 25 years if you inherited the ranch and the land value doesn't escalate to go bankrupt.
That's about how long it takes on average for the average rancher to go bankrupt. You know, we have this very sick joke that we use in our industry. If I won the lottery, I'd just keep on ranching until the money ran out.
Hell, how sick can you get? And we think, and we really talk about this as being a real industry? Come, ladies and gentlemen. Okay, so there are very, very few people, I believe, who are truly making an economic profit in this industry today.
So, let's take a little bit closer look at some of these things. I'd like to just run through with you some figures on a cow trap gross margin. Maybe I should back up one. And say there are only three things that we can do to improve the profitability in our business.
One, I think you'll agree with me, is we've got to reduce our overheads. One of the things we can do to improve profit is we can reduce overheads. That's why they are not fixed cards, right? Secondly, we can have more cows, right?
We can increase the size of our operation. Thirdly, we can improve the contribution that each cow makes toward our overhead. And that contribution, ladies and gentlemen, is the gross income that that cow produced minus the direct cost.
Minus the direct cost. And we call that gross margin. And gross margin is a term that tragically has not been used very widely in this country in agricultural circles. But every one of you really needs to understand gross margin and the important role that it plays.
So let's take a look at gross margin. In this little simple example that I've got up here, I said gross income $300 per cow. This is a per cow basis. I charge interest cost $50. I charge the supplement cost, that's minerals and protein supplements, $40.
Pretty damn low, don't you think, for most people? Okay, VET, AI, medicine, and the bull, or bull cost, I put at $25. That's the bull cost and VET medicine combined. Marketing expenses, I put at $5. And I left out hay because everybody's hay cost varies tremendously.
How much hay do you feed your cows? You know, I don't. Half a ton? One ton? One and a half? Two? Any advance on two? Maybe three? Maybe four? I was in Utah five weeks ago, and I was talking to a group of ranchers there in the southwestern part of Utah.
On average, they feed between three and four tons per cow per winter. That hay cost, they're talking about top quality alfalfa hay, will range in price from $70 to $120 per ton. Right? Let's make it $70 and let's call it three tons.
That's $200 in hay costs alone. Ladies and gentlemen, we've got 50, 40, that's 90, 90, and 30. That's $120 there so far. Let's add another $200 worth of hay costs. And we are $320 for our direct costs on that cow.
And what's our income? Why the hell do we bother? The fewer cows we have, the better off we are, right? You see the importance of gross margin? It's the contribution that that cow is making toward your overhead.
And ladies and gentlemen, one of the major problems that we have in this country is we did everything backwards. Here we are, we calve in the middle of winter. How many of you don't calve somewhere between March, between January and April?
Who does not calve between January and April? Thank you. 1, 2, 3, 10, 15, 20. Okay, we're beginning to win. You see, the problem is this. We calve in January. When do we have the least amount of feed on the ground?
When is the cow's requirement the highest? How many of you listened to Dick Diven last night and talked about body condition score? And did Dick talk about body condition score last night? Sure. And we know why he talked about body condition score?
Because it's the single most important factor that determines conception rate. So in order to get these cows in good body condition score at the time of calving, if we're calving in winter, we have to feed.
Please, I want to give you two new terms, supplementary feed and substitute feed. Hay feeding is substitute feeding. You are making up for deficiencies in energy. Hay feeding is substitute feeding. You are making up for deficiencies in energy.
Supplementation is minerals and protein. You are making up for deficiencies in quality, and they come in small amounts. We cannot afford to substitute feed our cows. Hay and silage are out if you want to survive in the cattle business today.
They are not viable options. Okay, so that's why gross margin is that important to us. Now, the economic problem basically is that we have poor gross margins. In other words, those very high winter costs.
We have high overheads. The moment we start making hay, what do we need? Machinery. What does it do? It raises the overhead, right? Not only does it raise the overheads in machinery, it also raises the overheads in labor.
Now, there are two questions that you have to decide on. When you're talking hay, you have to ask yourself, can I afford to make it? That's question number one. Question number two, can I afford to feed it?
They are two totally different questions. You may be able to afford to make it, but then maybe you ought to sell the damn stuff. So it's not to be in the position of those people in Utah who were not making money out of cows.
They were making money out of hay. They just happened to process it through cows at a loss. Right? Okay. And too few head per man. In a short while, I'm going to tell you that there's no possibility of having an economically viable unit in this country with less than 1,000 cow.
And I've already told you, Paula, that, that $160 per cow in labor-related costs is something that we cannot afford. If we're talking about cattle operation of less than 1,000 cows, we're talking about part-time operation, weekend operation.
We'll talk more. An economic unit. For a profitable full-time, full-time, and I emphasize the word full-time ranch operation, we need one man. We need 1,000 cows or more. And we need one wheelbarrow.
And that is only, ladies and gentlemen, if you are absolutely dead set on machinery. Cattle and machinery just don't go together. It's long and the short of it. The need for change. A little statement from Albert Einstein, which I thought was pretty significant.
The significant problems we face today cannot be overcome with the same level of thinking which caused the problem. Think about it. The significant problems that we face today cannot be overcome with the same level of thinking which caused the problem.
We have to take a totally different way of looking at things, a totally different shift of paradigm. We cannot afford to go with the old paradigms and the paradigms that we've had and the paradigms which have been promoted to far too great an extent in this country, and that is that if you have a problem, produce more.
That was not a solution then, and it is not a solution today. So we've got to look at different ways of doing it. Where's the technology gone? A change in attitude. I'd like to ask you, for those of you that are writing some things down, please to write down this statement.
It's not the situation, but it's what you do about it, which determines the result. It's not the situation, but what you do about it that determines the result. Ladies and gentlemen, we can cry in our beer all day long, and I guarantee you it's not going to make one damn bit of difference.
We can blame the government, we can blame the market, we can blame the priceless. Hell, we can't even blame the communists anymore, but we can blame everybody else. But we can do as much blaming as we like, but it's not going to make one scrap of difference.
The only thing that's going to make a difference is what we do about the situation. That means you and I individually and collectively. We cannot look for answers through our political organization because it's not up to them.
Nobody cares, ladies and gentlemen, whether you survive in the cattle business or not. Nobody cares except you. So it's up to you to make that difference. Do you know that in this country, in general, 500,000 new businesses start every year.
Half a million new businesses start up every year. By the end of year one, 40% have failed. By the end of five years, 40% more have failed. That leaves 20% at the end of five years. Within five more years, 80% of those which survived the first five years failed.
80% of 20 is 16. That means that over a 10-year period, 4% of the startup businesses survive. 4%. Yet, there's another group of businesses in which 97% succeed over a 10-year period. Turn to your neighbor and see if your neighbor knows what those other group of businesses are that survive over a 10-year period.
Go on. Ask your neighbor. What does your neighbor think? Now you can tell me. Franchises. Franchises. Okay. Somebody's been there before. All right. Franchise businesses. 97% of franchise businesses succeed over a 10-year period.
Why? They have a plan. Who worked on the plan? Who developed the plan? The franchisor, right, developed the plan. That was the person who developed the plan. Now, when that person developed the plan, were they busy flipping hamburgers?
As they were developing the plan? Or do you think that they were sitting in an office? They sure as hell weren't flipping hamburgers. And I'll tell you what, they weren't riding a horse across the pasture either.
Ladies and gentlemen, the difference is this, that they worked on the business. They worked on the business. We call that what be, right? It's a new term, I hope, for most of you. What be. Working on the business.
Where do we spend our time mostly as farmers and ranchers? Digging the post holes, feeding the cows, irrigating, making hay, fixing machinery. That's called whippy, right? Working in the business. If we want to survive, ladies and gentlemen, we're going to have to learn to work on the business.
How much time do you think we need to spend working on the business? You ever heard of the Pareto principle? Bless you. You ever heard of the Pareto principle? You ever heard of the 80-20 rule? 20% of what we do produces 80% of the income.
80% of what we do produces 20% of the income. When we're working in the business, how much income are we really producing? I'd like you to think back on this last week. Not the last couple of days. Before you came here.
And think about the work that you did in the business. If you had to put a dollar value per hour to the work that you did in the business, how much would you pay yourself? $100 an hour? Would you have been prepared to employ somebody for $100 now to do that work?
$200 maybe? No? How about 10? Five? Three? Getting closer? And yet we spend all our time doing that kind of work and then we wonder why we're going bankrupt. The alternatives, ladies and gentlemen, to losing money are you can lose the money until the equity runs out.
That's one alternative, right? You inherited it, just wait until you've used up the whole damn inheritance and that's it. Had a nice life in the meantime. You could rely on inflating land values. You could rely on alternative sources of income.
That could be hunting. It could be sending your wife out to work, of course. Or maybe it could be sending your husband out to work, ladies. I mean, that would be an even better deal, wouldn't it? You could think about getting bigger.
You could get an outside job. Or perhaps you could look at improving your economic effectiveness. And I hope the message of production being crossed out was not lost on you. It is not a question of increasing production.
It is a question of improving your economic effectiveness. Our survival, as I see it, depends upon replacing fossil fuel energy with knowledge. We have to learn to think differently. Not to work differently, but to think differently.
Shifting that calving season. Getting rid of the need to feed hay. Getting rid of the machinery. Getting rid of the labor that's involved in that haymaking. That's a question of replacing fossil fuel energy with knowledge.
Getting rid of that fertilizer that we waste so much money on. And not only did we waste so much money on, but it's also destroying our soils, whether we like it or not. And our so-called improved pastures, which in actual fact in the main are the residuals from Africa, which are brought in here as pioneer species from Africa for the very simple reason that they can withstand abusive management.
Bermuda grass, coastal, etc. That's why those grasses are brought into this country. Not because they were high producers, but because they could withstand bad management. Walt, I believe that I got that story from you many years ago.
Am I right? Thank you, sir. Knowledge. This is a quote. I don't know who made it. I found it among some loose leaf papers that I had that I wrote about 10 years ago. The energy of the mind burns no fuel, uses no resources, creates no pollution, yet achieves so much.
Think about it. The energy of the mind is what we have to work with, and that is what we're going to have to use in order to survive in this business. In order to become effective, we need to learn to work with nature.
We need to learn to reduce our overheads. We also need to learn, most importantly of all, not to make work. Not to make work. We make work. We are unfortunately saddled with the Protestant ethic that if we don't work, we're lazy.
Sometimes it just pays, hands down, to sit around on the porch and do nothing. That may be one of the most profitable things that you can do. Now think about it. Okay. We did talk about shifting our calving seasons.
We need fewer herds per man. When I first came to this country and I first started working here in 1978, and incidentally, I see some of my friends from Mexico in the back there who were among the first people that ever came through the school, school number one, the Ranching for Profit School.
And I salute you gentlemen at the back there. When I first came here, one of the things that absolutely amazed me was this incredible expense that we had in labor that we talked about a moment ago. Now, of course, in Africa, we didn't have any company like that kind of expense in labor, but that was because we didn't pay the people very much.
But nevertheless, the problem here was that we have this enormous expense in labor. So the question was, how the heck do you get rid of this high labor cost? What we obviously need and the obvious answer is more cows per man.
I was working on big ranches in Arizona, big ranches in West Texas in particular, and we were talking about ranches with between 2,000 and 5,000 mother cows per ranch. But they had between 15 and 30 men.
In fact, in one ranch in California that I was working on, they had a little over 1,000 cows, 2,000 ewes, and they had mine employees. Now, you work out nine employees on 1,000 cows and 2,000 ewes, and you will find that it doesn't pencil very well at all.
So the obvious answer is get more cows. But at the same time, you don't want more men. You've got to get rid of some men. So the question is, how do you do that? So the standard answer is get more efficient.
No, ladies and gentlemen, that's a bad word. Efficiency is a bad word. Efficiency means incremental improvements. What we need is to become more effective. In order to become more effective, you need to think ten times bigger.
So we set a goal, and our goal was 1,000 cows per man. Can you imagine how popular we were among the cowboys when we talked about 1,000 cows per man? Can you imagine what the ranchers' reaction was when we said that instead of having 15 men on this place, you need two?
Can you imagine that reaction? The answer, ladies and gentlemen, was so simple you wouldn't believe it. No, it wasn't faster horses. We didn't need them. All it took was bigger herds. All it took was bigger herds.
Instead of having 50 herds of 20 cows each spread over 150,000 acres, what we did was we took those same 50 herds of 20 cows each and put them together in one herd. Right? It's called a breakthrough, ladies and gentlemen.
And a breakthrough is something that happens suddenly, cannot be predicted from past performance, has a very dramatic impact on the business, and usually costs just about nothing at all. And in that particular case, that's exactly what happened.
Can you imagine how long it takes you to go and check a herd of 500 cows, as distinct from going to check 10 herds of 50 cows? Does it make a difference? Is it easier to check one herd of 500 or easier to check 10 herds of 50?
What do you think? Is it easier to check a herd of cows when they're in a paddock of 100 or 200 acres or is it easier to check them when they spread over 150,000 acres? You see the difference? It's a huge difference.
That was a breakthrough. So we did that, and almost immediately we cut that labor force to just about nothing. Most of those people today are not only running 1,000 cows per man, they have exceeded that figure, and they're closer to 2,000 cows per man.
Has it made a difference to overhead? You better believe it. We cut overheads dramatically. Now, having a conversation with a gentleman earlier today who said he came through the school some years ago and he got the impression that one of the things that we had to do in order to survive was cut costs.
No, ladies and gentlemen, please, we don't cut costs to make a profit. You cannot starve a profit into a business. Please write that down. You cannot starve a profit into a business. Cutting costs is not the way to go despite all the popular articles that you've been reading over the last couple of years about how to survive in the business.
The way to survive in the business is to make sure you stick to the basic principles. There are only three things that you can do to improve profit. Remember, improve the gross margin per unit, per cow, per acre.
Increase the number of units, more cows. Decrease the overhead. In your business, one of those three is more important than the other two. Have you ever pruned a fruit tree? Anybody ever pruned a fruit tree?
Okay. Right. When we start on that fruit tree, do we start with the twigs and prune the twigs first? No? What do we do? Cut the dead wood. Thank you, ma'am. We cut the dead wood, right? Isn't it interesting that in our industry, everything that we're taught is how to prune the twigs?
Better supplements, better genetics, wrong color animal, change from red to black or black to red, right? All the damn things in the world. How many times do we address the question of the deadwood? How many times do we look at the gross margin per unit?
How many times do we look at the overheads? We never address the deadwood. We always prune those trees. Okay, ladies and gentlemen, this three-legged pot that you see up here, incidentally, I discovered that there are at least seven other Zimbabweans in the audience here today, or fellow African Americans, and at least a couple from South Africa that I've seen around as well.
So quite interesting, so they'll understand the story that I'm about to tell you. You see, where we come from in Africa, we use that three-legged pot to cook missionaries in. And I'm sure that you have seen that sort of situation before you.
You see the missionaries sitting in that three-legged pot and being cooked up. Well, we learned a hell of a lot about cooking missionaries. And one of the things that we learnt was that you've got to put the pot on very even ground.
Because if the pot tips, one leg is shorter than the other, the pot tips over, the water pours out of the pot, and you get burnt missionary. And I don't know if you've ever tasted burnt missionary, but let me tell you, they are bloody awful.
They really are. So you've got to start all over again with a fresh missionary. Well, the thing that we learnt, of course, was how to keep that pot in balance. And it's a very important lesson that we need to learn here in the livestock business.
We need to keep that pot in balance. And the three legs in the pot, unfortunately, they don't come out very clearly on that particular slide, but nevertheless, they are business management, livestock management, and grass management.
And if we spend more time on one than we do on the other two, the pot is going to tip. This time, when the pot tips, it's not water that pours out of the pot, it's money, ladies and gentlemen. Money.
So, I understand that in fact a lot of the questions heretofore in this particular group and this particular audience have been to do with grass management. I'd like to say to you that despite the fact that I was one of the two people that brought a lot of intensive management to this country about 17 or 18 years ago, the very last thing that I advise people to do when they go home from my school is,
let's all hear it, don't put in fences. The very last thing you do is build a fence. The first thing you do to do is learn to work on the business. So I'm discouraging you from getting into the grass business because it's probably the least important thing that you can do.
Okay? Now, the most important is first and foremost, learn to work on your business. Make sure that those gross margins are right. Make sure that the enterprises are right. Make sure that you have sufficient total gross margin to cover your overheads.
Because that way you might survive. What happens is that most people go home, they'll build a fence, or they see a picture, and it says, this is a grazing cell. So they go home and they build a grazing cell.
And if they are like those people in Utah and they keep on feeding hay the way that they were before, they have more cows because they've been able to increase the carrying capacity. They've got more cows and they lose $20 on every cow.
All they've done is increase the debt, right? And increase their loss. So please, take a note from one who's been around the block a couple of times, please don't go for raising. Start by getting your business in order first and foremost.
That means work on the business, not in the business. It doesn't really matter whether we're talking about ranching, we're talking about chicken farming, fish farming, running a truck stop, running trucks.
You are in business, ladies and gentlemen. You are in business. First and foremost, you are in business. And that's where you've got to start from. And once you start from that position, you can start then saying, now what do I do to improve my business?
And how do I now go for the kind of technology that's going to make a difference? So, a balanced business, I believe, is something that is most critical. I'm going to go back, and I want to talk a little bit about this question of don't make work.
We make work because of the way, the time of the year that we have. I don't have to expand on that anymore. We make work because we have too few herds. One of the greatest sins that ever happened in this country was the registered cattle business.
Not the seedstock business. There's a difference. Seedstock is where you're producing genetic material that the market wants. The registered business is where you register capital that you show on the showring.
And if you read my little article there, you'll see that one of the last things in the world that you want to do is to go to the Houston Livestock Show or the Denver Livestock Show. And definitely you don't want to buy bulls from those people because they didn't breed those bulls to produce beef.
They bred those bulls to show at the show. And I personally would not buy a bull from one of those people. Up to you as to whether you do or don't. That's your problem, not mine. Okay. Now, managing your time.
Managing your time. I was... This business of time and time management has concerned me for many years. There's some outstanding time management courses in this country, but they are no good for you and I.
Because what they do is they aim at teaching you how to manage the minutes in the hour, the hours in the day, but they don't teach us how to manage the days in the week, the weeks in the month, or the months in the year.
And in our business, we are not concerned about managing the minutes. We are concerned about managing the weeks and the months. So from my point of view, we've got to look at time management from quite a different perspective from most.
And we do this using a grazing chart. And I don't know for those of you that don't know what a grazing chart is, essentially what we have is we have the months across the top, we have the paddocks down the slide, the number of paddocks that we have, and then we plot our grazing on that.
We plan our grazing on that, and we record our grazing on that. Without going into any great detail on that, one of the things that we do is we develop a biological plan on that grazing chart. We identify when we will be calving, therefore when we will be breeding, or vice versa.
We identify when we might be weaning. And incidentally, there is no such thing as a weaning date. There is such a thing as a weaning body conditions 4. And if Dick didn't tell you that last night, I'm telling it to you tonight.
You wean according to body conditions 4. You don't wean a herd, you wean a cow at a time. Okay, so you identify all those major biological functions for your herd. All the biological functions for the farm or the ranch as a whole.
Once you've identified those, that in turn determines your peak labor requirements. And your peak labor requirements in turn determine your cash flow. Have you ever thought about it that way? Now, let's go back and think about this grazing chart a little bit more, and let's think about time management a little bit more.
I was flying back from Australia first week in August or thereabouts, and I was thinking about this business of time management, and we had just held a national executive link meeting in Colorado in June, at which we used a technique called the implications wheel.
Now the implications wheel, wonderful technique, that's another story. But one of the things that this man does, or did in the implications wheel is that he graded various implications of a decision on a 1, 3, 5 basis.
1 meaning it has a very minimal impact on the business. 3 meaning that it would be nice if this happened, but it's not particularly critical. Or if it is a negative, it would have a minimal impact on the business.
Not a particularly big deal. We can live with it. A five, on the other hand, very important. If this happens, it's going to make a big difference to our business. On the other hand, if it's a negative, if we can avoid it happening, that will also make a big difference to our business.
So you with me? One, three, five, right? Then he had another one. 50. 50. Remember the business by thinking 10 times bigger? 50 is make or break. So if this happens and it's positive, it will make the business.
On the other hand, if this happens and it's negative, it'll break the business. So we have 13550. So I was thinking about time management and I was thinking about 13550 and I came to a thought and this is my thought and unfortunately it's in very small type here but let me read it to you.
The first I had developed four different categories of work. Obligatory, essential, important, discretionary. Let me go through them again. Obligatory, essential, important, discretionary. These are my definitions.
Obligatory. Things that you are obliged to do. Things that you are obliged to do. For example, you have to file your income tax returns, right? The only alternative to filing your income tax returns is you go to Montana.
So filing income tax returns is obligatory. Would you agree with me on that? How many other things are there in our lives that we absolutely have to do, otherwise we go to jail? Damn few. But okay, let's get back to our grazing chart.
Let's take January and let us assume, let us grade 31 lines on this grazing chart. Top is 31, bottom is 1, or 0. How many days in January do we have to spend on obligatory activities? What do you think?
Half a day? A day? Things that we absolutely pay the bills, for argument's sake. That may be an obligatory thing, right? We are obliged to pay the bills. So maybe a day. We're going to put a day down for January, paying the bills.
February, likewise, you go through the year. How much time do you think that you spend on obligatory things through the year? Pretty damn few, right? Okay, now let's go to the next step. Let's look at the next level, which is essential.
Essential things? Working on the business. Very essential. Doing your budget. Calculating your gross margin. Knowing how you're going to market your cattle. That's another story we don't have time to get into.
Knowing how you're going to market your cattle. All of these things are essential. Taking a vacation. Essential. I personally cannot do a year's work in 12 months. At a stretch, I can do a year's work in 10 months.
And I think... Alan, I hope you've come to that realization at this stage of your life. Have you come to that realization yet? I'm going to come to this following. Oh, okay, good. Next week. All right.
He got carried away with the cooking missionary story is what he got carried away with. Okay, so essentials. And again, if we go through the year and plot in all the things that are essential. The obligatories are called 50s.
The essentials are called fives. Now we come to the important, which are called threes. The essentials, if we don't do this, our business will fail. The important, fives, if we don't do this, our business will be much worse off.
The threes, if we don't do this, it really won't affect the business that much. But it is important. At some point in time, we're going to have to do these things. The best example I can give you is maintenance.
Fence maintenance, road maintenance, equipment maintenance. So you see why we have to have only one wheelbarrow on the damn tape? Okay. Then we get to the final category, the ones, and these are the discretionary.
And the discretionary, watching television. Going to the coffee shop. These are the discretionary. Now, ladies and gentlemen, I'd like you to think about where you spend your time. On the obligatory?
Yes, you have to. You don't have a choice. On the essential? I bet you don't. On the important? I bet you do. On the discretionary? All the time. Okay. So I wanted to give you that as a perspective because I really believe that if you sit down and take a look at your business from that point of view, you will get to the point of agreeing with me that in actual fact we can run a 500 cow operation as a weekend basis.
