Profit Potential in Ranching
In preparation for tax season, I have been sorting through piles of receipts and arranging the necessary information. Although, we only raise a small flock of sheep, it gets complicated to determine true profits generated by the farm. However, it is not difficult to identify enough costs to avoid paying too much in taxes.
Not surprising to this audience, the return on labor, land, and resources needed to properly raise sheep or goats is not going to attract people looking to get rich. Fortunately for those that consume our products, most people that raise livestock value the lifestyle more than profits. However, for an operation to be sustainable, it must generate a profit most years.
This begs the question “What amount of profit should a productive female generate annually?” While the answer is quite complicated and different for every farm or ranch, there is value in regional benchmarks and striving to meet or exceed these industry standards. The American Sheep Industry Association (ASI) provide an economic report that summarizes average profit per ewe by regions within the U.S. Below is a chart that shows the economic report for Texas and Southwestern sheep producers. The full report can be found at: https://c8e3i7k7.stackpathcdn.com/wp-content/uploads/2019/12/2018-ASI-Budget-Project.pdf
Now you may be scratching your head and questioning how applicable this chart is to your operation. I too was shocked when I first looked at this report. After re-reading it line for line, hoping to fulfill my own bias that this must be wrong. I can say that this is actually very indicative of most commercial sheep operation in Texas. There are some assumptions made that have a significant impact of the budget, to which I encourage you to take a closer look at. For this article, I won’t dig into what all these assumptions are, but let’s just say that this report backs up a point I have tried to emphasize loud and clear; LAMB/KID CROP WEANED IS CRITICALLY IMPORTANT! A 25% increase in weaned can drastically improve gross sales.
Texas A&M AgriLife Extension has a standardized performance analysis program for beef cattle producers. In this analysis, beef producers are broken into quartiles based on profit per cow from data collected from the ranchers themselves. The chart below shows the profit spread between the different quartiles. Interestingly, half of the Texas cattle raisers lose money and the bottom quartile lost twice as much money as the top quartile made. Details about this program can be found at: https://agecoext.tamu.edu/programs/management-programs/beef-cattle-standard-performance-analysis-spa/
Hopefully, this stimulated a bit of thought about two different subjects.
First, where do I fit? At present, we don’t have a centralized program for sheep and goat producers similar to the Beef Cattle SPA. I’d suggest you refer to the sheep economic budgets presented below and generate a report on flock returns per ewe for your operation. Are you above or below average?
Second, what profit potential exists for across the different livestock species? To address this, Bill Thompson, AgriLife Extension economist in San Angelo, has 2020 projected budgets for the different livestock common to West Central Texas. The chart below looks at return above fixed and variable costs. Details about these budgets can be found at: https://agecoext.tamu.edu/resources/crop-livestock-budgets/budgets-by-extension-district/district-7-west-central/2020-district-7-texas-crop-and-livestock-budgets/
If you raise meat goats, you are already planning to take this article to the local coffee shop to brag to your friends. If you don’t raise meat goats, you are either thinking about getting them or you are convinced that these economic reports are inaccurate. How can it be true that my operation isn’t profitable when I make a living on these animals? Before you disregard this information, I encourage you to look at these budgets closely; specifically review the implied weaning percentages, labor costs, and supplemental feed. Furthermore, when ranchers apply a value to fixed costs to pasture, livestock, and equipment, often they realize that these budgets are more accurate than they’d like to believe. Keep in mind that not all ranchers are businessmen (or women) and not all businessmen are ranchers, but those that have a boot in each world are the ones that thrive.
That is enough data for this month’s column. Even me, a self-certified data junky, needs to take time to reflect on this information. I plan to make time to review the information that I take to the tax office, quantify my true flock profitability, and make plans to improve this going into the future.
To provide feedback on this article or request topics for future articles, contact me at reid.redden@ag.tamu.edu or 325-657-7324. For general questions about sheep and goats, contact your local Texas A&M AgriLife Extension Service county office. If they can’t answer your question, they have access to someone who can.