How to Grow Sustainable Profit Through Analyzing Ranch Performance

Regarding ranch land, "underperformance really means lots of bare soil where there is no plant growth," says Todd Graham. Todd is the founder and managing partner of Ranch Advisory Partners, a ranch management and investment firm based in Southwest Montana. Recently, I met with Todd and my co-host, Ryan Bramlette, to record an episode for this upcoming season of Land Investor Podcast, where we discussed, among many things, ranch land and analyzing land performance data to identify opportunities to improve ranches through management. Todd has spent over three decades improving working ranches' ecological and financial performance, influencing the management of over 75 ranches across roughly eleven million acres of private and public land in the western United States. “Lots of soil erosion, a lot of invasive weeds, and not capturing water or sunlight and converting them into something we can use" are some more characteristics of underperforming land, Todd explains.

During our conversation, Todd shared a case study of a ranch his firm has been helping for over 20 years, lending great insight into the power of analyzing ranch performance and adopting data-driven management strategies to create dramatic improvement. Located in northern Wyoming, the 20,000-acre subject property was severely underperforming both ecologically and financially and had been for some time when Todd arrived in the early 2000s. The ranch displayed nearly 50% bare ground, replete with weeds and old cow pies littering the range. In addition, the cattle concentrated on the stream bottoms for long periods, repeatedly grazing riparian vegetation and damaging stream banks. Quickly, Todd identified that not only was half the ground bare, essentially equating to only 10,000 acres of grazing, but that large portions of the ranch were not being grazed at all: Even though the fenced pastures incorporated all the ranch's acreage, the cattle rarely ventured far from the riparian areas, leaving uplands to founder in multiple years of old growth build-up where plant vigor suffered due to the lack of being grazed.

Like most western ranches, this ranch had practiced a European grazing model, a paradigm imported to North America centuries ago. The European grazing model is characterized by long grazing periods with livestock left free to graze pastures unmanaged. This model may work in parts of North America that resemble Scotland or France, like Massachusetts or Virginia. However, the practice can cause big problems on a western landscape. Todd's plan was to implement a grazing model resembling an African or Australian style of ranching. "Australian or African [grazing] practices are essentially putting your livestock in tighter bunches and moving them through a series of pastures in a higher intensity management program. This does two things," Graham continues, "one, it allows plants a better chance to grow between grazing events. Secondly, it fixes a grazing distribution problem… [cattle] naturally want to hang out on the water points, but if you move them around more frequently, they can't camp out on the water points. So, you get better riparian performance as well."

Ranch Advisory Partners takes a whole-systems approach to ranch management and investment, focusing on Key Performance Indicators (KPIs) using all ecological parameters. KPIs like measuring the age of cow pies in a pasture, percentage of bare ground, and plant species composition are only a few of the metrics that end up being grist for the analytical mill. Like how businesses manage off a set of financial statements, ranches that use “ecological statements” to track performance find their financial performance quickly following suit. As Todd simply puts it, "When the ranch has a higher level of productivity from a vegetative perspective, you can increase your herd size, and once you increase your heard size, income on the ranch starts going up."

Income based on ecological performance is only half the equation for a complete ranch performance analysis. Analyzing capital improvements and operational expenses is the other half, and leveraging a ranch's ecological advances while finding economic efficiencies is where performance really takes off. When Ranch Advisory Partners looks at ranches, understanding what a ranch spends its money on is just as crucial in determining its performance as the ecological indicators. For example, seeing a lot of equipment around the ranch can be a red flag of underperformance. However, when a traditional ranch's single biggest operational expense is labor, and most of that labor is usually spent on hay production, implementing grazing and livestock management tactics that reduce or remove the need for supplemental hay can be a powerful opportunity to lower input costs as well as eliminate capital expenditures on unneeded equipment.

Additionally, employing modern low stress stockmanship practices, or as Todd puts it, improving the "cow to cowboy ratio," captures efficiencies by not just lowering labor costs, but improving livestock performance as well. Todd also looks at the body size of a ranch's cows. Over time, ranchers have come to prefer large cows that produce heavy calves for seemingly obvious reasons. Decreasing the body size of cows predictably translates to smaller calves and, thus, lower overall calf weights. However, smaller cows are generally more efficient on the landscape, often providing superior margins when comparing input costs per pound of calf weaned.

Lastly, studying capital improvements like overbuilt fences and underbuilt stock water are other indications of ranch underperformance. Stock water development solves a livestock distribution problem, allowing livestock to graze underutilized acreage. With a stock water project paid for directly by the immediate grazing of previously unused forage, the payback period is often measured in just a few years— a blink of an eye in ranch terms. Conversely, the payback period for a new fence is often measured in decades. Capturing the opportunities in this kind of low-hanging fruit has positive and often dramatic impacts on a ranch's performance almost immediately. Remember the untouched grass on Todd's case study ranch? When stock water was developed in the uplands, and the new grazing regimen was implemented, the tighter groups of cattle were first forced to eat the old rank grass. The hoof action of the concentrated herd kneaded manure, urine, and organic matter into the land, aerating the soil and nutrient-loading the paddock. The rangeland responded almost immediately, and in subsequent years desirable grasses began to flourish, tillering out and covering the bare ground. Precipitation stayed in the soil longer with the improved ground cover, and an upward spiral of performance was ignited from the short, intense grazing periods complemented by periods of planned rest.

So, what does this all mean for the ranch land investor or owner? Ranch Advisory Partners, as well as a growing cohort of family ranches across the west, have demonstrated for decades that by embracing the power of rigorous ecological and financial monitoring and analysis, a western ranch can grow out of poor performance and into truly sustainable profitability. As to the 20,000-acre Wyoming ranch case study, the ranch now performs at a very high level after two decades of relentless monitoring, analysis, and intensive management. Streams that were once so damaged that they couldn't provide enough water for livestock now flow with clean water year-round. Today, there is hardly any bare ground and no erosion. There are no longer cow pies to count: the soil is so healthy that the land now absorbs them. Desirable plant species have entered the landscape in increasing numbers, replacing weeds. "We have yet to see what the top end looks like. [The land] just keeps on improving," Todd concludes. If that alone isn't enough, the final statistic that smacks it out of the park is that after twenty years of intensive management, the ranch now sustainably operates a herd with five times the number of cattle as when Todd first became involved. That's five times the production. Five times the income. All from management and suitable capital projects that paid for themselves. All without the ranch acquiring a single additional acre.

"There is a real investment opportunity in buying ranches and fixing them up," says Todd. "If you are a buyer looking for that underperforming ranch, you'll find it. But do you have the capital and patience to get to a higher level of performance with a learning curve that is nearly vertical? Buyer beware!" Todd cautions the would-be ranch investor who jumps into ranch ownership expecting similar results without understanding what it takes to deliver these outcomes. With no two ranches alike and in what can seem like a minefield of caveats and nuance, when Todd is asked about a specific outcome for any hypothetical scenario, his answer will likely be “it depends.” Todd’s answer is sincere wisdom however, speaking from decades of experience. Despite all the success stories, he has seen his share of wrecks involving those that got going too fast, too quick.

Todd equates managing a ranch with picking up speed going down the highway. "A less intensive management approach is like driving your vehicle down the highway at 10 miles an hour. When you're adding stock water, and you're adding levels of intensity of management, all of a sudden, you're doing 40 miles per hour, and you need to look at your dashboard more often. But when you're [performing] like some of the ranches we work with, that are running herd sizes that are three to five times what they historically ran, now you're going a hundred miles an hour, and you can drive off the road pretty easy without the right performance metrics to let you know you're going the right way… so slow down and make sure people, the land, finances, and livestock are moving together as a whole… really, the first three years of changing the management of a ranch are the most critical, because that's where the most mistakes happen. Once you get through the first three years, then all of a sudden, the cows understand what you're doing, your own team understands what you're doing."

Billy Beane's biggest hurdle was first convincing his seasoned management team to abandon their old ways and it wasn’t easy. In the same way, getting buy-in to adopt a new paradigm on a ranch operating the same way for 100 years could be the biggest challenge for new and current landowners alike. Sabermetrics had been around in some form since the 1970s before Beane et al. became famous for the practice nearly three decades later. Nevertheless, an entire industry remained skeptical until the A's put on full display the power of their new management paradigm with a record-setting 20 straight wins in the 2002 regular season— searing an unambiguous 'adapt or die' brand into the flesh of professional baseball. We might just be seeing a similar tipping point for western ranches now. The data is in, and the list of wins for those taking a whole-systems analytical approach to western ranching is hard to deny, which for the land investor is worthy of serious inquiry.

If you want to hear the entire conversation with Ranch Advisory Partners, stay tuned for the first season of Land Investor Podcast coming summer of 2023.

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