Using Holistic Management to Overcome Adversity

The Flood

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The picture below shows the view outside our kitchen window and of what our landscape normally looks like in June. You can see the monument in the back of the picture that commemorates the dike system put in by Ducks Unlimited in 1966 to protect the nesting habitat of the water fowl, which has been a great asset to the ranch as we have water availability and access over the entire property.

• A management team with three different skill sets

• Almost 100 years of combined Holistic Management experience

• Great relationships

• Existing effective management structure

• 35 years of stewardship on the land

• Diversity of species

• Grazing planning knowledge

• Liquid class of cattle

• Flood reserve paddocks

• Flexibility

• Knowing our margins

• Comfortable with the financial planning process

• Psychology of money

• Patience (to keep meeting and working through the numbers)

Ultimately, it boiled down to the relationships, amongst our team, with our inner circle, (neighbors) and our outer circle, (our banker and accountant). That is what got us through.

The picture to the right is the same view in June 2020 to give you some perspective of why the past 12 months have been particularly challenging for us. We had about three days warning for this water but had no idea how much that meant. We live in flat country with a huge watershed. A large portion of our watershed received eight inches of rain in 24 hours. Almost 80% of our ranch was immersed in water. You can see in the picture the aluminum boat that replaced our horses. We hung up our spurs on June 15th and didn’t use them again until the end of July because the water you see in the picture is 10–15 feet deep. We used our gracious neighbor’s boat to check on the cattle every day, opening up any fence lines we could to provide access to hills and nobs of grass.

We know that we live on the flood plain of the Beaver River. The dike system had been constructed to address smaller floods over the years. It does a remarkable job of controlling that water. The key adversity we faced was that the water was captured on the inside of the dike, and because of increasing regulations with oceans and fisheries, we had difficulty breaching the dike so that the water could leave. As frustrating as it is, the benefits of having the dike outweigh the challenges we faced in this one particular incident, although, it is going to take us several years to recover.

We do have a flood reserve because we live on a flood plain, and we run a liquid class of cattle if we ever need to destock quickly for flood or drought, but we did not anticipate this magnitude of flooding and weren’t quite prepared for the duration it would stay. Adversity was once again upon us. Shortly after the shock, confidence resumed as we employed all these Holistic Management tools involving people, land, livestock and finances that we had previously used to get us through tough times:

• A time-tested goal

We applied various tools to strengthen the key areas on which we needed to focus. Inviting a facilitator proved to help us discuss these key issues, come up with ideas, estimate forage production and needs, and address inventory loss and recovery. We used brainstorming as a tool and calculated gross profits ad nauseam. We did financial plans and projected them out three to five years to forecast trends. We looked at how each person perceived profitability, which became increasingly important. Normally, we would spend 15–20 combined hours on financial planning, but this year it required 210 hours of planning from January through the end in March.

We manage to the least common denominator (aka the most concerned team member) to find the place where we can all agree style of someone in the middle, we would always be leaving someone behind. This led to a policy on our ranch that if someone is not comfortable with a certain calculation of profitability or market price, then we manage to the level of that most concerned individual. This way everyone’s needs are being met. This policy was used a lot this year, and that is, ultimately, what saved our bacon as a team.

We are choosing to focus on the team even when the grazing and finances seem to be more urgent because if we lose a team member, does it matter if we have more grass or money? We choose to see our differences as strengths as frustrating as it may seem in building consensus, because if we all thought the same, we’d be stuck in the same rut with all the same ideas.

Gross Profit Planning

We have a Gross Profit template that we have used over the years, and we have continued to develop this spreadsheet. We took it to a new level this year. Our ranch has been under Holistic Management practices for 35 years and it now carries 2.5–3 times the carrying capacity that it did before and we even have a slightly smaller land base than we started.

We used gross profit analysis to determine a new enterprise called our extra-age heifer program. This idea came up during one of our brainstorming sessions of a financial planning meeting seven years ago. It was Don that brought it to our attention and everyone reacted as if it was the most ridiculous idea. We thought the numbers would never support such a decision. We began to discuss the challenges of getting our two-year-old bred heifers through their first winter and to get them rebred in their second year. We also discussed the hassle of keeping them separate during breeding with heifer bulls and that their calves are often lighter at birth. We discovered by keeping them over one more year before exposing them to the bull we might address many of our concerns.

We ran gross profits which looked unrealistically good. Our skepticism was too high to make the change. We didn’t trust ourselves and weren’t comfortable so we waited another year. In the end, it took us three years of doing gross profits before we felt confident. We realized, by changing our paradigms, that we were already keeping heifers an extra year. Often, if that first calf heifer didn’t rebreed, we’d blamed it on our management, i.e. a nutrition issue, not enough groceries or poor quality feed. We were already giving them a free pass of one year. Why not do that upfront and potentially increase the life expectancy of the cow and have all the other benefits?

The Beaver River flooded over many miles but there are very few operations along this river of our scale. There are also very few operations that rely on ranching as a sole source of income. Not many houses or out-buildings were damaged by the flood, however, the area was declared a disaster. Only six to seven other operations applied for the agricultural disaster assistance. Most people didn’t want to deal with the bureaucratic process of applying and the subsequent back and forth communication to receive assistance. Of those who applied, not many received assistance. We are grateful for Mark’s patience as he stuck with it and we should receive some flood relief.

At the B-C Ranch we use Gross Profit Analysis in three ways:

1. As one of the testing questions for comparing enterprises

2. During the annual review to analyze the potential changes or mixing of enterprises to see where our operation is headed to meet our quality-of-life goals. We use 5–10 years of historical numbers for market prices and look at longer term trends and opportunities.

3. We use it to strengthen the outcome of the chosen enterprise in a specific year and use current market prices, not historical trends, to project our fall prices to improve accuracy from the initial plan.

This severe flood gave us the opportunity to ask “Do we even want to be in cattle anymore?” This could be an opportunity to do something else entirely. We tested these ideas and it was very clear that cattle play a large role in our quality of life. There are, however, many different aspects of the cattle business, and we analyzed which one we wanted to be a part of. We looked at cow/calf, backgrounding, and longyearling options.

Because some of these enterprises take multiple years of investment, we can experience gaps in income and decrease flexibility depending on our choices. It doesn’t make financial sense to switch back and forth every year. We have selected the long yearling enterprise for the last 10 years. In this analysis, we make sure to differentiate the variable expenses, those that are impacted by a change in one unit. We want a clear picture of the profitability of each enterprise.

We looked at having a cow/calf enterprise by selling the calf at six months. We determined gross income at $808 for the calf and a gross profit of $490 assuming an 82% weaning rate (as a conservative figure).

However, if we decided not to sell that calf and instead background it through the winter, this animal would now gross $1,128 with a gross profit of $501, which includes the price “buying” that animal from the cow/ calf enterprise.

One step further and we can keep that backgrounded animal until it was a long yearling at 18 months and gross $1,440 with a gross profit of $643 (also having “bought” the animal from the backgrounding enterprise). What this analysis showed us is if we can hang on to our animals, the value and profit is in the long-yearling enterprise. We run this analysis every three to five years, using historical data, to make sure the market and other factors haven’t changed. This long-yearling enterprise also gives us a liquid class of cattle with market flexibility or the potential for hitting a good market on that animal in the spring (12 months of age as a grasser/ stocker), late summer if the price spikes suddenly, or in the fall.

During the flood, we couldn’t bring the cattle back to the corrals to sort off the dry culls. The closest cattle to the yard and easiest to market were our replacement heifers. We sold them immediately and got a decent price for them. The recovery to full inventory is proving to be difficult now. The