From the Archive: Top 5 Mistakes Absentee Landowners Make After Buying a Ranch
Posted on: Nov 20, 2013
This post is from our archive, back by request.
We regularly work with absentee landowners who seek increased returns from their ranching properties. These well-intentioned folks tend to make common mistakes when purchasing and operating a ranch from afar. Here are their top 5 mistakes and how to correct them:
Mistake #1: Assuming ranching is easy. “You simply turn the cows onto grass, and they do the rest.” This statement is a common, and it gets people into trouble. Ranching, many have learned the hard way, is a knowledge-intensive business requiring a specialized skill set. Those who do it well thrive; those who don’t do it well lose lots of money quickly. Further, since ranching operates at the nexus of human creativity and natural systems, it may be more complex than many industries. The learning curve can be steep. The various parameters of a successful business (cost per acre, cost per animal unit, marketing, genetics, diseases, stocking rates, scale, resale, infrastructure, land condition, etc.) should be understood before making the purchase. If you don’t know what you’re getting into, don’t get in.
Mistake #2: Throwing more money at a problem will fix it. “Since the grass isn’t growing well, let’s plant new grass and fertilize it.” We hear this regularly too. Well-meaning absentee landowners dig into their deep pockets to fix problems, which often causes greater headaches down the road. Attempting to increase plant productivity by altering seed mixes and fertilizing can be a good idea if managed appropriately, but too often these efforts go awry, leaving a costly mess to be cleaned up. A better strategy is to understand basic ecological processes and then align management efforts with those processes. Improved land health and revenue potential usually result.
Mistake #3: Adding infrastructure increases profit. One client appropriately sought to optimize land performance while minimizing operating costs. Upon reviewing the ranch’s financial statements and grazing programs, multiple opportunities existed to increase revenue and cut costs. However, this client had budgeted for a massive new calving barn and associated corrals after having operated for decades without either. A quick analysis showed that this infrastructure would not pay for itself: it was a money pit. Better managers tend to succeed with minimal infrastructure. This landowner should utilize his money for staff training, yielding a far better return than new infrastructure.
Mistake #4: Build big fences and ignore stockwater. When buying a new property, absentee landowners often begin rebuilding fences, but they don’t consider their stockwater needs. This is backwards, and the practice often requires costly water developments and fence modifications in the future. When buying a new property, landowners should consider stockwater needs in the context of the larger grazing program. Only then should fencing be considered. They may find that their fencing needs are greatly reduced.
Mistake #5: Pasture tenants share absentee landowners’ best interests. It happens all too often: an absentee landowner leases pasture to the neighboring rancher, and an agreement is made to run 400 cow/calf pairs for the summer. The absentee landowner returns to go fishing, only to find 650 pairs have eaten all the grass. The fishing is terrible, and the landowner is angry. Clearly, the incentives between landowner and tenant are not aligned. The landowner seeks a revenue stream and care for the property, while the tenant wants to maximize stocking rate. A better outcome is possible with an incentives-based lease arrangement that aligns the motivations of both parties. Cattle can be grazed, and the landowner can enjoy high-quality fishing as well. Landowners must consider conflicting incentives when leasing their properties.