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Four tools to create information

Here at our ranch, much like most other farms, we collect a lot of data and are still learning how to make use of it. We collect financial data, pasture data, DNA data, production data, data on our labour, BIXS carcass data and then we sort everything by enterprise. The question then becomes what to do with all of this data to make it useful. The interrelated tools described below can all be used in the process of transferring data into useful information.

Indicators

We use a lot of indicators when we look at our data. Think of an indicator as a flag or quick report card. For example, we participate in the AgriProfit$ program here in Alberta and pay attention to the GOLD indicators for our cow herd. This includes “Growth,” “Open Cows,” “Length of Calving Period” and “Death Loss” of calves. These are quick ways to assess how good a job we are doing. A simpler example would be a current bank account balance as an indicator of available cash. I think of indicators as quick triggers for identifying possible challenges. EBITDA is an indicator that we use in our operation on the financial side (earnings before interest, taxes, depreciation and amortization) as a good indicator of whether our business is really generating wealth.

Ratios

Ratios are a form of indicator, but they are worth mentioning separately as they can be a very strong indicator of business structure and strengths. I love ratios. We may hear the term debt-to-equity ratio, but there are also a valuable set of financial ratios such as return on equity and gross margin ratios. Things like animal unit grazing days per acre, or calves weaned per cow exposed are good ratios to measure production levels. I also like to figure out things such as various costs on a per-cow basis, or production value per machine ratio.

For example, what value of output does a tractor produce relative to its cost? It is very important to me to figure out costs and debt on a per cow basis, since in our operation this is what is generating the dollars to pay for all the “stuff” and I have some personal beliefs about the amount of debt each cow should have to carry.

Trends

Trends are useful to see where you have been and where you might be headed. They used to be more difficult to figure out, but with modern computer software that can store and retrieve records from an extended period, it becomes much easier to see changes. We use a couple of different tools here. We look at production and accounting trends, but we also use photopoints to rapidly show us biological trends in our pastures. Nothing is quite as direct as seeing the same set of photographs taken over a series of years.

It is also useful to look at trends in your genetics. If you have a record of bulls you have bought over time, reviewing the current EPD on those sires can give you a pretty good indication of the direction in which you are purposely or inadvertently driving your cow herd’s genetic makeup. If you are noticing trends such as changes in conception or production and can map this back to the sires you have used over time, it can be a very powerful indicator of what type or range of genetics you need to make your herd successful.

Benchmarking

Benchmarking is probably the most powerful tool for making sense of your business. Obviously every ranch or farm is unique in terms of debt structure, location, environment, enterprise mix, and other factors however farms and ranches also have a lot in common and some of the key indicators of success are comparable across operations. The ability to compare real information across operations, combined with a competitive and co-operative spirit provides very valuable insight for business management and identifying areas where we can do better or folks are doing better than us. It sets a very realistic bar.

There are several good benchmarking programs. A few examples are AGriProfit$ in Alberta, the Western Beef Development Centre in Saskatchewan, Agri-Food Management Excellence, Holistic Management clubs and the Ranching for Profit Executive Link program. I also know a few producers who meet with trusted friends and neighbours to run their own benchmarking programs.

Communication of information

All of these tools and approaches help us to get information out of our data. It is very difficult and usually pointless to communicate data. Take for example the following series of numbers: 525, 423, 657, 750, 613, 622. This is data and could be an example of weaning weights from your cow herd. It is relatively meaningless data as it has no context. By converting it to information we may be able to cull the dam of the 423-pound calf, talk to our banker about our average herd performance and gross margin, examine profitability indicators and potential production issues and assess how our genetics are working in our cowherd, or even market our cattle.

Obviously ranches are complex organisms that involve nature and people trying to get along to produce a variety of products. The need for information to manage this complex system in a complex marketplace has never been more important. By working on collecting important data (impacts costs or returns) and then turning it into information we can communicate with those involved in our operations to improve our management, our returns and our lifestyles.

About the author

Contributor

Sean McGrath is a rancher and consultant from Vermilion, Alta. He can be reached at [email protected] or (780) 853- 9673. For additional information visit www.ranchingsystems.com.

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