Integrating Production and Marketing Management on a Beef Ranch

The management of a ranch operation, like any other business, requires careful consideration of the interrelationships between production and marketing decisions. An effective tool for integrating the management of the two functions is a production-marketing plan.

A production-marketing plan begins with the producer's goals, considers the alternatives available, and identifies a strategy for action that is flexible enough to accommodate periodic review and changes. Selling is only a small part of the plan. The plan must consider the entire process, from raising the replacement heifer to selling the calf or yearling. By integrating production and marketing into one overall plan, the ranch manager can rationally respond, rather than react, to market conditions. Developing the production-marketing plan is an ongoing process that involves seven key steps:

1. Document production and marketing situation and goals.

2. Learn about and analyze current market factors and price trends.

3. Identify and evaluate available production and marketing alternatives. Develop enterprise budgets and breakeven prices for all potential production and marketing alternatives.

4. Determine profit and price goals or target prices.

5. Develop a pricing plan considering cash, forward contracting, futures, hedging, and option alternatives.

6. Compare production-marketing alternatives and identify the one that will accomplish your goals and meet price targets.

7. Monitor the plan and modify it as necessary based on current information. Once you have written a production-marketing plan, you can design specific actions (strategies) to implement the plan. The strategy defines the mechanics for production, costs of production, marketing costs, product prices, and other variables to determine their impact on potential profits. The plan can be altered as these factors and variables change.

The Process

The discussion that follows develops a production-marketing plan for a commercial cow-calf ranch in northwestern Colorado. Each step of the production-marketing plan highlights important points but, for the purposes here, the example is simplified and does not include all marketing management and production strategies that would be possible.

Step 1: Assess Production-Marketing Status and Goals. A production-marketing plan is basically an outline a road map for the operation of the farm, ranch, or feedlot business. The production-marketing plan defines the business resources, inputs, outputs, and management skills that are available. It summarizes in writing what you have to work with.

Consider, for example, a ranch in northwestern Colorado, which we will call the J/J Ranch. Elevation on the J/J Ranch varies from 6,200 feet at the south border of the ranch to 6,800 feet on the north. The topography is flat and rolling. Soils are composed mainly of sands and clays. Average precipitation is 10-12 inches. The J/J Ranch encompasses 1,860 deeded acres, 20,000 acres leased privately, and 20,000 acres of Bureau of Land Management lands. All acres are rangeland except for 30 acres around the headquarters and 450 acres of irrigated alfalfa hay. Average stocking rates are one animal unit per 80 acres for all rangeland.

The J/J Ranch operation includes 372 English cross-bred cattle. Performance-tested Gelbvieh bulls are used on the mature cow herd. Angus bulls, selected for growth and calving ease, are used on the replacement heifers. The longterm objectives are to have a mature cow that is one-half Gelbvieh and one-half Angus. For replacements, heifers are retained at approximately 15 percent of the base herd.

The Gelbvieh-Angus crossbred cattle on the J/J Ranch generally attain fall calf market weights of 480-500 pounds per animal for heifer calves and 500520 pounds for steer and bull calves. Calves are either sold in the fall or retained and fed under feedlot conditions in eastern Colorado, depending on a careful enterprise analysis costs of production, breakeven prices, and asking prices and on market outlook and forward-pricing alternatives. The J/J Ranch's short-term production-marketing goal is to optimize production and maximize net return per cow.

Step 2: Perform Market Analysis. There are two basic approaches to price analysis, commonly referred to as fundamental analysis and technical analysis. Fundamental analysis is concerned with supply and demand considerations such as physical stocks of grain, projected crop and livestock production, inventory reports, and federally-inspected slaughter of livestock for specified periods of time.

Technical analysis, on the other hand, utilizes various types of charts, trading volume, open interest, and mathematical formulas in forecasting the price behavior of commodities. The bullish or bearish bias of a pure technical analysis is concerned with the psychology of the market rather than its supply and demand factors.

Many buyers and producers utilize fundamental or technical concepts, or both, with a high degree of reliability, so that it may be worth taking the time to learn enough to be able to "talk shop" with buyers and sellers. Most important, be consistent with your market analysis and/or source of market analysis information.

The J/J Ranch utilizes both fundamental and technical market analysis information. The ranch relies on private and public sources for market analysis information. The J/J Ranch market analysis objective is to formulate reasonable market price expectations for the fall calf market and subsequent feeder cattle markets. These price expectations are evaluated for production and market risk using projected breakeven and asking price estimates of fall and retained ownership production-marketing alternatives. Fundamental and technical factors are monitored closely, as possible marketing dates or forward-pricing alternatives approach.