Ranch Diaries: Purchasing cattle, writing the business plan

How and when we expect to see returns on our investment.

 

Ranch Diaries is an hcn.org series highlighting the experiences of Laura Jean Schneider, who gives us a peek into daily life during the first year of Triangle P Cattle Company, a new LLC in southcentral New Mexico. Installments are every second and fourth Tuesdays of the month. 

When Sam and I set out to lease a ranch last year, we wanted to find a place where we could support ourselves without taking outside jobs. That meant we needed enough pasture to run at least 200 head of cows year round, or an equivalent number of yearlings seasonally. We looked at several potential leases in New Mexico and Colorado, but none had the capacity we needed to make a living. We knew from experience the benefits of economies of scale in ranchingspreading overhead operating costs across as many animal units as possibleso a partnership on a larger scale seemed to offer many advantages: each potential member had experience either in ranching, cattle marketing, finance, or range management. A stronger, collective financial portfolio meant we could afford to make a bigger investment, which offered the potential for greater efficiency.

Sam Ryerson of Triangle P, cutting off a heifer.
While it wasn’t logistically feasible for our four other partners to live on the ranch­, it ended up being a good fit for us. In addition to our interest as shareholders, Sam’s salary as manager provides a monthly income. We’re able to live on-site in the camper, which minimizes travel expenses and allows for the kind of care we prefer to give the livestock and rangeland under our management. Our partners benefit from a having hands-on manager invested in the company with just as much at stake in the success of the          Triangle P.

An LLC is a convenient corporate structure for usa pass-through entity exempt from corporate taxes, which provides a process to allocate ownership shares and to transfer shares should the need arise. It also limits some of our personal liability in case of accidents. One of our partners, a former agricultural banker, submitted a polished business plan to a local New Mexico bank in order to apply for financing, which we received in the form of two loans: one note to purchase breeding cattle (cows and bulls), and another federally-guaranteed loan structured as a revolving line of credit for market (yearling) livestock and operating expenses.

A frosty morning at the Triangle P ranch.
Brand new calf at Triangle P, February 2015.

We want to run as many cattle as we can afford, our range can support, and we can effectively care for. But it isn’t easy to stock a place this size. The current demand for all classes of cattle is extremely high, and fewer high-quality cattle are available in large lots. We don’t have the facilities here to wean calves or receive any cattle that aren’t ready to be turned out directly to pasture (which are often easier to find at auction), so our receiving process takes more time. This is where having two partners who are working ranchers and professional cattle buyers comes in handy: their knowledge of the market and personal connections made it possible to put our current yearling herd together at a reasonable price. Our 500 heifersnow in the middle of calvingwere raised by and purchased directly from the four other partners. We all benefit from knowing their origins and the fact that low-birth-weight bulls bred them, which means there’s less danger of having complications while calving.

The heifers are a long-term investment. We want to build a resident herd of hardy, gentle, uniform mother cows. The steers are a short-term investment. They cost less up front and only stay through the fall, when they’re sold for grassfed beef or to commercial feedlots. We’ll see a faster return on the steers, but once the heifers have had their first calves and prove to be good mothers, their value increases. Given the strength of the existing forage base and the reasonable cost of the lease, we expect to make a modest return by this October, when we sell our yearling steers and the first calf crop from our cows.

The moisture we’ve had here lately is a good start for this spring, but there’s no way to know if we’ll get the crucial summer moisture we’re counting on to make a profit. While we can’t control the weather or the markets, there are a few risks we can manage, and I’ll address some of these in my next column.

Photographs by Laura Jean Schneider.