King Ranch Study Shows Startling Results

“Management isn’t just about production; it’s about marketing and analyzing the markets,” says Dave Delaney, vice president and general manager of ranching operations for King Ranch at Kingsville, TX. “The lesson is that a good manager retains marketing flexibility and options, and looks for buying and selling opportunities.”

He’s referring to the startling results of a study recently completed by the King Ranch Institute for Ranch Management (KRIRM). It reveals that over the past eight years King Ranch has made the equivalent average profit of $300/calf raised by selling those calves and then buying back others to background, stocker and feed. If King Ranch had simply retained ownership in its own calves through its own feedyard, the average profit for those eight years would have been $8/head.

Delaney is quick to point out that the study doesn’t account for risk management. In fact, he was reluctant to make the study public out of fear the results would blind folks to the reasons that such a profit swing is possible.

It has everything to do with financial concepts that allow cattle producers to overcome two basic but vexing marketing challenges: low margins and infrequent sales.

“A critical concept to understand is that in a low-margin business such as groceries, the merchandise usually turns over rapidly,” explains Barry Dunn, KRIRM executive director, who directed the study. “In a high-margin business such as diamond jewelry, the turnover is usually slower. Cattle marketing typically represents the worst of both worlds: it’s both low margin and low turnover.”