July 14, 2020
What Is An Investment In Paddock Fencing Really Worth?
By Jim Gerrish
MAY, Idaho: Pasture subdivision fencing is a tool to help us achieve management objectives. Having the fence there is not an end goal in and of itself. The fence only has value if it allows us to better accomplish our farm or ranch goals. The fence pays for itself either through improved productivity and/or cost savings.
Let’s first figure out how we hould be assessing the cost of a fence project and how we analyze our expected benefits. If we just look at the lump sum cost of building a new fence or an extensive fence network for implementing MiG, we might jump to the conclusion that it’s too much money to spend. What makes us think that way? Fear of a big price tag?
I always look at fence or stock water development on a cost per acre basis. Take the total cost of the project and divide by the number of acres in the grazing unit. Since we are focused on output per acre such as AUD/acre, pounds of beef/ acre, CWT milk/ acre, etc., we need to assess our cost on a per acre basis as well.
Since we expect the fence to last for more than a single year, we can amortize the cost of the fence over time with interest charged. This is where the question of managing cash flow as well as long term financial gain comes into play. If we expense the costs of an infrastructure project out over a long enough period of time, we can make almost any project look economically feasible in terms of future profitability. However, the reality down on the farm is we have to pay our bills in a timely manner. While it isn’t necessary to pay off a capital investment having long term value in a single year, we do need to get as quick return on our money as possible.
On productive land with high grazing potential, I generally look or a maximum two to three year payback on the investment. On less productive rangeland, we might stretch that out to three to five years. Anything longer than that is probably infeasible to implement from a cash flow standpoint. Obviously, that last statement is highly dependent on what your gross margin per acre was before the project began.
We do this assessment using the partial budgeting process. A partial budget looks only at the factors that we expect to change as a result of this change in management. There are four components to the partial budget. We have the ‘good’ things which are increased productivity and/or reduced costs. Then we have to consider the ‘bad’ things which are increased costs and/or reduced output.
Here is a real-world example of what I’m talking about from one of ur range clients. I am going to take a simple approach here by lump summing the cost of the fence in this project and the added days of grazing and associated cost savings. This was a 2,640-acre winter range unit that had no interior fencing but had adequate stock water distribution. We divided the unit into 16 paddocks approximately 160 acres each. This allowed the ranch to move cows through the 16 pastures on a five to seven day basis and ration out the protein in the dormant range forage.
That subdivision took a little over 17 miles of 2-strand electrified hi-tensile fence. Since we did the full material and installation job, we know the exact cost of the fence was $33,047 or $12.52/acre. This investment allowed a herd of 900 cows to graze 40 days longer than what they typically did. The ranch had good cost accounting and knew the daily cost difference between grazing dormant rangeland or feeding hay was right at $1/cow. We take 900 cows X 40 days X $1/day = $36,000. This is an example of one year’s cost saving on feed paying for the entire fence system. No need for amortization and any long- term cash flow considerations. Let’s look at another one. Here is a 120-acre farm in south Missouri that was being managed basically as year-around calving in a set stock situation. Purchased hay was required for 120 days to support 25-30 cows on this property. The 40-something son came home to take over from his aging parents. He immediately knew this was a money pit that had never given his parents anything more than a lifestyle they enjoyed while they both worked in town to support their hobby ranch.
The cost for developing stockwater and fence on this property was $25,800 or $215/acre. This was put in as a flexible grazing cell with over-the-surface pipeline to supply a movable stock tank and one yeararound drinker. Daily moves with polywire manage the grazing. The cow herd was moved into a 45-day fall-calving herd. The property now carries 40 beef cows with a small yearling herd of replacement heifers and a few grassfed beef finishing heifers. Purchased hay is used for 30 days. The annual saving on hay, based on feeding 28 cows for 90 days less, was about $3300. Income from 10 additional calves at that time (2013-2015) was $11,000 annually.
Again, the real quick math says added income plus cost savings was $14,400 or about two years to get a pay back on the entire stock water and fence system that will be contributing to improved management and output for the next 20+ years.
To be realistic though, we should only be attributing added gross margin, not total added calf revenue towards paying for the added infrastructure. But, we should also be assigning added value for a more uniform calf crop that can be more effectively marketed at heavier weight than they were before. The land is also being improved rather than degraded. Maybe the best testimony to this latter small farm example is when the old man said, “Damn, I wish I had done this 30 years ago!” ■
Jim Gerrish is an independent grazing lands consultant providing service to farmers and ranchers on both private and public lands across the USA and internationally.
He can be contacted through http://www.americangrazinglands.com. His books are available from the SGF Bookshelf ..
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