We often assess the value of ranches in terms of carrying capacity and which sometimes translates into what a workable sales price might be if someone were to buy it and have a viable operating ranch. However, one does not have to look through a ranch and farm real estate catalogue for long and do a few quick calculations to realize that many, if not most, ranches do not have listed prices that are consistent with the viable economics of working ranches. But then, the market is the market – driven by supply and demand. Before pursuing this topic, I need to clarify that this discussion is not to disparage anyone who sells a ranch at today’s prices. You certainly would not turn down buyers or top dollars because the price does not support applied ranch economics.
I have often remarked that oftentimes ranches in the West do not sell for their ability to support cattle production with quality forage and water resources, but rather sell to outside buyers for their location and the resource beauty and the quality big game and fishing that goes along with that resource quality and cattle will no longer be seen grazing these ranches. Further, if the ranch no longer runs cattle, there may be Federal grazing permits that will become inactive which then if inactivated for an extended period, creates the risk of cancellation. The immediate impact of these types of ranch sales that no longer utilize grazing and one that we can all agree upon is wildfire and while that is a critical issue, there are two additional longer-term issues.
First, reducing the U.S. beef industry’s production base and second, to significantly reduce the ability of an operating ranch that raises cattle to expand their base by purchasing another ranch or additional grazing. The issue of reducing the production base may be consistent with a shrinking cattle herd although I believe that ranching in the West contributes significantly to the economies of rural communities.
Economies of scale is an important concept in agriculture and a driver to expanding cattle operations. I have written about this often, particularly in an environment of rising costs. Larger operations have lower per unit operating costs but also increased revenue from greater marketable production. Going back to current ranch listings and sales, when I see ranches listed at prices equating to per unit carrying capacity values ranging from $50,000 - $85,000, one must seriously ask how that would work with the economics of an operating cattle ranch?
