In September, Project Director Mary Howell led a six-day, Amazing Grazing road tour across Kansas stopping in Topeka, Salina and Courtland. The three events, featuring Bill Helming and Jim Gerrish, provided a wealth of information for more than 100 attendees – practical information which Mary hopes all livestock ranchers will ponder considering the predicted drop in the market.Mary’s detailed workshops notes cover the key take-aways of each event. We hope it provides you with much food for thought over the coming winter months!
Economics of the Livestock Industry
Highlights from Bill Helming
Bill Helming’s talk “Reading the Crystal Ball of the Beef Industry Future” presented some sobering news for the cattle producers.
Helming has been an Ag Economist for his entire career; early on working for private livestock organizations and for the last 42 years running his own business specializing in ag economic forecasting. In his economic publication “As I See It,” Bill analyzes historical market cycles, current factors in agriculture and livestock products, forecasts future trends, and encourages people to make critical decisions to increase the bottom line.
The predicted lower cattle market has begun and is predicted to last for 36-48 months. The high mark in U. S. fed cattle price hit $174 per hundred weight in December of 2014. The down turn of the market will not only affect fed cattle but also calves, replacement heifers and bred cows.
Beef has major price competition from pork and chicken. These two competing protein sources will continue to influence the price of beef in the market place. According to the USDA market news and ERS, the current cut out value on beef is down 4.3% while pork is up 7.6% and chicken is up 6.6%. Ground beef is a major staple in the U.S. – accounting for 60% of all beef consumed in 2015 – and is double the price it was four years ago. Ground beef consumption has been steadily increasing since 1970.
Price per pound is the number one factor that influences the meat shopper. Affordability is key to the shopping choices of the consumer. 40% of the shoppers are changing their protein choices based on price of the product.
Consumption of hamburger (58%) has surpassed the whole muscle cuts of meat (42%). The method of production in the U.S. is designed to produce animals that will grade higher for the whole muscle cuts. To reduce the price in the supermarket ground beef could be more affordably produced. Of the hamburger consumed in this country, 60% is produced in feedlots, 25% is from cull breeding animals and 15% is imported beef trimmings.
Beef cow numbers have declined from the 1975 high of 45.7 million head to the 2015 low of 29.7 million head. Due to the all time low beef cow inventory, numbers are starting to increase with more replacement heifers being saved. All breeding stock numbers by category were up 3% for beef cows and & 5% for replacement beef heifers; Dairy cows were up 1% and dairy heifers 2%.
Cattle numbers are predicted to be lower by 2018-2019 due to: lower prices; the increasing age of the beef cow-calf operators; production costs at record prices; less available grass; difficulty for younger producers to get started; regional droughts; and large numbers of very small U.S beef producers. The average number of cows per owner is 100, with only: 20% having more than 50 cows; 33% of the producers have fewer than 10 cows; 55% have fewer than 20; and 80% have less than 50 head.
The current beef production model is based on finishing cattle with grain, producing the more expensive muscle meat cuts and encouraging larger beef carcasses, which increases the production costs. This model was designed and is driven by the cattle feeding and packing industry for the past 50 years. To address this problem the beef industry needs to produce ground beef at lower prices, produce more high quality ground beef with more grass and forages rather than grain, beef cattle with a frame size of 3 to 5 will finish more efficiently. The percentage of grass and forage fed cattle is predicted to increase. A production model that results in an animal that will produce a high quality, safe and nutritious lean ground beef, at a lower more affordable prices. Producers need to lower their production costs in order to become more competitive.
A very clear message to cattle producers and feeders for the future is to substantially reduce the cost of producing high quality and safe beef, because it can be done.
Highlights from Jim Gerrish
This article is written from Jim’s handouts and my notes. It is written (in second person) so that if you weren’t able to be with us, you will feel like you were and Jim is talking to you. Enjoy the “Food for Thought”! By Mary Howell
Getting in control of cow costs
The 2013 reported cow costs prepared by the Kansas State University Farm Management team estimated the average cost of production per cow at $1,133.85. That is why it is critical to control and reduce both operating and overhead costs for ranching to be profitable. Even with record high cattle prices, this budgeting exercise shows the typical cow-calf operation will be losing well over $100/cow exposed for breeding. Remember, these numbers are representative of typical or average costs. That means there is a large segment of cow-calf producers with costs well above those shown, but the good news is there is a segment of the producer population who are well below these costs.
Examining the top five costs of production is a good place to start.
Identify the top five line item costs and see what can be done to reduce those.
The top five costs are: 1. Hay at $300/cow-exposed (CE); 2. Summer Pasture at $187/CE; 3. Herd Replacement at $135/CE; 4. Interest on breeding stock at $118; and 5. Labor at $80. After that everything else is pretty minor. Until you tackle the big line item costs, don’t sweat changing the little things.
- The first question you need to ask yourself is why do you feed so much hay. What are the alternatives? Can you get more use from other grazing crops and crop residues?
Making hay no longer makes financial sense. Over the last 40 years these particular input costs have increased at 4 to 5 times the rate that the value of cattle has increased.
- The second highest cost was for summer pasture. How can we change that? Until management shifts its focus to capturing more solar energy on every square foot of land, until we all come to more fully understand and appreciate the role of water in forage production, and until we learn to create healthy living soils, our pasture and rangeland will continue to exist in state of low pasture and range productivity.
The primary role of Management-intensive Grazing (MiG) is to manipulate plants, livestock, and soils to create more effective solar energy capture and more dynamic water and mineral cycles.
This is accomplished through controlling the amount of time livestock have access to any one segment of the pasture, allowing the plants to rest, recharge the roots and grow. Leaving plenty of post-grazing residual and moving stock off of pastures quickly will help develop the solar panel, a more effective water cycle, and accelerate mineral cycling. If you can grow more forage and harvest it more effectively, the land required per animal unit will go down along with the land associated cost of summer grazing.
- Herd replacement cost was the third highest line item. This is closely related to cow depreciation which I frequently see as the highest cost for many cow-calf operations. Beef cows really don’t produce nearly as many calves in their lifetime as we would like to believe. The typical beef cow in the US only produces about 3.2 cows in her lifetime before being culled for either being open or some other undesirable trait.
Why do so many cows drop out at an early age? Plain and simple is most outfits just don’t have the right kind of cows for their resource base. So, what is wrong with most cows?–Too big, too much milk, and not enough capacity to fatten easily. This figure is straight out of the NRC standard beef feed requirement handbook. It compares cows of four different weights and their relative milking ability. It very clearly shows that as cows get bigger they eat more. As they produce more milk, they eat more. Very often ranches simply don’t have the type of forage resources required to provide that necessary added feed in a cost-effective manner and cows turn up open.
Having the right type of cows is critical to having a sustainable ranching operation. Having cows that can live within the bounds of your resources is essential to success. Timing of calving to optimize the use of your forage resources is the other key component of the cow side of the equation to keep cows productive for many years. Easy fleshing, functional cows calving at the right time of the year will result in lower herd replacement costs.
- The fourth highest cost in the KSU budget is interest on the breeding herd, both cows and bulls. This means the sooner you can get the banker out of your business, the better off you are. Consider partnerships, herd lease arrangements, and custom grazing as tools for lowering your investment in the herd and avoiding some of the interest costs generally associated with being in the cattle business. Anyone who farmed or ranched through the early 1980s knows what high interest rates can do to your bottom line and solvency. For those who weren’t there, it was the kiss of death.
- Labor was the final Big Five cost. The take away here is the old cliche of ‘work smarter, not harder’.
Too many farmers and ranchers get caught up in the ‘WITB’ syndrome. That is ‘working in the business’.
Basically that means going out and doing the $10/hour jobs just because we enjoy the lifestyle or because those are the ‘brush fires’ we need to deal with on a daily and instantaneous basis. These tasks are not the ones that pay the bills. Learn the ‘WOTB’ approach to running your outfit. That is ‘working on the business’ and this is what will ultimately determine your success or failure. You probably need to learn to devote a certain amount of time every week to ‘Working on the Business’ in order to stay in this business.
How Do I Know It Will Pay?
‘There’s no such thing as a free lunch’? There are not many things that come without a cost. Many of our decisions in life revolve around the questions ‘What will it cost me?’ and ‘Is it worth it?’
How do you go about deciding whether you should do it or not?
Economists and farm management specialists use enterprise and partial budgets as decision support tools. A good spreadsheet can let you answer a lot of different questions. What you really need to know is the cost of implementing the change in your business and the expected return from making the change.
Always overestimate the potential added costs and underestimate any cost savings or increased returns. Better to receive pleasant surprises than bitter disappointments.
Another important question is how soon do you want or need this investment to pay off.
The question is can your current cash flow situation allow you to shift funds from their current usage into some other pathway. Generally I like to see capital improvement projects fully pay for themselves in five years or less. The shorter the cost recovery period, the greater the likelihood of things actually working out according to plan. Another positive aspect of achieving a quick pay back on your investment is any residual benefits that occur after the end of the payback period become almost pure profit.
If we have developed a budget plan for the project (A must!), we know what implementing the practice is going to cost us over time. It is important to include additional Repair & Maintenance costs that will be incurred over time as well as added labor into our calculations. From the difference between the added costs and expected returns, we calculate the lifetime return on investment for the practice. Hopefully it is positive and we are glad we made the change. If it is negative, we are very happy we went through this planning exercise before going to all of the trouble.
NO ONE PLANS TO FAIL, BUT MANY FAIL TO PLAN!
Why you should be out of the hay business
Winter feeding costs are typically the greatest line-item cost in most cow-calf budgets. It doesn’t seem to matter where you live, winter feed costs are still the highest cost. The best way to manage a cost is to eliminate it. Shaving a little here and there does not make a big impact. Think elimination, not reduction. It is more important to eliminate hay making before hay feeding because making it yourself may actually be more expensive than buying hay. There are a lot more costs to making hay on your property than just the direct production costs. You can almost always buy hay cheaper than you can produce it. When full cost of production is accounted for, hay generally costs between $70 and $140/ton to produce. On smaller operations that own a full line of equipment, the cost can easily exceed $200/ton. In most natural rainfall areas, beef cow-quality hay can be purchased for less than even the cost level. As long as someone else is willing to lose money on their hay production, you should be willing to take advantage of it.
The obvious costs of making hay are the seed, fertilizer, equipment, and fuel for which we see an actual invoice. If we’re paying hired labor, we see the cost in their paycheck. If we are both management and labor for our farm, we usually don’t pay ourselves a decent wage. Most hay producers know there is something called equipment depreciation, but few actually put it into their accounting. If you let someone else make your hay, you eliminate that cost.
What are the opportunity costs of land and labor. What else could you be doing with your hay fields if they weren’t being made into hay? Hay making basically takes low-cost pasture and turns it into high priced feed. Grazing your hay acres and generating a profit will generally make your farm or ranch more money than the hay ever would. When you buy someone else’s hay, you’re also buying their fertility. In some parts of the US, hay sells for less than the soil nutrient value it contains. As long as you feed purchased hay in a manner that allows good nutrient distribution, purchased hay can become an effective fertilization strategy.
What is the opportunity cost of your labor. What could you and/or your employees be doing if you weren’t making hay? Building or moving fence and water systems? Better managing the livestock you have? Handle more livestock? Spend more time on marketing? Making hay on your own land costs you far more than you might imagine. It costs you your time! What about the opportunity cost of using your land for hay production to support a cow herd rather than grazing a class of livestock that can generate significant cash income?
Eliminating hay feeding all together will save a tremendous cost for the operation. Hay feeding also makes your cows lazy and dependent on you for their care. Lazy cows are unprofitable cows. Get the hay out of their lives and they will spend a lot more time working for you and you will spend a lot less time working for them.
You need to know how much it costs you to produce a ton of hay so you can make an informed decision about whether you should make hay, buy hay, or eliminate it all together. Calculate the cost of making hay making sure you include all costs and to use costs appropriate for today’s economy and your location.
Analysis by ag economists at University of Missouri has repeatedly shown the most profitable cow-calf scenario is to stock the farm to its grazing capacity and buy any needed hay. Bottom line is first quit making your own hay, buy or trade for what is needed, and work towards eliminating hay feeding all together.
Getting Started in Grazing and 3-Day Grazing School
Jim taught a one day beginner course to 9 people in Salina. Seven of them were truly in the beginning stages of getting started with animals and grazing. The more advanced 3-day Grazing School had 18 people in attendance. Both workshops offered the attendees the opportunities to ask questions and discuss possibilities. The three day school had outdoor learning activities at the host farm of Dale Strickler. Jim used parts of the following information for both classes. The nature of the advanced 3-Day school allowed for participants to really get to know one another and freely interact and discuss grazing ideas, possibilities and much more discussion!
MiG Basics: The Big Five Factors of Grazing Management
The basic business of grazing management is creating and maintaining an effective solar panel to capture solar energy and convert it to livestock feed and then efficiently harvesting that feed with livestock. Managing solar energy flow and water and nutrient cycles, while maintaining the integrity of the plant-soil resource is what sustainable grazing management is really about.
Five Big Factors for Effective Grazing Management:
- Match stocking rate to carrying capacity: Stocking rate is the number of animals or grazing pressure we place on the grassland resource. Because each animal needs to eat a particular quantity of forage every day and an acre of land has only so much capacity to capture solar energy and grow pasture, there is a pretty definite relationship between stocking rate, animal performance, and land quality. Carrying capacity is the appropriate stocking rate that maintains animal performance and land condition at acceptable levels. Because forage productivity is not constant throughout the year, stocking rate cannot be held constant on a year-around basis without supplemental feeding. The ability to vary stocking rate through the seasons is one key to success in sustainable year-around grazing.
- Maintain optimum intake level: Ensure grazing animals receive adequate nutrient intake to achieve the performance targets we set for them. Whether talking about lactating dairy cows, growing beef stockers, or finishing lambs on pasture, a given level of performance requires a given level of energy, protein, and other nutrients. Just because the livestock are standing in a pretty, green pasture does not necessarily mean their nutritional needs are being met.
Pasture re-growth rate increases when more residual remains after grazing. Increasing grazing pressure results in lower forage availability but usually produces higher quality pasture. The challenge for the grazing manager is determining the appropriate balance of availability and quality to meet a particular production target.
- Leave appropriate residual during and after grazing: The amount of forage remaining in the pasture after grazing is generally referred to as the residual. While most graziers refer to all plant material left after grazing as residual, green leaf residual is the really key consideration. While we often think of it in terms of height, residual is really a leaf area requirement. Residual affects a number of plant, soil, and animal factors in the grazing ecosystem. After grazing, the residual green leaf is the factory for generating re-growth of the plant.
There is justification for the old range management age of ‘Take half, leave half’. Removing more than 50% of the leaf mass of any pasture has a very detrimental effect on plant root growth. If the roots aren’t growing, water and nutrient uptake are severely curtailed which means pasture re-growth will be slowed. ‘Take half, leave half’ is just as important for tame pastures as it is for rangeland.
Surface vegetation management affects water runoff and soil loss. Residual affects both surface ground cover and root mass; it also has a significant impact on soil organic matter, soil compaction, and water cycle.
- Balanced recovery and use: Pastures need to be rested to restore CHO(carbohydrate) storage and plant vigor. Many forages rely on residual leaf area for re-growth, not stored CHO. Recovery really allows leaves to re-grow, which in turn supplies excess CHO for storage and helps maintain vigor and root growth. Determining appropriate recovery period length is a challenge graziers face on an ongoing basis. Animal and plant needs must always be balanced. Longer recovery periods provide healthier plants and ample forage, but reduced forage quality. Short recovery periods supply high quality forage, but may stress plants and leave forage supply short. Changing growing conditions dictate recovery periods may need to be lengthened or shortened. One thing for sure is leaving more residual increases flexibility in recovery management while lower residual reduces management flexibility.
Several environmental and wildlife benefits can be attributed to providing recovery periods. Both stream bank stability and bird nesting habitat were improved in pasture areas when planned grazing systems were implemented according to research conducted in Wisconsin. Several studies in the western US have shown notable stream bank improvement where planned grazing systems have been implemented. It is the continuous presence of livestock in riparian areas that creates problems, not the managed use of a site by livestock. Native plant species tend to increase when appropriate recovery periods are provided.
- Extending the grazing season: Winter feed costs are the biggest single line item in most livestock production budgets. Producer records from many states show hay feeding accounts for over 40% of the annual operating costs for a typical cow-calf operation. Equipment depreciation is another huge cost associated with hay feeding that is often overlooked. Extending the grazing season is one of the fastest ways to put money in your pocket in the cow business.
There are three major challenges to extending the winter grazing season in areas where hay feeding is common. The first one is attitude. We need to believe that cows can and should work for their living. If you spend over half of your time making hay and hauling it back out to the cows, you are working for the cows. Cows should be working for you. The second challenge is ensuring there will be forage in the field in the winter. The first step to overcoming this hurdle is to understand that the growing season and the grazing season are two completely different things. It will likely take significant changes in your spring and summer grazing management to make sure you have fall and winter pasture. The third challenge is learning how to deal with snow. Cows will not graze through two foot of snow to find grass that is only three or four inches tall. Our job is to grow the grass, the cows job is to harvest it. Our job is to make sure there is adequate grass below the snow level so that cows can find it and graze it. While improved summer grazing management can help the bottom line of most ruminant livestock operations, winter grazing is the greatest opportunity with management-intensive grazing in the cow-calf business.
Summary: To operate a sustainable pasture-based livestock system, there are many critical factors that need to be managed. Matching stocking rate to the lands true carrying capacity and having the option to flex stocking rate over the season is the first fundamental. Ensuring adequate forage intake so animals can meet their performance goals is the rancher’s job. Manage intake by knowing when to move animals on and off pastures. Leaving adequate residual will promote healthy pastures through greater photosynthetic efficiency, maintaining vigorous root systems, and promoting a healthier water and nutrient cycle. Balance recovery and use. Remember, under-using a pasture can be just as detrimental to the health of your grass as overusing it. Because winter feeding is the most expensive part of most livestock operations, look for ways to extend the grazing season and cut back on the use of harvested forage.