Category: Business

Is Average Good Enough for You?

Kit Pharo – Pharo Cattle Company

As silly as it sounds, average is good enough for most cow-calf producers.   In agriculture, average is breakeven.   Below average producers are losing money.   The only way they can stay in business is to subsidize the farm or ranch with outside income.   Above average producers are profitable.   A few are extremely profitable.   They are profitable because they do things differently from status quo (average) producers.   They have a distinct competitive advantage.

Most PCC Customers are well above average.   Many have doubled or tripled their profits.   They are focused on production per acre – instead of production per cow (bragging rights).   They are using ultra-low-maintenance bulls – instead of the status quo, high-maintenance bulls everyone else is using.   They know stocking rate affects profitability, or lack thereof, more than anything else.

Ag economist Danny Klinefelter explains how you can get a competitive edge simply by rejecting the status quo.   That’s right… by rejecting the status quo!   Klinefelter says, “The only truly sustainable competitive advantage today is the ability to learn and adapt faster than your competition.”   Click on the link below to listen to what he has to say.

Reject the Status Quo

Following the crowd and doing what everyone else is doing is never the best way to manage a business.   In most cases, it is the absolute worst way to manage a business.   If you are part of the status quo herd, you will never be above average – and you will never have a competitive advantage.   Dare to be different.   Dare to be a Herd Quitter.

Quote Worth Re-Quoting –

“If you don’t have a competitive advantage, don’t try to compete.”   ~ Jack Welch

EMOTIONS ARE REAL: MANAGING THE EMOTIONAL REALITY OF TRADING

The market is an auction. The purpose of an auction is twofold: to provide an environment where buyers and sellers can come together; and to provide price discovery. If a farmer retires and you go to the estate auction, there is one seller—and the more people who show up, the more potential buyers you have. Every buyer has a number and the ability to bid what they are willing to pay. The auctioneer facilitates the discovery of price for each good. The auctioneer is operating as an agent on behalf of the seller—they are trying to get as much out of each item as possible. Good auctioneers get lots of people to show up and they also get people bidding.

This is an important analogy to be able to apply to the world of commodity and equity trading. If you’ve ever been the person at the auction to pay way too much for something, you know that emotions can get the best of you in the moment. But the fact is that over time, an auction is the most effective and most efficient way to discover the value of something. That being said, in the short-term auctions can be overrun with emotion. You may see something selling way too cheap—which indicates there is a lack of buyers or more likely too many sellers. The flip side is when you see someone paying more for an item on auction than they would have paid to buy a new one at retail! Auctions are the best price discovery over time, but emotion will get them out of whack in the short-term.

Just like an auction, the market is made up of the emotion of its participants

  • Regret: Quite paralyzing. The price of the commodity gets to a level that isn’t quite what we were hoping for and then it suddenly falls. At that moment we now know what we COULD have had for our commodity if we had acted…but we didn’t. Now suddenly our brain shifts into what we think the product should be worth or what we would be willing to accept. But in reality, the commodity is worth what it is trading for today. The best antidote is drafting a script for our future actions: “What will I do when price starts falling?”
  • Greed: This usually plays out in the market as a case of “Perpetual Price Dissatisfaction.” If corn is $3.60, it’s wanting $3.80. When corn gets to $3.80, I now will only accept $4.00. It’s a failure pattern of saying to ourselves that UNTIL I get a higher price, I won’t be happy. The failure of this is that it’s never a high enough price for us to be satisfied. We end up kicking the can down the road until we’ve run out of time on the calendar and we now have to act. How can we counteract greed? One way is to make smaller decisions, more frequently instead. The other tool can be using targets. If I have a good handle on either my projected profitability or, after harvest, my actual profitability—I can reduce my greed factor by using price targets and placing orders at the elevator or in my commodity account. It takes out the risk of wanting to wait until tomorrow to see how price acts and get just a little bit more.
  • Fear: Can be a significant motivator for people. There’s a concept that has grown with social media and contributed to a lot of people’s anxiety—“FOMO” or Fear Of Missing Out. In marketing, fear manifests itself in many different ways: Fear that price is going to collapse further, so I end up selling out on the lows. Fear that I’m not going to grow a crop so I don’t sell ahead. Fear that if I sell, the price will rally later so I freeze. Fear that price can never rally so I sell everything on the first 10-cent rally I get. The key to managing fear is first and foremost to know yourself. Fear is a good thing and it’s a survival mechanism, but taken too far it can keep us from really being able to thrive.
  • Envy: We stop at the coffee shop and someone’s talking about how they sold the high in the market. We hear our neighbor talk about how high one of their fields yielded. Here’s the problem with all of these scenarios: none of them shares all the information you need. The guy in the coffee shop sold one percent of his crop on the high and at the end of the year, ended up getting a worse price on his crop than you. The neighbor with the big yield isn’t talking about his break-even levels or the profitability per bushel. We feel envious of the actions or lives of others, but much of what is presented to the world is far from the whole story. So what can we do? Tend to your own garden first. The farmers who focus on the basics (doing everything you can to lower your cost per bushel) are best equipped to compete in the long run. This gets the focus on a scorecard that fits the game. If I go to the gym and see the guy bench pressing 400 pounds, I’m not envious—we’re playing a different game. Focus on good financials and a fanatical approach to building your own ability to improve your cost per bushel. That doesn’t mean you shouldn’t try to learn from these others—you can ask the guy at the coffee shop what led him to price it; maybe there is some insight there. The neighbor with the big yield, maybe he has a production practice that you can learn from. But stopping at envy will always be a roadblock to progress.

Thanks for listening! Email me any questions or comments at dean@modernfarmbusiness.com.

A Great Dream – By Kit Pharo

In response to last week’s PCC Update, a subscriber in Illinois sent me the following quote.   As you know, I like to share favorite quotes in our PCC Updates and Quarterly Newsletters.   This quote really packs a punch!

“A great dream is not as good as a great memory.   The dream can be had by anyone.   The memory – must be made.”    ~ Eric Thomas

This quote speaks for itself and does not require commentary.   Nevertheless, I feel compelled to comment.   In my lifetime, I have met many, many people who had GREAT dreams.   Unfortunately, very few of those people made their dreams come true.   Most never did get off the starting line.   They always came up with excuses to put off the most important things in their life.   As I think back, I find this to be very sad.

I want to challenge you to get off the starting line and do what it takes to make some of your dreams come true.   Turn those great dreams into great memories.   Do you have some personal dreams or family dreams?   I hear people all the time talking about the things they have on their Bucket List.   Most of those people, however, never get beyond talking about their dreams.   Before you know it, they no longer have the ability or the desire to do the things on their Bucket List.   Consequently, they did not create any great memories.

Do you have some business dreams?   Would you like to make your business substantially more profitable, enjoyable and sustainable?   Would you like to create a business the next generation is excited to become a part of?   As Walt Disney once said, “If you can dream it, you can do it.”   Please remember, though, the present is different from the past and the future will be different from the present.   Creating a bigger and/or better business will involve CHANGE.   There is no getting around that fact.   While everyone else is afraid of change, we should be embracing it!

Quote Worth Re-Quoting –

“A man is not old until regrets take the place of dreams.”   ~ John Barrymore

Quote Worth Re-Quoting –

“Success is simply a matter of luck.   Ask any failure.”   ~ Earl Wilson

Resistance to Change –

By Kit Pharo

People hate change!   Nowhere is this more prevalent than in agriculture.   It seems to take years for people in agriculture to make simple changes – even though they know the change will be for their own good.   I must confess that I too am reluctant to change.   I may not hate change as much as most people, but it still makes me uncomfortable.

I read a neat little Seth Godin book entitled Tribes.   In this book, Seth spends a considerable amount of time discussing the status quo and its fear of change.   He believes change is inevitable.   I don’t think anyone can argue with that.   Change is a normal and necessary part of life – and the sooner we embrace it, the better off we will be.

Seth says, “Change almost never fails because it was too early.   It almost always fails because it was too late.   By the time you realize your corner of the world is ready for change, it’s almost certainly too late.   It’s definitely not too early.”   Mr. Godin goes on to say, “There may be a small price to pay for being too early, but there will be a huge penalty for being too late.”

We use the term Herd Quitter to refer to people who have enough courage to break away from the status quo, herd-mentality way of thinking.   It is more about thinking for yourself than anything else.   Following the crowd (herd) and doing what everyone else is doing is never the best way to manage a business.   Dare to be a Herd Quitter.   Dare to enter the New Frontier in beef production.   Dare to make the necessary changes in your operation while you still have a choice in the matter.   The sooner, the better!

Quote Worth Re-Quoting –

“Change before you have to.”   ~ Jack Welch

Feeding Hay to Improve Your Land – Part 1

By   /  February 25, 2019  /

We think it is far more important to stop making hay on your land than it is to stop feeding hay on your land. Here are some things to think about.

What Made Sense in 1973 Doesn’t Make Sense Today

Making hay is a whole lot more expensive than it used to be. This table compares input costs for making hay in 1973 in contrast to 2013.

 

All of the input costs have increased at a much faster rate than the value of beef cattle, lamb, or milk. To be on par with costs experienced in 1973, fed cattle should have been $284/cwt, not the $148 they were.

Hay = Inexpensive Fertility

While making hay is expensive, in much of the US, hay can be bought for less than the cost of production. When you buy someone else’s hay and feed it on your property, you are buying their fertility at a highly discounted rate. In some years in some locations, you can buy beef cattle hay for less than the fertilizer value it contains.

This is a great opportunity for improving your land in a way that also benefits soil health.

Feeding Uniformly is the Key

The key to soil improvement is to get the hay fed uniformly over your pastures. This is how you can realize the greatest benefit from purchased hay as a planned fertility input.

Large round bales are still the norm in much of US cow country. Round bales can be unrolled with relatively low-cost equipment. Bales don’t unroll uniformly all the time, but the subsequent manure distribution is way better than feeding bales in ring feeders.

Big square bales can be flaked off easily in a systematic way to cover a specific area with each bale fed.

Bale processors are expensive pieces of equipment. If you are invested in something like this, make sure you are feeding all of your hay to optimize the distribution of manure across the pasture.

We need to be thinking about how much nitrogen and phosphorus is in each bale we are feeding so we can plan our daily feeding to apply appropriate levels of nutrients rather than feeding too little and not realizing the benefit we expected or feeding too much and overloading the soil and environment with excess N. We’ll look at that next week!

Stay tuned! Jim will be covering all the data and math in this series to help us figure out how to do the best we can at improving pastures with hay feeding. If you have questions for Jim, do share them in the comments section below!

Kate Miller: I Will Not Thank a Farmer

MARCH 8, 2019 12:39 PM

By AgWeb Guest Editor
AgWeb

Note: The opinions expressed in this commentary are those of Kate Miller, and do not necessarily represent the views of RanchersEdge.com

I was dining alone at my favorite local Mexican restaurant. I was covered in mud because it hasn’t stopped raining in Arkansas since October. I was freezing because the heater quit working in the tractor mysteriously, and I misplaced the bungee cord that closes the farm truck door. As I was scrolling through social media, I could identify with the numerous posts from ranchers I saw who begrudgingly were fighting the elements, be it blizzards and record setting temperatures or this never-ending monsoon and mud in the south. There were multiple posts about “thanking a farmer.” After spending months, tied to a tractor and sick calves and worrying about weather, I could identify with wholly that sentiment.

Having finished my beef fajitas, I noticed a sign the owner had placed at the register. It read: “Please accept our sincere thanks for letting us serve you. We greatly appreciate the fact you have chosen to do business with us. And in return, we pledge our continuing efforts to offer you the best service possible”

It struck a nerve.

The owner of this establishment did not demand that I thank him for his efforts to produce this dinner. He thanked me for choosing to do business with him.

In my mind, I scrolled through the Twitter feed I had witnessed. For how long have we as the ag community demanded that our customers thank us? When was the last time we thanked them? Are we operating from a place of entitlement, where we believe that our professions are somehow sacrosanct in the scheme of the economic ecosystem?

But wait, we toil in the hot summer sun and the cold winter snow—every single day. Yes, but so do the oil derrick hands in Odessa, Texas. But we cannot skip a day because living beings rely on us. Yes, doctors face the same challenge. We work 24/7 and never get a day off—no one just gives me a salary! Yes, so do most entrepreneurs. Yes, but we are underpaid! Said everyone the whole world over.

Even within the industry, other segments of our own business do not take to the Twittersphere and demand praise and thanks. When was the last time you saw any one who worked in a plant demand to be thanked for the 12-hour shift on the debone line?

What is abjectly worse is that by our own admissions we feel that we farmers and ranchers are the most important members of the value chain—we criticize packers for their margins. We pay the vet bill, eventually. We mock consumers for their ignorance and again for the demands they make upon us. And then we turn around and have the audacity to ask everyone to thank us?

When was the last time we showed any appreciation to anyone who chose to do business with us? When was the last time we thanked a feeder or a packer or a distributor or a grocer?

By our own standards–if we are going to thank the farmer, we need to thank the pen rider who doctors sick cattle in heat and blizzards, right? We need to thank the veterinarian who amassed six-figure student loans to answer your call at 2 am because you can’t get one pulled. We need to thank the immigrant who feeds his family by spending 6 days a week surrounded by death, cutting the jugular of 1000 head a day. We need to thank the USDA inspector who earned a master’s degree to work in below freezing temperatures, who worries if another government shutdown will impede her salary.

We need to thank the line supervisor who can speak broken Spanish and Swahili and Burmese to make sure the job gets done right. What about thanking those same production line workers who do the same repetitive cut day after day after day? We need to thank the blast freezer fork lift operator who works alone at sub-zero every day of the year. We need to thank the truck driver who misses his son’s first t-ball game on a run to Amarillo. We need to thank the sales manager who takes the cussing from a chef and loses his bonus because of a rotten injection site lesion in a round because a rancher ignored Beef Quality Assurance (BQA). We need to thank the sales rep whose paycheck depends on the yield of brisket from week to week.  We need to thank every single person who touches our product once it leaves our farms. We need to thank them for the work they do that makes our livelihood possible.

But mostly, we need to thank our customers. We need to thank the people who buy our product, who put their faith in the chain and decide to buy beef to serve their families. We need to thank a chef for serving beef in their restaurants. Instead of asking them to thank us for arguably doing our job, we need to thank them for giving the product we raise value. Without the customer putting beef in their shopping cart or without someone choosing as steak on a restaurant menu, we would cease to exist.

But the reality is as well without the pen rider, the vet, the packer, the line worker, the truck driver, the salesman, the marketer, the grocer—we would cease to exist as well. Cattlemen are a link in the chain, and some of us can argue that we are the endangered species in the ecosystem. (But anyone trying to hire an experienced meat cutter or a driver might argue differently.) The best way to preserve our way of life, the best way to ensure that cattle remain in our pastures is to make sure that beef remains on tables of consumers.

Everything else is noise. Everything else is shouting into the void. We can disagree on Checkoffs. We can disagree on Country of Origin Labeling. We can disagree on BQA. But at the end of the day—without the consumer—none of that matters.

I urge those of you who use social media to interface with the world at large to stop demanding that consumers heap thanks upon you. Instead take a moment to listen to their questions, to answer them without condescension or reproach, and then thank them for the opportunity to tell your story. Then thank them for their patronage, ask them how you can help them have a better beef experience and be a representative of your commodity. Check your entitlement. Start a dialogue. You never know, you might find that by extending grace to the community that supports you—you’ll find the appreciation that you seek.

Bio: Kate Miller is the managing partner for IMB Cattle Company, a third-generation ranch in Southern Arkansas which just celebrated its 51st anniversary. With over ten years in protein marketing including domestic and export sales, Kate continues to try and bridge the ever-widening gap between production agriculturalist, the food production industry and consumers.

Having a Ranch AND a Life

by Dave Pratt

A friend included me in an email chain informing us of a farmer he knew who recently took his life. I don’t pretend to begin to know this man’s pain or anything about his situation. But the story struck me as beyond sad.

Responses in the email chain spoke of the stress of farming, peer pressure to follow traditional practices, financial stress, the personal health and the ecological consequences of reliance on ag chemicals, and more. I don’t know how much this man’s pain had to do with the farm and how much stemmed from other things. The emails made it seem like the farm had a lot to do with it. That’s understandable. Agriculture is stressful. Compounding the physical demands is the financial pressure, the uncertainty of weather and markets, the weight of expectations  to continue a multigenerational legacy, and the peer pressure to conform to the status quo.

After reading the emails I found myself sad and frustrated. Sad for this man’s pain and the unimaginable pain his family and others who knew him must feel. Frustrated because agriculture doesn’t have to be this way.

Please understand, this column is not about this farmer or his suicide. This tragic event is the trigger that got me thinking about an industry-wide issue. Rates of depression and suicide in farming and ranching are disproportionately high relative to other segments of the population. That seems particularly strange given that most farmers and ranchers consider ranching and farming to be a lifestyle first and a business second. If their farms and ranches were a business first and a lifestyle second, I think the emotional well-being of farmers and ranchers would improve. One RFP grad summed it up well when he said, “When we focused on our lifestyle all we did was work our butts off. When we focused on the business, our lives got so much better.”

We grow up learning that the harder we work, the more successful we will be. But as many farmers and ranchers work harder and harder, they fall further and further behind. If hard physical work were the solution to our problems, our problems would be fewer and smaller. Working harder is NOT the answer. In fact, it is part of the problem. We’ve become so busy working in the business that we don’t have the time or energy to work on the business. Of course, if we were to work on our businesses effectively, we wouldn’t have to work so hard in them.

There’s something else that keeps us from working on our businesses. I don’t think many farmers or ranchers know how. Growing up we learned how to grow crops and raise livestock. No one ever showed us how to run a business that grows crops and raises livestock.

The Ranching For Profit School is not a school on farming or ranching. It is a business school that teaches farmers and ranchers how to transform their farms and ranches into successful businesses. When participants  walk in Sunday afternoon, most own a collection of expensive assets and a bunch of physically-demanding, low-paying jobs. By the time they leave, they own a business. Until farmers and ranchers change this fundamental paradigm, they will continue to struggle economically, financially and emotionally.

Focusing on business before lifestyle won’t eliminate the stresses farmers and ranchers face, but it does put us in a much stronger, healthier position to deal with those stresses. I’m convinced that if farmers and ranchers embraced a business-first approach there’d be a lot fewer tragedies like the one my friend shared with me.

If you want to see how transformative the business-first approach can be, watch this video: VIDEO