Category: Costs

The bigger-calf theory isn’t working right now

The solution is to sell cattle that have higher value of gain than your cost of gain.

It was an interesting week in the market. What I find even more interesting is how people can get so emotional about such things. Cattle marketing is simple math, and that should take the emotion out of things since math is fundamental and never changes.

That said, it is hard to override an old paradigm. This week the paradigms that hold onto conventional wisdom got smacked in the face.

Conventional wisdom says that it pays more to wean a bigger calf. This week I watched an auction that had a good amount of bawling calves sprinkled throughout the run of different weights. While the bigger calves did get more dollars per head, it wasn’t much more. When I calculated the value of that gain it proved what I already knew: The value of gain wasn’t all that great. From the smallest bawler to the heaviest calf, the value of gain was 45 cents.

Can you put the weight on for less than that? The value of gain between some of the other weights was less than 30 cents. I am pretty sure it’s costing more than that to put the weight on. My point is, those extra pounds were actually costing the producer money.

A commentator on the local radio was going on and on about the “rally” in eight-weights at a local sale barn this week. I pulled up the market report and those eight-weights had the lowest value of gain compared with all other weights. At that barn seven- and eight-weights were the only weights that were higher this week, and yet the eight-weights were still undervalued to the lighter feeders, and also undervalued compared with fats. So again convention wisdom got smacked. Just because they were higher didn’t mean that a person was going to profit from selling them.

I have had a few people ask me how this blog is being received by people since I talk a lot about turning cattle quicker instead of holding them and putting more weight on them. I just outlined above the math isn’t adding up by the long-held convention for adding weight to create value.

Here’s the thing, there are three components to maximizing profit, and one is turnover. If you owned a hardware store would you make more money if you were open two days a year, or 365 days a year? I have a friend who used to work in the parts department at a dealership, and he told me if a part didn’t turn over at least every 30 days they quit stocking it. I’m not saying we should trade our stocker cattle every month. What I’m saying is that we need to watch the value of the gain, and price relationships to prevent ourselves from getting cattle too big and becoming undervalued at times.

Next week is the last full week of auctions before some barns will go to their summer schedule. One thing I find interesting and am curious to see how it pans out is some barns are adding a special female sale to the schedule in the middle of summer. This typically doesn’t happen. There obviously is some interest in selling bred cows and pairs at that time, but will there be much buyer interest?

If One Can Do It…

If One Can Do It…

By Kit Pharo

If I had a nickel for every time my long-time friend and mentor Chip Hines has said, “If one can do it, they all should be able to do it,” I would have a truckload of nickels.   In the 30+ years that I have known Chip, he has had a profound effect on me, on Pharo Cattle Company and on the entire beef industry.

Although Chip has an excellent understanding of the minute details of beef production, he likes to keep everything as simple as possible.   Nature has always been Chip’s example and teacher.   He thinks cows should be able to produce and reproduce without any outside inputs.   If one can do it, they all should be able to do it.

In the mid-1990s… we were giving our cows a protein supplement three times a week for 30 days prior to calving.   We did this because that is what we thought we had to do with cows grazing short, dormant grass all winter.   I remember a cow (Angel 382) who wouldn’t even look up when we came to feed the range cubes.   She continued to graze – even though all of the other cows were frantically running to the pickup.

This cow reminded me of what Chip had told me many times, “If one can do it, they all should be able to do it.”   I decided to eliminate all protein supplementation.   I remember one university expert advising me against taking such drastic actions.   He said, “We both know the protein level of your winter grass is very low.   According to the book, you need to supplement some protein.”   I nodded my head, but ignored his advice… and I got away with it.

Do you know why I was able to ignore his advice and get away with it?   I got away with it because not one of my cows had read the book the university guy was referring to.   They didn’t know any better.   Who wrote the book anyway?

I’m sure some cows eventually fell out of our herd after we discontinued providing a protein supplement.   Most of the cows, however, were not affected.   This is how you make genetic improvement and progress.   If you never take away inputs, you will never know which cows can survive without inputs.   Over the years, we have essentially eliminated all outside inputs with the exception of salt and mineral.   I know a few PCC customers who have eliminated mineral supplementation.

Recently, I have taken Chip’s “If one can do it…” statement to a different level.   I have thought about how successful and profitable most PCC customers are in comparison to their neighbors.

What’s the difference between PCC customers and their neighbors?   The primary difference is that PCC customers are focused on increasing production per acre, while their neighbors continue to be focused on increasing production per animal.   There is a BIG difference!   If some cow-calf producers can do it, others should be able to do it.

Quote Worth Re-Quoting –

“The men who succeed are the efficient few.   They are the few who have the ambition and the will power to develop themselves.”   ~ Robert Burton (1577 – 1640)

Replacing the Monkey –

By Kit Pharo

The PCC Discussion Group recently had a very interesting discussion that tied in very well with the “Woe is Me” article in last week’s PCC Update.   While most people know what they should do, very few actually follow through.   Why is that?   What prevents most people from making the changes they know they should make?  I will share a few high points from this discussion.

The discussion thread was started by Jim Gerrish, who is a world-renown grazing expert.   Jim discussed two clients he had worked with.   He helped one client double his carrying capacity and reduce hay feeding by 60% in just three years.   Since the infrastructure required to do this cost $36 per acre, this client essentially purchased another 8000-acre ranch for $36 per acre.   Rangeland in that area is currently selling for $1000 per acre.   That was a no-brainer.

Jim worked with another client who had a 30,000-acre ranch.   Jim said, “I am confident we can double the carrying capacity on this ranch similar to what we did on the other project.   Spread across the 30,000 acres, that is a stock water and fence infrastructure cost of less than $40 per acre.”   He went on to say, “That is the equivalent of buying another 30,000-acre ranch without closing costs, additional taxes, or all the other associated overheads for less than $40 per acre when the prevailing land cost in that area for similar rangeland is about $800 per acre.”   Although the client understood the possibilities, he decided not to go forward with the project.

Doug Ferguson, who lives in Nebraska and is a very active and outside-the-box contributor to the PCC Discussion Group, responded by saying, “Jim, I have spent several years studying the subconscious mind and paradigms – and how they affect our results.   I’ll try to condense what I have learned.”

Doug went on to say, “What you ran into with the second rancher is called the Terror Barrier.   He probably understood it, and gets it.   So, what is stopping him?   His old paradigm.   The old paradigm is what keeps us from doing what we know we should do.

“The second rancher has the knowledge and you gave him a simple plan to follow.   But then what I call the Monkey Mind kicks in.   The monkey represents the old paradigm – and that monkey talks a lot.   He’s going to put up one hell of a fight because he doesn’t want to be replaced by a different monkey.

“So, the monkey says things like: That’s a lot of money.   How are you going to pay that off?   What if there is a drought in a couple years and you have to destock?   What are you going to do then?   People will laugh at you because you spent all this money to increase stocking rate and you ended up destocking.   You’ll never be able to show your face in public again.

“The monkey may go a different route.   Fear of success: What if this works?   If your stocking rate doubles, where are you going to get the stock?   Can you afford to buy that many cows?   That’s a big risk putting all those dollars out there.”

Doug concluded this part of his discourse by saying, “The second producer was on board and fired up right until the monkey started talking.   Then he gets scared, hits the Terror Barrier and goes right back to his old paradigm – with results he is comfortable with.

“Paradigms are a multitude of habits.   Habits are hard to change.   That reminds me of a great quote that ties in with what Kit is always preaching, ‘In times of change, the learners inherit the earth, while the learned find themselves beautifully equipped to deal with a world that no longer exists’”

It is not easy to replace the old monkey.   It is a bit scary and a lot uncomfortable.   Nevertheless, monkeys must be replaced every now and then if we want to achieve true happiness and success.

Quote Worth Re-Quoting –

“Let us not be content to wait and see what will happen, but give us the determination to make the right things happen.”   ~ Horace Mann

“The cure for boredom is curiosity.   There is no cure for curiosity.”   ~ Ellen Parr

 

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.

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!

RMC’S TEN FUNDAMENTAL TRUTHS OF SUSTAINABLE RANCHING

  1. TRANSFORMING your businessBEGINS WITHTRANSFORMING yourself

    Transforming your ranch into an effective business involves changes in land management, animal husbandry, money management and in the way you interact with the people in your business. But the biggest change isn’t to the land or the animals. The biggest change is in you.

  2. IT ISN’T SUSTAINABLEif it isn’t  PROFITABLE

    Profit is to business as breathing is to life. A ranch that doesn’t produce an economic profit isn’t a business. It’s a hobby … an expensive hobby.

  3. FOCUS ON effectivenessNOT EFFICIENCY

    Efficiency and effectiveness are not the same thing. It doesn’t do any good to do things right if you are doing the wrong things! If something is efficient, but not effective, stop it immediately!

  4. GET IN SYNCHwith nature

    Most ranch businesses are structured to fight nature. That’s expensive and exhausting. Businesses that match enterprises and production schedules to nature’s cycles are more profitable, less work and more fun!

  5. YOU DON’T GET harmonyWHEN EVERYONE SINGS THE SAME NOTE

    In any business, especially family businesses, there are bound to be differences of opinion. Our decisions are improved when we bring different perspectives and ideas to the table and engage in constructive debate, as long as we agree that, at the end of the day, we all ride for the brand.

  6. WORK LESSand  make more

    Unsustainable effort is unsustainable. Period! Planning is the key to simplifying enterprises, increasing profit and reducing labor.

  7. RANCHINGis a business

    We often act as though we have a choice between ranching as a lifestyle or a business. The lifestyle of ranching improves when the ranch is a successful business first.

  8. WORK ON YOUR BUSINESStwo mornings a week

    It’s not enough to work IN your business, you must work ON your business.

  9. WEALTHY on the balance sheet& BROKE AT THE BANK

    The misallocation of capital is the biggest financial problem in ranching. At the Ranching For Profit School you’ll learn how to capitalize and concessionize assets to increase profit and improve the financial health of your business.

  10. RANCHING FOR PROFITis NOT an oxymoron

    Many ranchers seem to think that profit is dictated by prices and weather…two things beyond our direct control. Ranching for Profit graduates prove every year that the key to profit is management.