My View From The Country

The Correct Balance Isn’t At The Extremes

Being low cost is a combination of efficiency and production. Using just one side of the equation leads to problems. We’re now seeing extremes as it relates to science; it’s about finding a balance.

When taken to an extreme or out of context, good ideas can find themselves in conflict, when they shouldn’t be. We’re all familiar with the sayings that “cash flow is king” and “it takes money to make money.” Both are valid, as a constant struggle for new or struggling businesses is having the cash available to invest in opportunities. Meanwhile, the number-one reason start-up businesses fail is a lack of capital.

These truisms are particularly valid in the cattle business because of economies of scale, as well as our industry’s capital-intensive nature, and the length of inventory turnover.

Business experts, bankers and financial consultants tell us we need to increase cash reserves, cash flow and sales volume gross and net. This isn’t just good advice, it is great advice! And we’ve seen a multitude of industries develop to serve this purpose by creating products that are designed to accomplish these goals.

These include the pharmaceutical industry, equipment manufacturers, seedstock producers, land-grant universities, feed/mineral/supplement manufacturers, and a myriad of consultants in veterinary care, nutrition, agronomy, marketing, etc. All these products and services cost money, but promise an increased value proposition.

Investing for value

I have that expensive antibiotic in my refrigerator, purchase semen from AI companies, and invest tens of thousands of dollars every year with breed associations. I do it because my investment in those products makes me more competitive and creates more benefit than their cost.

We look at the numbers and the research, and we make a decision to invest in a technology or not. Some work for us, some don’t. But it’s virtually impossible to imagine not having the use of these technologies to improve our bottom line.

Photo Gallery: Infographics Highlight Technology Efficiency In Beef Industry

Of course, there’s another side to the cash equation – one side is investment, and the other is waste. Some technologies don’t pay, or only pay in certain situations. Along with investing in good technologies, we’re also taught that we must be a low-cost producer.

I spent a great deal of time the last couple of decades looking at ways to lower costs and eliminate unnecessary spending. It’s probably a character fault, but I usually find myself going past optimum levels and having to correct.

At one point, I was running 300 registered cows while working full time, and I didn’t own a tractor, or even a safe working chute. I was low cost, but I was also sleep-deprived and failing to live up to my family responsibilities. I can’t tell you how many times I saved $100 and ended up losing $1,000.

I was on the verge of losing everything, because low cost at its extreme is not low cost at all. So, we now have a nice hydraulic chute, a feed truck, and an old but reliable loader tractor. While it’s difficult to quantify the economic impact of those purchases, we do know they’ve all paid for themselves many times over.

Of course, on the opposite side, I’ve also paid too much at times for something, or purchased something that didn’t return as it should. Being inclined toward the low-cost mantra, my mistakes were largely from not investing in the operation. There’s a huge difference between spending less and investing less.

My biggest failure in lowering production costs came as the result of benchmarking. I still believe in benchmarking, but only as a starting point to identify potential problems or opportunities. For instance, I would look at some average and conclude that I was doing well because I fed less harvested forage than average. Or, I would conclude that I needed to reduce my consumption of diesel fuel because I was using more than the average.

But looking specifically at my operation, I would discover that actually I was spending too much on hay, and being incredibly efficient with my diesel fuel usage. It was only when I went beyond benchmarking and began to really analyze various cost components, that I was able to make progress.

Some argue any expenditure is a bad expenditure, but everything must be analyzed in a broader context. Most things are a tradeoff and it’s the difference that must be measured.

The seedstock industry is a great example because it focuses on managing genetic antagonisms and the tradeoffs that exist. From time to time, this industry has sucked production out of cattle, which cost producers money. At times, we’ve also emphasized production to the point that the costs increased disproportionately to gains in value, which also cost producers money. Not surprisingly, the cattle with the lowest maintenance costs, and/or the cattle with the highest production/output, have almost always been the least profitable.   Being low cost is a combination of efficiency and production. Using just one side of the equation leads to problems. Similarly, we’re now seeing extremes as it relates to science; it’s about finding a balance.

Weighing the benefits

It’s become obvious that standing behind good science regardless of public perception can be problematic. However, the converse is also true – giving up good science in an attempt to appease the “anti-science” crowd can also cost the industry and its competiveness long term.

For instance, it’s become popular in some circles to preach against the use of growth promotants, or for the slowing of genetic progress. As an industry, we’d be better off, they argue. There is some validity to that opinion. Growth promotants do increase the pounds produced per cow, and thus reduce the number of cows needed. But the converse is that we become less competitive with the other protein sources; without changing demand, the loss of tonnage is offset by increased production costs and reduced margins.

When it comes to the technology argument, there are two facets. One is consumer perception, in which good science occasionally may be perceived as a negative and eliminated to meet consumer expectations for our product. But such abandonments of good science are the result of our failure to educate consumers. However, given the strength of the opposition, this sadly will continue to be the inevitable result for some good technologies.

Another Perspective: The Balancing Act Of Consumer Perception

The other side is that, while some might prefer the marketplace that existed before the introduction of a technology, once the technology has debuted, it’s tough to step back from it. Once it’s out, it’s out. There may be seedstock producers, for instance, who long for the days before EPDs, but there’s no going back anymore.

Really, the either/or debate over low cost vs. high output/quality, or the use of technology vs. traditional production methods, are just red herrings. They are mythological at their foundation because the conflict between them is a construct of desire not reality. The absolutism of either side has been proven to be false.

What we need are better tools to make decisions based upon science, as well as more proactive approaches to promote good science or understand consumer desires and demands. This will allow us to respond in a timely manner and avoid costly missteps. The correct balance won’t be found at the extremes.

Discuss this Blog Entry 2

Jim Sturrock (not verified)
on Feb 4, 2013

Thank you Troy for an excellent opinion. No matter what the business decision is, we will pay our dues in soft costs.
The question always boils down to which will have a lower direct and or soft cost impact upon the business with the factor of time as in net present value and in the cattle business where we are in the cattle cycle relative to moisture recieved . Soft cost a term Hughes has brought to the forefront that has to be put into the equation of net present values on cost comparison.

Darcy (not verified)
on Feb 6, 2013

Well written - as usual. My favorite sentence: "There’s a huge difference between spending less and investing less."

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What's My View From The Country?

As a fulltime rancher, opinion contributor Troy Marshall brings a unique perspective on how consumer and political trends affect livestock production.

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Troy Marshall

Troy Marshall is a multi-generational rancher who grew up in Wheatland, WY, and obtained an Equine Science/Animal Science degree from Colorado State University where he competed on both the livestock...

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