When federal officials finally get around to declaring current financial straits a recession and your weaned calf crop loses 10% of its auction-market value in a single week, as it did in November, it's tempting to retreat from everything that hints at risk.
When system profits evaporate from $350/head to nothing in a couple of years, it's even more tempting to view risk management as preservation.
Mike Miller, Cattle-Fax chief operating officer, told BEEF Quality Summit participants in November that as recently as two years ago, the total system breakeven was $65-$70/cwt. The system here is defined as cow-calf costs, plus the costs of putting 200 lbs. on the calf after weaning and the final 550 lbs. on in the feedlot. At that level and time, Miller says there was about $350 profit in the system for the various sectors to divvy up. Now, the system breakeven is at least $90/cwt. (at least $10/cwt. more for natural programs), and there's no profit left to share.
Spun differently, in order to offset the increased costs to the system, fed cattle would have to be averaging about $122/cwt., Miller says, which is obviously a long ride from their current levels in the low $90s. Retail prices would have to increase 20% on top of the significant increases that have already taken place.
That's one reason more cow-calf producers will likely exit the business during the next couple of years, leaving fewer cattle — ultimately available at higher prices — for stocker operators and feedlots.
Now, consider that bringing a family into the current agricultural operation means figuring out how to milk another $500,000 in annual gross revenues from the operation, according to R.L. “Dick” Wittman of Wittman Consulting at Culdesac, ID. He was speaking at the recent King Ranch Institute for Ranch Management (KRIRM) Symposium about succession planning (see “You Replacing You,” page 58).
Compounding this reality, whether looking to expand or not, Wittman explains, “Only one-third of family businesses have a strategic plan, and only a third of those implement them.”
As committees and government continue to demonstrate, you can easily review, analyze and strategize yourself into nonsense and inaction, becoming the proverbial dog wagged by an assortment of tails. Flying without direction makes as much sense.
All kinds of invaluable strategic planning and risk-management resources are readily available, often at no cost, from land-grant universities, Extension and the like.
In simple terms, Barry Dunn, KRIRM executive director, describes strategic planning as the big picture by which cattle operations assess their current situation and resources, and examine their strengths, weaknesses, opportunities and threats. These lead to developing a ranch vision, then conducting what's termed a gap analysis — determining how far you are between where you are and where you want to go. Along the way, you develop strategies to decrease the gap. It also helps identify risks, the costs of taking them and the costs of avoiding them. More on this topic in the spring 2009 Cow-Calf Issue.
Such planning is like actually weighing individual calves at weaning rather than simply coming up with an eyeball average for the group.
Though one man's risk is another's sanctuary, it's too easy to view risk in these times as anathema, something to be avoided at all costs. If you've been in business long enough to suffer economic loss, however, you understand the irony is that focusing exclusively upon preservation rather than growth leads to the very thing you were trying to avoid.
As Danny Klinefelter, a Texas A&M University Extension economist, noted at the same KRIRM Symposium, “If the change and progress within a business isn't as fast as the change and progress outside of it, you're falling behind.”
Avoid risk intently enough and fall behind long enough, and there's nothing left to save.