I was giving one of those industry-trends talks the other day, and a lively discussion ensued about our industry’s changing structure, the impact of higher input costs, changing consumers, branding/marketing, and the impact of food safety, animal welfare, and the environment in a competitive global beef market. It was all going just fine, when someone asked the question: "What have you and your family done on your operation to prepare for these changes, and what changes do you anticipate implementing based on the changes occurring?"
I gave some generic answer that probably made it sound like we have far more of a strategic plan to deal with these changes than we actually do. Reevaluating priorities, focusing on value creation along with efficiencies of production, outsourcing tasks that others do better than we do, and doing a better job managing, measuring, and monitoring our progress in key result areas were some of the good-sounding tidbits I threw out.
As is so often the case, driving home I thought of how I should have answered that question. It strikes me that the most difficult thing is usually not discerning the direction of the industry or even anticipating the changes taking place.
Looking back – whether it be ethanol, DNA or branded products, or even political movements like animal welfare or global warming – we have plenty of lead time and the changes that are coming are pretty obvious. The difficult thing is to take a step back and ask yourself what such changes truly mean for your operation and the industry, and how you can benefit from them?
This is especially difficult for me when it’s a change I don't necessarily agree with. I know I'm not alone because we’ve seen the industry from time to time get sidetracked trying to stop a change that is in actuality inevitable.
I’d love to embrace a business model where I could send my kids to Ivy League schools off the income 150 cows generate; that simply isn’t going to happen. The reasons for that are economic and unlikely to change.
My mom always says you can't put the toothpaste back in the tube. I think that summarizes the most difficult challenge we face as managers of our own operation. It’s simply that many times we’re not honest with ourselves about the market and the business environment that exists.
A classic example is what happens after one has taken a beating on feeding a pen of cattle. You decide that on the next pen, you’ll pass on buying a $20/head profit in favor of hoping to recuperate your losses with a $200/head profit. Theoretically, that’s not impossible, and there’s nothing wrong with a goal of $200/head profit, but reality says it’s pretty unlikely. Problem is that if you shoot for that $200/head profit, you’ll likely pass on the $20 or even $50/head profit that the market may give you.
Today’s overcapacity in the feeding industry means there’s plenty of competition for feeder cattle, plus calf numbers from a historical perspective are tight. But what if I focused on buying a little better cattle, managing my risk better, hitting targets more consistently, etc.? I may be able to increase the margins pretty significantly in this way.
Embracing reality, including our own shortcomings, is the toughest thing we have to work on each and every day.