Cattle marketing during an economic downturn

Beef prices have ridden a world-class roller coaster in recent years, making profitable cattle marketing an enormous challenge. Prices peaked in 2014, going as high as they’d been in recent memory. However, they began a downward slide in mid-2015 before tanking through most of 2016.

cattle marketing

Troy Hadrick, pictured with wife Stacy, recently began doing things different when it came to his cattle marketing efforts. Those efforts helped him and other producers get through a recent run of the worst cattle prices the industry has seen in some time. (photo courtesy of advocatesforag.com)

Troy Hadrick is a producer from Faulkton, South Dakota, who rode the highs and lows in beef cattle prices, experiencing firsthand the challenges that low prices present. While fed cattle prices had rallied from October of 2016 into early this year, the business is cyclical and low prices will come around again. Hadrick said it is possible for beef cattle producers to make it through the down times, provided they’re willing to try new things.

There are a lot of theories as to why prices began a free-fall in 2015, falling at an unprecedented pace. Before prices got to that point, Hadrick says beef saw a perfect storm of conditions that drove prices to record highs in 2014. A large number of pigs in the U.S. had died of PED so pork production was way down. An Avian Influenza outbreak had pushed chicken and poultry production lower as well. Combine those facts with the lowest cattle numbers America had seen since the 1940s and you have the recipe for high beef prices.

“There wasn’t enough beef and protein to go around,” Hadrick said, “so our industry did what it always does. It responds and makes a bunch more of the product.”

But the number of cattle head in the herd doesn’t paint the full picture. It’s more about the pounds of product the industry produces. High prices meant producers were getting cattle as fat as possible to produce as many pounds as possible. The industry was at record carcass weight during the boom.

“We were producing carcass weights of approximately 850 pounds at that time,” he said. “Our recent carcass weights were around 814 pounds. So if we kill approximately 500,000 head a week, take that times 30 pounds a head, and look at the difference. The population stays the same as we’re killing the same number of head but the amount of product we’re producing is different.”

Needless to say, prices going from record highs to unbelievably low prices came down hard on the beef industry. There’s no doubt producers were pushed out of business as profits margins shrank to razor-thin levels. Theories ranging from oversupply to market manipulation abounded as the industry was under stress. Hadrick is very sympathetic to the plight of his fellow producers, having gone through the downturn himself. He does want to point out that if producers are willing to try new things, it’s possible to weather the downturns more efficiently.

Back in 2012, the Hadricks began changing their breeding and marketing programs for their cattle. There are different grades of beef and those grades are priced differently.

 

 

Higher quality beef demands a higher price because there’s less of it available. There’s a good demand for higher quality beef because it tastes better.

“We started shooting to produce cattle that would give us the beef that would qualify for these premium programs, such as Certified Angus Beef and USDA Prime,” he said. “If you produce cattle that fit into those categories then you get a nice premium price for your product.”

They did a couple of different things to try to speed up the process of producing premium beef. The family implemented an AI program on the ranch that covered the entire herd, using the best genetics they could find on the market to help them produce the highest quality beef. There’s a lot of data being collected on sires and they looked for the bulls that could get the job done.

So, with that as their focus, here’s where they did something different from what might be considered the ‘norm’ in beef production. Their cattle go down south to be finished but the Hadricks retain ownership.

 

 

“Those cattle are then marketed on a grid,” Troy said. “They harvest those cattle, they hang on the rail, and they’re graded by a USDA Inspector. Based off of that grade and the weight, that’s how the price we receive is calculated. We don’t know the final value of the cattle until they’re hanging on the rail as meat.”

Obviously, there’s a risk of being discounted when you market on a grid. The actual grid is just like other grids you may have seen. For example, if a particular animal graded Prime and was a Yield Grade 3, you follow those two columns and where they meet, that’s what the price was that week for that animal and that’s what we’re paid.

“We started our program with AI and then combined it with genomic testing,” Hadrick said. “We would take DNA samples from some of our cattle, get it analyzed, and that would give us an indicator as far as which cattle would perform well on the grid. We’d also keep back those females that would produce the best calves.”

Between those two technologies, Hadrick said their production went from grading 90 percent Choice, 35 percent Certified Angus Beef, and no Prime, to cattle that finished 57 percent prime, and 100 percent Choice. Hadrick said producers get really good premiums for numbers like that.

“The nice part about it is it doesn’t cost us any more money to raise those cattle,” he said. “It doesn’t cost us any more to feed them, either. Of course, we have to get them bred, but at the end of the day, they’re worth more money.”

There is an additional cost with the genomic testing, but Hadrick says it’s worth it to them because the idea is to identify the cattle that are going to make the family money and those that won’t. They sort cattle accordingly and market those cattle accordingly.

The Hadrick cattle are harvested through a cooperative called U.S. Premium Beef. It’s a rancher-owned cooperative based in Kansas that owns parts of the National Beef Packing Plants in Dodge City and Liberal, Kansas. Hadrick said some visionary people put this idea together back in the 1990s.

“They wanted to give producers the incentive to produce better beef,” Hadrick said, “and they wanted food service businesses and consumers that need beef to be able to come and know they’re getting the highest quality beef. They also wanted to reward the producers that could give them the highest quality beef consistently.”

The grid system runs off what they call plant average. Hadrick said in order to get the premiums, producers have to bring in cattle that are better than what everyone else brings in. That can be a big challenge as they’re attracting a lot of cattle that are high quality right from the start.

The plant isn’t buying cattle from the Hadricks, but instead, they’re buying carcasses. Hadrick said that makes it much harder for producers to try to sneak a bad one through the plant. There’s no hiding a poor carcass once the hide comes off.

He said the new system has advantages from the traditional way of doing business in the cow/cattle industry.

 

 

“On the farming side of things, we got into ethanol, we got into crushing soybeans, in order to get our product closer to the end point,” he said. “The closer you sell your product to the final consumer of your product, the more you’re going to get for it because you’ve added some value to it.”

He said doing business this way isn’t easy. Producers have to manage risk more, they have to have a relationship with the packer, and with the feedlots they work with. Producers also have to know their cattle because they won’t get away with trying to slip a bad one through the chain.

“If you market average cattle, you’re going to get an average price,” Hadrick said. “We’re trying to do things a little differently to do things better.”

The crop insurance battle continues

Crop Insurance

Here’s a photo of winter wheat in western Kansas buried under a snowstorm last weekend. Crop insurance is an important product for farmers in times like these. (Photo from the High Plains Journal)

WHEAT GROUP TWEAKS HERITAGE OVER BLIZZARD DAMAGE: David Schemm, president of the National Association of Wheat Growers, wants representatives of The Heritage Foundation and taxpayer watchdog groups that criticize the federal crop insurance program to witness the damage a spring blizzard inflicted on fields in Kansas, the country’s biggest wheat state, over the weekend. The storm, which dropped a foot to 17 inches in places, hit eastern Colorado, parts of Nebraska and the western part of Kansas, where NAWG estimates it destroyed 43 percent of the state’s winter wheat crop. The timing couldn’t be worse, as wheat farmers are already reeling from several years of extremely low prices.

“From their rhetoric, they would say a lot of farmers will go bankrupt and that’s how it’s supposed to be,” Schemm said of taxpayer groups and the conservative think tank on Tuesday as he surveyed his 4,500 acres of damaged wheat in Sharon Springs, Kan. NAWG had earlier tweeted: “A late season blizzard puts 43% of Kansas’ planted wheat acres under 14 inches of snow. @Heritage how would you handle w/o #cropinsurance?”

About 7.7 million acres of wheat in Kansas – more than 90 percent – are covered by a crop insurance policy, a liability amount equal to $1.1 billion, NAWG estimates based on USDA’s 2016 data. Most of those policies protect against revenue losses, as opposed to just drops in yield, the group said, making an important distinction.

Heritage’s two cents: It’s not true that the Heritage Foundation is against all forms of crop insurance, said Daren Bakst, the group’s research fellow on agricultural policy. “On the yield side, we should be covering deep losses,” like those experienced in the recent storm, he said. “Other risks farmers should be managing on their own.” Heritage did call for eliminating crop insurance policies that guarantee revenue when it released a 65-page paper – which Bakst edited – on managing risk in agriculture last year. Pros, read the report here.

Here’s the podcast recapping the damage in Kansas as well as some better news regarding rebuilding after the wildfires that raged through the plains states:

Kansas/Oklahoma wildfire areas bouncing back

On this next edition of the ChadSmithMedia podcast, I had a unique opportunity to visit with a woman named Sandra Levering, a cattle producer from Comanche County in Kansas.  If that rings any kind of bells, it’s because they were part of a large area on the Kansas and Oklahoma border affected by the biggest wildfire they’d seen in that area’s history.  It burned roughly 400.000 acres.  Thankfully, there was no loss of human life, but livestock was badly affected as was a lot of pasture and grazing areas.

Kansas/Oklahoma wildfire areas recovering

A shot of the grass fires that roared through the Kansas and Oklahoma border areas in late March. It totaled nearly 400,000 acres of land before it was put out. (photo from KFDI.com

The amazing part of the story is this:  With apologies to the movie Pay It Forward, that’s just what the situation turned into.  Levering was one of the folks who took it upon themselves to coordinate aid to those farmers who needed it.  They brought in loads and loads of hay to help feed cattle that literally had nothing.  Loads of people came down from the north to help with repairs, including a whole lot of fencing to put up.

The one thing I want you to remember is this:  If you hear a so-called “expert” tell you that farmers don’t care for their animals, listen to the emotion in Sandra’s voice when she spoke about the animals that were badly injured in the fire.  You’ll either change your mind or have to check your pulse to make sure you’re still alive.

Kansas/Oklahoma wildfire areas are recovering

Harvey County, Kansas lands that were burned by a 400,000-acre wildfire in late March. Recovery efforts are well underway, and reports of green grass growing in the affected areas are starting to come in. (photo from ksn.com)

She is out in wide open spaces, so her cell phone dips a little, but I think you’ll get the gist of what’s happening and how that area has slowly begun to bounce back from a horrible tragedy.  After all, as she puts it, “In agriculture, we don’t wait for the government to come help us, we do it ourselves.”

 

 

 

Ag businesses working hard to find labor

The nation’s unemployment rate remained steady through January at 4.9 percent. The US Department of Labor said over a half million workers were discouraged, meaning they had quit looking for work because they believe no jobs are out there for them.

Businesses across the agricultural spectrum want those folks to know there are jobs out there. Ag is having an especially hard time finding skilled labor, and businesses in Nebraska and Kansas are taking some unusual steps to find the help they need. Those steps include tuition reimbursement for students as well as hiring their first corporate recruiters to build relationships with those students.

Ag businesses working hard to find skilled labor

Landmark Implement of Nebraska and Kansas is taking unusual steps to overcome a serious shortage of skilled workers in the Ag labor force. (Photo from Twitter.com)

“My responsibilities are twofold,” said Deanna Karmazin, the new Corporate Recruiter at Landmark Implement, a John Deere dealer. “We have 17 dealerships across Nebraska and Kansas, and I’m trying to fill our open positions. Those positions include service techs, people at the parts counter, and people to work in wash bays, do the maintenance, and such.

“The second part of it will be to work with high school Ag programs and tech programs across Nebraska,” Karmazin said. “We have to cultivate a workforce. I’m trying to identify kids that would like to enter the field of diesel technology, or precision farming, get them under the Landmark umbrella, get them sent off to school and guarantee them employment.”

Deanna knew going into her job that labor would be hard to find. What she didn’t realize is that there just aren’t many young people that understand agriculture.

“You might have some that know how to work on engines,” she said, “but they really don’t understand what a tractor or combine is. They may not even understand the agricultural lingo.”

Stories abound regarding the “graying of production agriculture, i.e. farmers.” But even businesses that serve Agriculture are having a hard time replacing some of their older workers when they decide to step away.

“It’s been very tough for us to find skilled labor,” said Rick Kloke, the Corporate Service Tech Supervisor at Landmark. “In a lot of ways, it’s one of the biggest things that limits us in terms of being more productive. It’s not tooling or internal resources, it’s just the manpower to get jobs done.

Ag businesses working hard to attract skilled labor.

250 High school students exploring careers as John Deere technicians at SCC Milford, Nebraska. (contributed photo)

“In south-central Nebraska (Hastings dealership,), we tend to bring in people with strong agricultural backgrounds,” Kloke said. “We’ve lost a fair amount of guys who want to go home and see if they can make things work on the family farm.”

He added, “Some guys are successful, but some are back within a few years. Losing guys will create a big void for us. Even the guys that come back have fallen behind after a few years because the technology has changed so much.”

As a corporate recruiter, Karmazin has a lot of tools she uses to develop relationships with people and organizations that can help her grow their workforce. Internet options for advertising jobs include their own website as well as careerbuilder.com. She said the rest comes from word-of-mouth. She said people in small towns generally have the best ideas about top potential candidates.

Chambers of Commerce within cities in Nebraska and Kansas also makes good sources, especially when they host job fairs.

“As our workforce has aged out, Ag hasn’t done a good job of succession planning for the next generation of workers,” Karmazin said. “Also, things have changed so much with tractors and other equipment running on computers now. We’re looking for a different type of laborer than in the past.”

Once the recruiting process singles out good candidates, Karmazin said Landmark Implement is taking another step to cultivate their workforce.

Ag businesses working hard to find skilled labor

Jim Cope is a senior at Springfield Platteview high school in Nebraska. He is one of the students LandMark is sponsoring through the John Deere tech program. He will start college in October.  (Contributed photo)

“We will sponsor them through the John Deere Tech Program at the Southeast Community College campus in Milford, Nebraska,” Karmazin said, “or anywhere there’s a John Deere tech program. They become certified John Deere technicians. They’ll be working on all the older and newer equipment, and have all the diagnostics for John Deere.”

She added, “Once they’re in there, they’ll understand all of the equipment from start to finish.”

Landmark will offer students a paid shadow experience. They’ll pay the kids for between 60–90 days to do career exploration to see if it’s something they want to do before they get into any of the tech programs in Nebraska or Kansas.

Students also get on the job experience and a paycheck while they go to school to learn. When they graduate, they’re guaranteed a job at any of the locations, plus, the company will help pay their tuition.

“We take their tuition (minus housing) and prorate it every month,” Deanna said, “so every month they work for us, they take off a part of that debt. If they stay for 36 months, 100 percent of their tuition will be paid off completely in three years.”

The program has been going on for a few years, and it’s been very successful so far.

“We’ve gotten some very good people out of it,” said Rick Kloke, “and several of them are destined to be more than shop floor technicians. I see some future leaders in that group.”

 

 

 

 

 

 

 

 

 

 

 

Diesel prices head lower, but for how long

Diesel prices have been trending lower for a couple of months now.  They’ve finally begun to follow gas prices lower at the pumps, but the big question is this:  How long can diesel and energy prices in general trend lower?  It’s a big question at this time of year for farmers who want to start contracting ahead for spring needs in 2015.

As part of a story assignment for the Midwest Producer newspaper, I caught up with Tracy Haller, the Energy Procurement and Marketing Manager for Farmway Cooperative in north central Kansas.  She said it’s hard to know what’s ahead without a crystal ball, but in the short-term, prices may continue to soften, but there will be a definite price floor for crude, and you’ll know when it hits.  Give a listen to my weekly podcast:

Tracy is the Energy Procurement and Marketing Manager at Farmway Cooperative, with 37 locations in north central Kansas (photo from www.farmwaycoop.com)

Tracy is the Energy Procurement and Marketing Manager at Farmway Cooperative, with 37 locations in north central Kansas (photo from www.farmwaycoop.com)

 

 

 

 

 

I would absolutely love to hear any ideas on podcast stories and guests you’d like to hear from on my website.  Please email me at chadsmithdad@gmail.com