Nevada is a gambling state, but not when it comes to cattle. Therefore, profit management, not speculation, is the heart of “Inside Beef” — a risk-management course developed in Nevada for Western ranchers.
Participants use Inside Beef's understand-by-doing process to protect their retained ownership investments by feeding against futures contacts.
The course is a “virtual experience” in which ranchers can also use feeding performance and carcass data to determine where and when the profits are made or money may be lost.
Charlie Hone is a seedstock and commercial rancher who's using Inside Beef to assess his overall management scheme. He's beginning to make changes with the information he's getting back.
“Carcass data is still my main focus,” says Hone, of Gardnerville, NV. “I'm working on getting more consistency, particularly with a higher percentage of Choice carcasses.”
This is the third year Hone participated in the program, which is open to any rancher within reasonable distance of the InterMountain Beef Feedyard in Eden, ID.
“Even though my cattle were fed nearly 600 miles away, I got good feedback on how they performed,” he says.
He's also learned something about the more immediate risks and opportunities associated with retained ownership.
“Each year I've done this, I've made more money on fed cattle versus selling my steers at auction,” Hone says. “I made almost $200 more per head in 2001 than the previous year. It was tough at first to get used to putting off some fall income, but it's nice to get a check in the spring, too.”
A Learning Curve
“Hedging is a great marketing tool that can help producers stay in business,” says Ron Torell, Elko, NV. He's a livestock specialist with the University of Nevada Cooperative Extension and primary manager of the program. “The learning curve is steep, but hedging can smooth out the rough spots in year-to-year price variations.”
The reward for this year's 80 Inside Beef participants located in four states was more than just smoothing out prices. Consigning a total of 323 calves to the program, they increased their income by a net average of $43/head over selling weaned calves. Some ranchers realized as much as $188/head increase in profit.
“Cattle performance in the feedlot and on the rail was very good this year,” says Dan Hinman, Moscow, ID. Hinman is a University of Idaho livestock nutritionist. He co-teaches the classes and, along with Torell, was a producer-participant in the program.
“This whole business is not for the faint-hearted,” explains Torell, “And, it's also not a way to make a lot of money.”
“It's a bigger gamble not to engage in risk management,” points out Cevin Jones, Eden, ID. He's a commodity broker with InterMountain Beef and another manager of Inside Beef.
When producers ask if they'd be better off selling on the open market, he tells them to look at the bottom line.
“If you've locked in a profit, you've basically taken the risk out,” says Jones.
Understand The Markets
“Now that I've been through the program, I realize the futures markets aren't some kind of magic,” says Dave Forrest, Hughson, CA. He runs about 120 cows near Modesto and often gets frustrated because he's “just too small to be important.” Inside Beef has been the ticket for Forrest.
“I've been in this business a long time, but I understand a lot more about it than before I got involved with Inside Beef,” he says. “I want to stay in the cattle business, but I need it to be profitable. This program certainly helps me understand what's going on with the markets.”
Torell says Inside Beef participants learn to never look back if market prices are higher than the contract price at delivery time.
“The goal is to make a profit — not top the market,” he explains. “There will be times when the market is lower than the contract price.”
Forrest will consign 10 head to the program next year. Others might commit up to a truckload of calves. Different hedging practices are used, but when the calves are sold as fed cattle, owners keep the selling price minus expenses. Profits are returned to each participant on their individual animals.
“Inside Beef” is a holistic program, partially sponsored by the USDA Risk Management Agency.
“We teach producers the four components that enhance beef quality and profitability,” says Hinman. “They are genetics that lead to higher gain and grade; weight at placement date that impacts weight at ‘out’ date; health and vaccination strategies; and risk management that ensures a healthy profit.”
To get the most out of the program, Forrest must make an eight-hour trip to attend monthly Inside Beef meetings in Gardnerville, NV. But, he gains as much from the interaction with other ranchers as he does through the program itself, he says.
Like Hone, he's now in the habit of checking the close of feeder and fed cattle contracts daily. He says producers learn faster when it's their own money and property at stake.
“This is not something you can get from a book. To learn these things you need to get financially involved,” adds Hone. “We take enough gambles in this business. I want to learn everything I can to reduce as many risks and inefficiencies as possible. Inside Beef helps with every facet of my business.”
For more information on Inside Beef, contact Torell at 775/738-1721 or [email protected]; or contact Dan Hinman at 208/459-6365.
Alice Good, University of Nevada-Reno communications specialist, assisted with this article.
Breakevens Are The Key
To be successful with a futures contract, a rancher must know his or her breakeven costs, explains Willie Riggs, Nevada Extension educator and Inside Beef program teacher.
“When you can get a price above your breakeven at a reasonable profit, take the contract,” advises Riggs.
To determine breakeven costs, producers must know or closely estimate three values:
The annual costs (cash basis) of owning a cow. The value will vary from year to year and between ranches.
Determine the annual calf crop by dividing the number of sold or retained (including replacements) in a year by the number of females exposed for breeding.
The average weaning weight or market weight of the calves.
Using these three values, multiply the calf crop times the average weaning weight and divide into the annual cash cost/cow. This determines the breakeven cost/lb. of calf produced.
The following table shows breakeven costs for 12 production scenarios and four annual cash costs/cow.
For a more complete guide to determining breakeven production costs, download “Break-even Costs for Cow/Calf Producers” from the Texas Extension Resource Center's Web site. The site's URL is http://agpublications.tamu.edu. Or contact Texas A&M University at 409/845-8012.
|Calf crop percent/average market weight||lbs. of calf/cow||Annual cash costs/cow|
|Source: Texas Cooperative Extension|