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Is Our Cow-Calf Business Model Going To Change?

This is kind of sobering and not real enticing to cow-calf producers, but cow-calf production from a financial standpoint has performed

This is kind of sobering and not real enticing to cow-calf producers, but cow-calf production from a financial standpoint has performed, over time, well below a CD at a bank.

The key to the system began with free land, which migrated to cheap land, and now rests on inherited land. Land appreciation is what has always made the system work, but land values relative to agriculture output have increased by such a margin that acquiring additional land is a course for only those with tremendous equity.

Census data indicate the average age of an ag producer in the U.S. is increasing, and we are coming up on a time when the majority of producers are facing retirement. In fact, BEEF magazine’s 2009 Readership Profile showed BEEF readers’ average age to be 58.4 years.

Tax laws and other considerations are going to mean that a lot of people are going to be looking to lease out their land, or they will be selling it to non-ag producers who may run cattle while waiting for the land to appreciate, or they may not run cattle on it.

Meanwhile, with incomes skyrocketing and positive cash flows abounding, farmland is in a different situation.

That means those who own or raise the cattle will increasingly not be the people who own the land. I've had the opportunity to look at quite a few operations’ financial situations over the last couple of years, and it is concerning.

We have had a very good supply-and-demand situation in this industry for the last 15 years; in fact, some would argue it was close to ideal. Even today, supplies remain tight.

These relative good times haven’t been huge homeruns for producers, however. Their deteriorating value propositions were masked during good times. The one thing the recession and the general economy are doing today is unmasking bad business models.

Perhaps our industry will simply continue to rely on inherited land bases or outside investors. But, if it does, the size of our industry will likely continue to shrink. I believe there will be a tremendous opportunity out there for those who can create a business model that works on a lease-land basis.