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Articles from 1998 In January


Appreciate the ups and downs

The cattle cycle is the single most important force impacting your beef cow profits. For years, the alternative economic booms and busts associated with cattle cycles have been a matter of great concern to the beef industry. Always the question arises as to why the beef industry cannot attain a sustainable animal growth number that would prevent the market price gyrations associated with changing cattle numbers during a cattle cycle.

The underlying force behind cattle cycles is the biological lag between the time cattle producers get the market price signal to expand beef production and the time they can actually do so - by which time prices have tilted downward, giving a new price signal to reduce beef cattle numbers. The biological lag is what causes cattle cycles and why we will continue to have cattle cycles.

The effect of this decade's cattle cycle on beef cow profits is illustrated in Figure 1. The decade began with reasonably good net returns from beef cows and then deteriorated in the middle of the decade. The 72 percent drop in average profits in 1994 down to a profit of $49 per cow certainly got the attention of North Dakota beef cow producers. Average profits deteriorated even more in 1995 to a loss of $28 per cow, and then dropped to a $51 loss per cow in 1996. In short, the three low- or no-profit years were right in the middle of the decade. This year, 1997, is proving to be the turnaround year. Profits are up and projections indicate that profits will continue to increase as we round out the rest of this decade.

This net profit pattern - high at the beginning of the decade, low in the middle and high again toward the end - is representative of a typical 10-year beef price cycle caused by a typical 10-year cattle cycle.

The Food and Agricultural Policy Research Institute (FAPRI) at Iowa State University and the University of Missouri publish a set of 10-year planning prices for the beef industry annually. Figure 2 illustrates FAPRI's most recent long-range price projections for Oklahoma 600- to 700-pound feeder steers. FAPRI projects that feeder cattle prices will trend upward through the yea r 2001, and then trend downward into the middle of the next decade. The driving force behind these price projections is the cattle cycle. For an expanded set of these price projections, click the "price analysis" button on my World Wide Web site at www.ag.ndsu.nodak.edu/cow.The key thing beef cow producers should note today is that these price projections suggest that we are now entering the upward portion of this decade's beef price cycle. Do you have an action plan to take maximum advantage of the favorable beef prices that lie just ahead of us? Or, will you be one of the many who will miss this profit opportunity? In my next article, I will share with you how some of my IRM cooperators are managing added profits from the cattle cycle.

Harlan Hughes is Extension Livestock Economist at North Dakota State University. He conducts educational programs for cow/calf producers and writes a biweekly market advisory column published throughout the western United States and Canada.

The Term Of The Century

Clark Willingham didn't inherit a ranch or a feedyard. Nor did he grow up in rural America. He entered the cattle business because he wanted to. He believes in the industry and has proven it by leading several organizations. It's this desire, drive and determination combined with a clear vision for a better, more profitable industry that he believes prepares him to lead the National Cattlemen's Beef Association (NCBA) into its next century.

BEEF talked with Willingham and he shared thoughts for the next century of beef production.

Some don't perceive you as a "born and bred" cattle producer. What makes your background, your career and your involvement in the cattle business right for the industry?

I'm in the beef industry by choice. My accounting and law degrees give me a business approach to the industry - one of the reasons I became involved with the Texas Cattle Feeders Association. I learned a lot about the industry from Ladd and Paul Hitch. They're farmers, cow/calf producers, feeders and at one time were involved in the meat packing business. They helped me learn industry traditions. I have a broad education on the segments of the industry. Every weekend I'm in Dallas, I try to go to my feedlot north of town. I've been blessed with family and partners that have allowed me time to spend for the industry.

What makes you qualified to be president of NCBA?

It's the experience I have on the dues and checkoff side of the industry. I was president of the Texas Cattle Feeders Association and the Texas Beef Council. I've also served on the board of the Beef Industry Council, National Live Stock and Meat Board and the U.S. Meat Export Federation. And, I served as president-elect of the National Cattlemen's Association prior to the merger and have done so again as president-elect of NCBA.

NCBA is experiencing some growing pains. What are your primary goals to remedy them? The primary goals for NCBA after the merger were to gain greater efficiency and focus. We've achieved both. All offices and the U.S. Meat Export Federation (MEF) are working in the same direction following the same long-range plan. This has allowed us greater efficiencies throughout the organization. We're more efficient on the support staff level, too. We're executing more programs than before because we've moved some people from administrative positions to program positions, primarily in accounting and meeting staffs. Now, we have one accounting staff, one communications staff and one meeting planning staff. Meetings are probably the biggest area where we're saving money because we don't have four organizations having four meetings. Plus, state organizations have saved money because there are fewer meetings that staffs and volunteers must attend.

What type of support is available for these goals?

The concept of greater focus and efficiency is one which anybody can buy into. Yet, it's also harder for people to see. Much of our improvement is in administrative functions that aren't highly visible. Duplicate administration has been cut. The merger wasn't about getting rid of any programs. It was about getting rid of duplication and getting the same personnel to do more programs. Allied industries are very supportive because we're operating the association with a businesslike approach.

What's the status of NCBA's operating income and expenses?

Membership numbers were down the first two years after the merger, but that was predicted. In 1997, membership dollars were up. We had a lot of naysayers when we first got into this, but that group is now saying the merger works. We're seeing more producer players come back to the organization because it's viable and can get things done for the industry.

Preliminary figures show a deficit on the dues side of $45,000 and a surplus of $2 million on the checkoff side. Overall, operations are very good. Revenue is better and we had some cost savings in overhead and program expenses. We've got a good system that allows us to adjust midstream and trim expenses if needed. Our financial goal is to break even. We're in the business of spending money for the industry and promoting it, not creating reserves.

How important are strategic alliances to the cow/calf producer, the feeder, the packer and the consumer?

Alliances continue to be very important. They're growing because the ones in existence have worked. Alliances are still the best way to get paid for value in cattle. If you sell them through a feedlot or auction barn, you're not going to get full value, especially if you've spent time and money improving your genetics. You need to get paid for your investment.

The customer determines value - the one who puts down cash for the meat. The only way for us to share in what the consumer pays is to have some sort of marketing system that's tied to what the consumer pays, not just live pounds per animal. I'm not in favor of integration, but we do need alliances to get the greatest value. We've got to find ways for the producer of better-quality cattle to get more money. If we all sell to the next segment on an average price, producers will never get the money due them.

Where do traditional marketing venues such as local auction barns fit into the future beef industry?

The auction barns are essential for the smaller producer to participate in value-based marketing. The livestock auction may become a facilitator for putting cattle together and sending them to the feedlot, but producers get carcass information, etc. The only way smaller producers can do this is if the auction barns put them into an alliance. If the auction barns don't do this, someone will. The Extension service and state cattle associations are doing this already in some cases. If you've got three head with good genetics, you should get paid for that. Alliances aren't just for big producers. Everyone needs to get paid for genetic improvement.

Where does NCBA stand on food safety issues, new policies, etc.?

Food safety must be priority number one for the entire industry. We're in a food safety coalition with USDA and other groups to create a character similar to Smokey Bear, called BAC. It's one component of an education program to educate people how to handle food properly. We have a coalition that grew out of the Hudson Foods situation, which Chuck Schroeder is chairing, that will try to find ways to prevent E.coli and pathogens in general from the farm through processing.

Discuss new product research in progress.

It's hard for an association to be the originator of new products. We try to be a catalyst to encourage private industry to develop them. As far as actual products are concerned, NCBA has invested money in the development of Beefeatas(tm), ROTISS-A-ROAST(tm) and RiteBite(tm) steak. We're in the process of getting different companies to market these products. We also have a $250,000 cash prize available for the best new beef product brought to market. We continue to partner with Sara Lee, Jimmy Dean and other food companies. New beef products are needed and we're doing everything we can to see they're delivered to consumers.

What's the status of the Brand-Like Initiative? How are members responding?

The membership in general is not in favor of the Brand-Like Initiative, but they're in favor of everything it stands for. It is new products, it is brand marketing. It hasn't sold, though I believe producers buy off on its individual programs. The idea of a brand-like initiative is thought of as moving too fast and we are moving extremely fast. The Brand-Like Initiative is simply going to be the catalyst to get private groups to do the things you'd do if your products were branded. There are a lot of programs in which producers are getting paid and these will continue to happen with or without NCBA.

Detail the results of the Beef. It's What You Want. consumer ad campaign?

Initial focus groups on It's What You Want are positive. Producer feedback is negative. I'm not sure where we go from here. We really don't have checkoff money to kick off a big advertising campaign. With the food safety issues we have today, we may refocus the advertising campaign and work on food safety until this issue is behind us. That decision will come from the annual NCBA meeting in Denver. My gut feeling is that we're going to prioritize more toward food safety, health and image rather than the current ad campaign.

What potential exists within export markets?

Food safety has a big impact on the export market. BSE (bovine spongiform encepthalopathy) and E.coli have affected this, but we are working to restore faith in the Japanese market. We'll have an increase in Mexico. Overall, we'll be down a little bit but the export potential is still huge. We must continue to work with MEF to take advantage of these markets. One of the keys is access and tariffs. Dues dollars are used to lobby to open markets as well as execute trade agreements. We have strong growth potential in the Korean market and most Asian markets. Mexico and Canada are our second and third export markets.

What primary items do you want NCBA to accomplish in 1998?

* We've got to get a handle on the food safety issue - that's number one.

* Second, is to enhance the positive image of beef from the nutrition angle. We want to educate consumers that beef tastes great and is also nutritious.

* Third, continue working on private property rights issues and tax relief.

* Finally, I'd like to see the industry move to value-based marketing. The big changes in product quality will only come when we get paid for what we produce. Those at the bottom end of the quality ladder will stop producing lower-quality beef and the overall quality of cattle will go up. Those producing better-than-average cattle will get more money and those producing lower-quality cattle will get paid less.

As the 100th anniversary of a national cattle producers' organization, 1998 is a milestone year. What's the national organization's most significant accomplishment of the past century?

If you look back at 1898, the problems sound the same as today. The reasoning in 1898 was that we can do more together than we could apart. It's working together for the common good - we've gotten rid of brucellosis and other health-related maladies. Consider the regulatory items we've accomplished or stopped in Washington. That's an example of what we can do as an association. We need a national association because we've got national issues.

What factor in today's industry gives you the most hope for a continued viable industry? What factor is the most discouraging?

It's encouraging that people like the great taste of beef. Can we improve it? Sure. We've got the people and the resources inthe industry to get it done. The naysayers are the ones not willing to get with it.

Our fierce independence is both our greatest strength and weakness. What's discouraging to me from the producer standpoint are the negative attitudes and the lack of willingness to try to change. The consumer is changing and we've got to meet these desires. Also, it's the bad press we get and the myths told about our product. It seems anti-meat groups have great relationships with consumer media throughout this country. We've got the programs to try and combat this and we're using them.

Environmental and anti-meat groups are using the courts more as a means of achieving their agendas. The cattle industry seems to lack effort and resources in this area. Is this important?

Litigation is definitely one of the tools we must use. That's why NCBA formed the CATL (Cattlemen Advocating Through Litigation) Fund. The industry as a whole hasn't supported that effort. Very little money has been contributed and most dollars have come from the association itself. This will continue to be a big priority for NCBA. I hope the industry sees the importance of this and contributes more. We've had some wins, including Iowa producer Wythe Willey's court victory regarding inspection inequities, but we need more.

If all power were concentrated in your hands, what would your first three decrees be for the industry?

* All producers would follow a quality assurance program.

* All finished cattle would be purchased by packers on a value-based system.

* All producers would be members of NCBA and their state associations. If we'd do that, we'd have the dollars and the clout to work on other industry issues.

Seek, and you shall find

In the cattle business, producers who hunt opportunity come out on top.

Making money in the cattle business can be a real challenge. Successful producers look for opportunities to make their business profitable every day. As these producers analyze their individual operations, most realize that effectively managing resources is key to long-term productivity. In their quest to make efficient and sustainable use of available resources, top producers turn to Integrated Resource Management (IRM).IRM is a process designed to improve the economic efficiency of cattle operations through effective resource management. >From their inception, IRM programs have proved capable of getting the job done for progressive cattle operations across the country.

National IRM projects range from the development of the IRM Redbook, a simple tool that revolutionized record keeping (currently in use by over 100,000 producers), to sophisticated software programs such as Standardized Performance Analysis (SPA), which uses an operation's financial information to analyze an operation's key measures of profitability.Notwithstanding past successes, Integrated Resource Management has a great future. Now that producers nationwide use IRM management tools, implementation of the systematic concepts behind Integrated Resource Management offers tremendous opportunity for enhanced production and economic efficiency in an increasing number of cattle operations.

Each quarter, IRM News brings you suggestions, ideas and cutting-edge information on IRM, and highlights outstanding state IRM programs.Like any improvement effort, the success of an IRM program revolves around producers understanding the concept and taking advantage of the available information. The staff of IRM News and members of both the IRM Subcommittee and the National Integrated Resource Management Committee heartily welcome your input, and, more importantly, welcome your participation in continuing to develop the IRM program over the coming decade.

Get your 1998 IRM RedbookBe one of over 100,000 producers to keep effective records with the 1998 IRM Redbook. Order yours today by calling NCBA customer service at (800) 368-3138 and asking for item #12-900. Please have your credit card handy. Or, you may send a check or money order for $3.50 payable to NCBA, 444 N. Michigan Ave., Chicago, IL 60611-9729. If you're interested in multiple book orders, please ask about available discounts.

The Gambler

There are lots of ways to invest. You can put money in a bank savings account and earn a couple of percentage points. You can put it in bonds and earn 6% or more. You can put it in the stock market and, in recent years, earn 20% or more.

Or, you could put your money in ranching and perhaps lose your shirt - at least that's the way it sometimes seems.

So, if anyone asked which investment is better, the obvious answer is the stock market. On the surface, stocks win hands down. Ask Phyllis Gardner, who operates a combination cow-calf, farm and feedlot operation in Max, NE. "I really think if we'd invested the amount of money we had invested in our operation in the stock market, we would have been much better off, " says Gardner, an executive committee member of the National Cattlemen's Beef Association (NCBA).

But there's a downside. "We wouldn't have lived the life we lived," Gardner says. "We willingly made that trade. It's a wonderful life. I guess, if you wanted more material things in life, you would be doing something different."

So, you might make more money if you did something else for a living and spent your spare time playing the market. But then you wouldn't be a rancher. There's another problem. Even if you did opt out of ranching, you might not be able to invest in today's booming stock market. Many Americans don't have cash to invest.

And even if you had a high-paying job that allowed you to play the market, you might not earn the hefty returns you read about. You only get those kinds of returns if you pick the right stocks or mutual funds. There are still plenty of losers - stocks that go nowhere or mutual funds that lag behind the overall performance of the market.

Less Risk In Bull Market Still, if you picked well, you could probably do better on average in the market than buying a ranch, at least in the current bull market, which started in 1982.

"If you had an ordinary ranching operation, my gut feeling is that the return was better in the stock market," says Tom Creager, who was born into a ranching family and now manages individual investment portfolios at Pinnacle West Asset Management in Casper, WY.

But nobody knows whether today's hot stock market will last. "We've been in a bull market for a long time," says Roy Frederick, professor of agricultural economics at the University of Nebraska. "We can't expect the stock market will always be as vibrant as it has been in the last 15 years.

"If we have inflation, then the investment in fixed assets, such as ranches or feedlots, will probably be better than stocks."

Since the early 1950s, stock investments have averaged 12.44% returns, according to Standard & Poor's. But, there are times when the market stalls or goes into a free-fall. If you invest at the wrong time, your money just sits there, or you could lose your shirt. The 1929 market crash began the Depression. Stock prices overheated in the 1960s, setting the stage for the stalled-out market of the 1970s.

On the other hand, if you pick winners and ride out the ups and downs of the market over many decades, the returns can be fabulous. For instance, if an investor put $17.96 in the Standard & Poor's group of 500 leading stocks in 1936 and used all his dividends to buy more of the S&P 500, the investment would be worth more than $12,500 as of August 1997 (see Figure 1, page 72).

But such returns are easier said than done. The key to such huge returns is to pick winners, reinvest dividends in more stock and keep doing it for a long time without cashing out. Some investors pick losers. Others need the dividends to live on. And some investors are forced by necessity to cash out. Others lack discipline to weather the fluctuation of the markets.

Meanwhile, some ranchers may wind up rich even though they never put a penny in the stock market. How can that happen given the relatively low profits of ranching, and the potential for heavy losses when cattle prices plunge? The answer lies in land.

Land Is Still A Good Buy Over the very long haul, land has gone up and up. Of course, like stock prices, land prices periodically crash, most recently in the 1980s. But if you hold land long enough, your net worth may be substantial. Since ranchers seldom sell their land - if they don't have to - that asset tends to do well over the long haul.

Of course, land investments can be financially devastating if your timing is off, as those who bought just before the 1980's land price crash learned. If, on the other hand you paid fire-sale prices after that crash, the investment has paid handsomely.

For example, Nebraska ranchland has gone up only about 20% over the last 25 years, says Bruce Johnson, professor of agricultural economics at the University of Nebraska. But if you bought after the crash, it's a different matter. "If you looked at Nebraska in 1987, average non-tillable grazing land was $83 an acre. As of February 1997, it was $202 an acre, about a 132 percent increase."

The returns may be even higher for ranchland located in development corridors, such as Orlando, FL. The same goes for Western ranches in scenic hot spots, such as Jackson Hole or Buffalo, WY. One ranch which looks out on Wyoming's Big Horn Mountains sold to an East Coast executive for seven times its value as agricultural land.

But land is an asset ranchers can't spend if they want to be ranchers. As always, on paper they may be rich, but live in a mobile home and drive a truck with hundreds of thousands of miles on it. "It's a live poor, die rich kind of thing," says NCBA economist Chuck Lambert.

But most ranchers willingly accept their lot. For them, the bottom line isn't measured solely in dollars and cents. "For some people, there's much more of a turn-on seeing a nice ranch with green rolling hills than having a bank box full of stock certificates," says the University of Nebraska's Frederick.

Nebraska rancher Phyllis Gardner puts it this way: "I think the most gratifying time for ranching, other than when you get the check, is when the calves are born in the springtime and the pasture greens up and the calves are running around. That's when you think - 'that's why we're here.' "

Some producers think ranching and stocks don't mix. In fact, it's possible to be a successful rancher and profit from the stock market, too.

There are three key benefits of investing. First, outside investments avoid the pitfall of putting all your eggs in one basket. Should the ranch run into hard times, investments may offer quick cash to avoid foreclosure. Or, if the ranch fails, outside investments could provide funds for a new start after debts are settled.

Investments can also fund retirement. If you haven't invested outside the ranch, the alternatives aren't pleasant. You can sell the ranch for top dollar to your children to get the money you need for old age. But, that would saddle your children with a lifetime of debt. Or, if your kids can't afford to buy the ranch, you can sell the ranch to outsiders. Or, you can work till you drop, leaving your children with a big estate tax bill.

On the other hand, if you've invested well, you can afford to gradually give ranch assets to your heirs tax free under federal estate tax provisions.

This option offers the next generation a chance to start out with little debt. And if you die suddenly, it cuts estate taxes, since some assets have already been transferred. Jim Hendry, a central Wyoming rancher, took this route to gradually transfer ranch ownership to his son, daughter-in-law and two grandchildren.

Hendry was able to do so because he began investing in stocks after returning from service in World War II. Though he was only able to invest small amounts, he held on to his investments, allowing them to grow. And, he concentrated on blue chips, stocks in well-known companies with solid prospects. "Since ranching is so cyclical, a rancher should invest in something that is more or less stable and more or less free of risk," he says.

Over time, even very small investments can yield big profits. The trick is to buy good stocks which are likely to rise in value, hold them and reinvest dividends in still more stock. Over time, a small investment can double in value again and again, if you pick well.

Hendry cites a recent news report on Coca Cola, one of the top stocks of all time. A single share of Coke, purchased for $40 early in the century, would have turned into over $5 million if the shareholder held it and invested dividends in still more Coke shares.>SBThe Ranch As A Portfolio>BYDou g McInnis

The secret to making money in the stock market is relatively simple. Buy good stocks at a reasonable price, hold on to them and reinvest the dividends in more of the same stock.

Building a ranch isn't much different. The trick is to buy good ranchland, hold on to it and invest profits in more good ranchland.

Of course, few ranchers can invest all their profits in more ranchland. They need money to eat, make car payments and pay off their house. But if they can hike profits through good management and put some of the extra cash into building their ranch, the results can be spectacular.

Wyoming rancher Jim Hendry returned to his family's 9,000-acre ranch after World War II. Over time, Hendry and his son Rob acquired neighboring ranches as they went up for sale. Today, the Hendrys' Clear Creek Ranch has grown to about 150,000 acres, including federal land.

Hendry followed the same strategy with land that he did with his stock market investments - buy well, hang on to it and reinvest the profits. "Neither I nor my son has sold any land with the exception of 40 acres that was separate from the rest of the land," he says. "We followed exactly the same policy with regard to the ranch that we did with stocks."

Would you be better off buying a feedlot or putting the money in the stock market? At times, feedlots are probably the better buy. Feedlots, especially very large feedlots, can be highly profitable. But feedlots can also take their owners through a red-ink bath when the prices of fed cattle plunge.

"There's the potential for substantial profit, but also the potential for substantial loss," says consultant Bill Helming of Bill Helming Consulting Services, Olathe, KS. "It's a crap shoot. The last thing you'd want to do is paint a picture of feeding as high returns and no risk."

At the same time, Helming says, large feedlots offer much higher returns than ranching. "It's a very profitable business, much more than anyone realizes. The total return on assets in ranching is about four percent. That compares to 27 percent pretax in owning a feedlot." In addition, assets of large feedlots have been appreciating at 7% a year, for an average return of 34%.

So how can feeders make that kind of return and still lose their shirts?

The answer lies in the way large feedlots make money. The trick is to run a large, highly efficient operation with an occupancy level in the 90% range. The higher the occupancy level, the better the financial return on fixed assets.

To maintain high occupancy, large feeders put a lot of their own cattle in their lots. There's the risk. If the fed- cattle market is up, they can make $100-150/head. That's on top of the money they make running the feedlot.

But if the fed-cattle market plunges, they can lose up to $150/head, says Helming. Let's say you had a $6 million, 40,000-head facility which runs two cycles a year. You could potentially make $1.8 million a year on the feedlot side. But let's assume the feedlot owners also own 50% of the cattle in the yard in order to keep the occupancy rate up. In that case, the owners would take a $4 million bath on the cattle if they lost $100 a head. Thus, losses on the cattle ownership side would outstrip profits on the feedlot side.

"In a lot of ways there are more risks in feeding than in cow-calf operations," says Helming. "The returns are higher. But the risks are higher."

Should You Stash Your Cash Or Pay Off Debt?

Bob Dunaway

When you're sitting on a stash of cash, it's hard to be content to earn 1-3% interest on it in a checking account when you have loans that are costing maybe 8-11% or more. Should you pay ahead on the principal of loans when you have extra cash and cut your total interest cost?

"I hate to discourage anybody from pre-paying principal when their operation is profitable and they have some excess money available," says Bill Mayes, vice president of the Mercantile Bank of North Central Missouri at Shelbina. "But, I also like to see producers build some good liquidity in their operation so they have a reserve to let them sail right through market swings and price spikes that might go against them."

In the livestock industry, a pretty standard liquidity guideline is to have a current ratio of at least 1.5:1. Get your ratio by dividing your current assets (feed, livestock, cash on hand and anything else that you expect to sell or use within a year) by your current liabilities (debts that are due within one year, including the portion of long-term debt that is due within a year).

Mayes suggests that you may want to stretch that a little if you want to be even more sure you can weather market swings and price spikes. Then you might push that ratio closer to 2:1. In dollars, then, a good ratio might be $150-200 of current assets for each $100 of current debt.

"Where you keep your current ratio depends a lot on the operation and the overall debt and equity of the business," says Mayes. If you're highly leveraged, for example, getting into a squeeze on current debt could mean real debt trouble.

If you don't have a lot of other debt, of course, you have plenty of equity in your assets to hold you up. You can probably borrow against them for cash flow and to pay current debt if you have to. Then, a narrower current-asset to current-debt ratio isn't as dangerous.

Faster Debt Repayment If profit and cash flow are good enough to pay more toward principal, you can cut your interest cost dramatically.

Take, for example, a $500,000 loan at 9% with payments to be made over 10 years. Your annual payment will be about $77,910. Over the 10 years, you will pay back $779,100 ($77,910 x 10).

But what if you have profits and cash flow to pay $90,000 a year - an extra $12,090?

You could then pay the loan off in 8.043 years. Your total payments would be $723,870 ($90,000 x 8.043). You would pay about $55,230 less interest.

Table 1 (page 90) shows the dollars of annual payment required for each $1,000 borrowed at different interest rates and lengths of repayment.

Say, for instance, you plan to borrow $100,000 at 9% interest and want to pay it back over 10 years. Your annual payment would be about $15,582 ($155.82 x 10 years). If you could increase the payments to $19,869, you would pay the loan off in seven years.

(Bob Dunaway is an estate and financial planner and freelance business writer from Monroe, IA.)

Jack Frost Nipping At Your . . .

As anyone who weathered last year's bitter winter on the Northern Plains can attest, the negative effects of a tough winter can linger way beyond the coming of spring grass.

Those negative impacts might be of a financial nature due to expensive feed; a reduced cow herd due to death loss; or reduced cow condition that brings weak calves and poor rebreeding rates. They can also be much less obvious.

During any winter with cold and windy weather, producers need to be alert to the dangers of scrotal frostbite in bulls. Cold weather and/or wind chill can result in bull infertility the next breeding season by causing testicle damage and semen deterioration.

Duane Mickelson, DVM, a bovine reproductive specialist in the Veterinary Clinical Sciences Department at Washington State University in Pullman, says bulls need to be protected from winter winds and cold temperatures. The worst combination of elements, he says, is wind and cold.

"That's when bulls really need protection," he says. "Fertility soundness examinations should be done by your veterinarian before the coming breeding season if there is any chance that a bull's reproductive system may have been damaged by frostbite. And, any new bulls going into a herd should definitely be checked."

A Case Study In December 1964, blizzard conditions over much of the West caused serious frostbite in many herds, Mickelson says. A study done in eight states and the Canadian province of Alberta the following spring found that of 6,389 bulls examined, 14.4% had scrotal frostbite. Semen quality in those bulls was significantly inferior as well, he adds.

Defects in sperm were directly proportionate to the severity of the frostbite lesions, testicle adhesions and swelling of the testes. Older bulls, with lower hanging scrotums, were more frequently and more adversely affected than younger bulls. Mature bulls, Mickelson explains, are not as able to pull their testicles up close to the body to keep them warm. Yearling bulls were the least damaged.

Mating behavior was also adversely affected in many of the damaged bulls; some refused to service cows for six months following the blizzard. Several bulls were checked again later; those with the most damage remained permanently infertile, while others with less severe frostbite eventually recovered.

"Semen ratings are usually a good indication of whether or not a bull is damaged," Mickelson says.

The bulls with merely questionable semen quality after an initial evaluation generally have a better chance of recovery than those with obviously unsatisfactory semen, he adds. Several veterinarians in the 1965 study reported that testicle swelling was always associated with unsatisfactory semen quality.

Glen Coulter, DVM, head of the Livestock Sciences Section at the Lethbridge Research Centre in Lethbridge, Alberta, Canada, says "scrotal frostbite of bulls is a moderately common problem in cold winter climates.

"It usually occurs in bulls that don't have adequate dry bedding or protection from the wind," he says. "Minor scrotal frostbite involving areas one to two centimeters in diameter at the very bottom of the scrotum is common and generally has only a short-term detrimental effect on seminal quality."

Coulter says that the more severe the frostbite and the closer it occurs to the start of the breeding season - as in a late winter storm - the higher the probability that the bull's fertility will be impaired.

"The primary insult to testicular function occurs as a result of the heat produced by the inflammatory response, not the cold itself," he says. "Moderate to severe frostbite affecting 10-30% of the scrotal surface will necessitate a minimum of two months and perhaps as long as 12 months for recovery to restore normal fertility. That's if no adhesions occur between the testes and scrotum. If adhesions occur, the loss of normal fertility may be irreversible," he says.

Sensitive To Temperature Changes A bull's testicles are very sensitive to temperature changes. According to Cornelia Kreplin, bovine reproductive specialist with Alberta Agriculture, cold weather causes two extremes in temperature in the bull's scrotum. First, there is supercooling at the onset of frostbite.

"The second extreme is superheating as the frozen tissue thaws and inflammation occurs," she says. "Supercooling is typically short, while the superheating can last 10 days after the initial injury. Inflammation causes swelling and testicle swelling always produces lowered semen quality," she says.

Washington State's Mickelson adds that the extent and reversibility of the damage to a bull is directly related to the extent of damage within the testes. Some bulls exposed to extreme cold can suffer sperm damage even if they escape scrotal frostbite. He says that the incidence of unsatisfactory semen among bulls exposed to cold weather (even without visible evidence of frostbite) was higher than expected in the bulls that were tested in the 1965 study.

The weather conditions that caused problems that year were rain turning to ice and snow, accompanied by several days of temperatures lower than -10"degrees" F. In addition, winds were gusting up to 60 miles per hour. The wind chill factor was equivalent to about -70"degrees" F.

Bulls Can Recover Bulls can recover from scrotal frostbite, Mickelson says, if there are no adhesions in the scrotal tissue and if the sperm tract is not damaged. The lower part of the scrotum usually suffers first. This area remains unprotected when a bull draws up his testicles against his body for warmth. If there is damage to the epididymis (at the bottom of the scrotum), semen will not be viable.

After a cold winter, especially if there have been periods with wind, producers should check bulls for signs of damage. According to Kreplin, "blisters and scabs will be obvious for about three weeks after the frostbite happens. Scabs will fall off in about a month, leaving reddish-pin scar tissue."

If there is evidence of frostbite, check the extent of the injury, she says. In many cases, only the lower tip of the scrotum is affected and permanent damage to the testicles is not as likely in those cases.

If a testicle is pliable and appears normal, Mickelson says, there is a good chance the bull is not damaged. But if there has been serious freezing of the tissue, the scrotum will show signs of scarring. There will be a scabby area on the bottom third, up the back, where the scrotum has been exposed to the wind.

This kind of damage will prevent a bull from raising and lowering his testicles properly. If he can't move them up and down to compensate for temperature changes, he'll be infertile, Mickelson says, since sperm production and viability depend upon proper temperature.

Some Protective Measures Windbreaks and good bedding during bad weather can help prevent testicle freezing, Mickelson says. Bulls being trucked in cold weather should be protected, since traveling in an open truck creates a serious wind chill factor. Good bedding can provide insulation and protection since bulls won't have to bed on frozen ground exposed to the wind.

The best way to prevent cold weather damage, says Mickelson, is to make sure bulls have a place to get out of the wind. And, if there is any question about the fertility of a bull or the possibility of frostbite, have him checked by your vet.

Damaged testicles will produce abnormal sperm cells that will be obvious in a semen sample. Cornelia Kreplin of Alberta Agriculture recommends waiting at least 40 days from the initial frostbite before taking a semen sample to determine if sperm cell structure has been permanently affected. If the sperm-producing cells have degenerated or died, some of these abnormal cells will appear in the semen.

IRM FOCUS Colorado

Colorado IRM works to develop community based evaluations on economic issues that impact animal agriculture and rural communities in the past, present and future.

Evaluating the preparedness of previous IRM cooperators to deal with the recent lows of the cattle cycle has been a recent endeavor of Colorado IRM.

The program is currently in the final year of a five-year plan for competitive funding of applied research ideas from county agents and campus-based faculty.

Members of Colorado IRM work to improve profitability via research and application of appropriate technology.

In one operation, Colorado IRM enhanced range management strategies that reduced supplemental feed costs, improved drought management and reduced winter feed costs by 25% to 40%

MoonLighting: Western Hospitality

City slickers find unique experiences at Western Dakota Ranch Vacations.

When Lavon and Dorothy Shearer started their Western Dakota Ranch Vacation business they didn't know what the term "cash flow" meant. "You paid your bills and anything large was paid at the end of the year," Dorothy says. "But, we can't operate like that anymore. Our vacation business creates a cash flow and it means we have an income at a time when there often is no income."

To help ease the financial changes in the ranching business, the Shearers entered the ranch vacation/bed-and-breakfast (B&B) venture in 1989, with son Grant and wife Jodee. Since they live near world-famous Wall Drug, Wall, SD, tourists stopping there often asked local merchants where they could see a real-life ranch. Next thing you knew, they were headed out to the Shearers' 800-cow operation.

After spending so much time showing "westward-ho" travelers what ranch life was like, Dorothy says they decided it was time to try and make money from their good-natured efforts.

So, they started researching the ranch vacation idea and attending tourism conferences. "We had to figure out how to sell a product," Dorothy explains. "We had to learn a whole new language and needed to put packages together, like a three-day stay including meals, lodging and horseback riding. That way, people could begin to understand what we were selling. The South Dakota tourism folks helped us explain the ranch by using phrases like 'never-ending view, blue skies, etc.'

"The B&B concept had already been established and understood. What we needed was a way to be compensated for showing people around to see the ranch life," she says.

And that's exactly what they do. Although they're open year-round, from May to September they average about two families a week staying in their ranch home. That doesn't count guests that come just to ride horses or spend the day, nor the hunters they've hosted for more than 20 years.

The Shearers host large groups, too, like the Girl Scouts, who camp on the ranch near the Cheyenne River. They also host bus tours heading West and have even put up the president of Alitalia Airlines and his group.

Meals, Lodging And More The Shearers provide the setting, lodging and meals. Guests staying in the house get a full breakfast, box lunch and evening meal. Those camping normally get a chuck wagon dinner or supper prepared and served by Wes (a local ranch hand) on an authentic chuck wagon. "He loves the part and can be as ornery as heck if he wants to be. But, people like that," Dorothy says.

If guests want the full outdoor experience, they have the option of sleeping in a tepee, log cabin, bunkhouse, sheepherders' wagon or prairie schooner.

By the way, these tepees have some celebrity status. They appeared in the movie "Dances With Wolves," filmed in South Dakota. Besides helping with the ranch vacation business, Lavon's stable of buckboards, chuck wagons and horse teams have appeared in many Western movies with him at the reins.

Provide Variety Of Package Rates The Shearers have assembled several packages from overnight to week-long stays. For example, a five-day stay typically includes all meals, lodging, a wagon ride and chuck wagon supper combo, some horseback riding, a Badlands tour via car, participating or observing ranch activities, a night in the cabin or Indian tepee for $330/adult. A seven-day stay runs $450. And if you bring your own horse, they'll provide stalls and corrals.

For overnight stays, or the true B&B experience, guests get a night's lodging in the ranch home, cabin or tepee, and breakfast the next morning. It's $40 for singles, $55 for couples and $75 for private baths.

Although the ranch may seem remote to some, it's a 15-minute drive to Wall Drug, 20 minutes to Badlands National Park and 90 minutes to Mt. Rushmore or Deadwood.

The Shearer's five guest room, three-bath home lends itself to the bed-and-breakfast crowd. "Some people dream about traveling or buying new outfits. We always dreamed of building a new house," says Dorothy. "When our kids grew up and left, it was obvious we had something to offer. The bed-and-breakfast would help pay taxes on the house and justify a way for me to live in my dream home."

The Shearers get to travel without leaving home. "We've had people from around the world, like England, Finland, Germany and Japan stay with us," says Lavon. "People that come here are fun and apparently they think we're fun, too."

Western Dakota Ranch Vacations offers a variety of package rates and will tailor unique adventures for special groups. For more information contact Lavon and Dorothy Shearer, HCR 1, Box 9, Dept. B, Wall, SD 57790 or phone 605/279-2198.

NCBA's 1997 Stewards

There are no better examples of top-notch stewardship than those practiced by this year's National Cattlemen's Beef Association (NCBA) regional winners. Each recipient faced their own unique conservation problems and was able to not only improve their stewardship management, but make their ranch or farm more profitable. And that's really the goal of the seventh annual NCBA Environmental Stewardship Award Program.

"It recognizes those outstanding individuals in our industry who go the extra mile for the environment and are great representatives of our industry to those outside beef production," says NCBA President Max Deets, Beloit, KS.

This year's winners will be honored at the annual NCBA meeting in Denver February 4-7. There, the national winner will be announced.

The award is presented by a selection committee which includes the U.S. Fish and Wildlife Service, American Sportsfishing Association, The Nature Conservancy, Natural Resources Conservation Service, Environmental Protection Agency and the American Farmland Trust, as well as representatives from the beef industry and academia. This year's program is sponsored by Buick's Park Avenue automobile.

REGION I Ask Edward Williams his philosophy of raising cattle and his reply is simple: "I am just a grass farmer and the cow is my combine."

With that harvesting strategy, this Marion, KY, producer, along with sons Mark and Scott, manages a 100-head Angus and Gelbvieh seedstock business. They also run a 75-head commercial cow-calf herd on a forage-based environment.

"Improving our forages and vegetative cover not only improves productivity, but reduces erosion, runoff and is environmentally friendly," says Williams.

He's outlined his operational goals in four areas: soil, forages, grazing practices and water.

Each year, he soil tests all pastures and fertilizes accordingly - using animal waste as a soil nutrient source - and establishes legumes into pastures as nitrogen fixers.

Currently, Williams is adding legumes, like cinnamon red clover and lespedeza, to established tall fescue pastures. To date, about two-thirds of his 600 acres of pasture have been interseeded. He plans to complete seeding the rest of the pastures over the next three years. Since implementing the forage plan, Williams says the vegetative cover is thicker, reducing erosion problems.

To better use those forages, he's instituted a controlled grazing program. Williams started on 85 acres and has divided them into eight paddocks of five to seven acres each. Each paddock is grazed three to seven days, depending on the stocking rate, height of pasture, time of year and condition of cattle.

By using controlled grazing practices in conjunction with stockpiled fescue, he's been able to graze cattle from March until mid to late January with little or no supplemental feed. Over the past two years, that's saved him as much a $12,000 in feed costs.

Without a countywide water system or productive on-farm wells, the Williamses have fenced ponds and creeks and pump water to cattle. They've also added filter strips along waterways to ensure a cleaner water supply.

Since the Williamses have a thriving whitetail deer population, they started a fee hunting enterprise in 1996 to supplement their income. Wild turkeys were also introduced eight years ago. They've capitalized on another farm resource, too - timber. "I believe timber is a valuable resource that if managed well can be utilized as a source of income and still provide a habitat for wildlife," Williams says.

Triple W Farms annually hosts a beef and forage production field day to promote their stewardship practices.

REGION II Although Honeywood Farm had a conservation plan since 1962, it wasn't until six years ago that they accelerated their operation's management practices. Many areas of the 960-acre farm were simply showing the impacts of cattle, according to owner Ed Mitchell and manager Clay Allen.

Honeywood Farm includes a 300-head cow-calf operation and 100-head winter stocker program for farm-raised calves.

Continuous grazing led to large bare areas around hay rings, watering troughs, and shade and loafing areas, say Mitchell and Allen. Ponds were run down from free access to cattle. Dams had sloughed off back slopes and banks were bare and eroding.

Today, the Barnesville, GA, operation has a new look. Ponds have been renovated, and dams have been cleaned off, reshaped and revegetated. Also, new fences now restrict livestock access to ponds.

But the big change, say Mitchell and Allen, has been the move to rotational grazing. Honeywood has developed a 10-paddock system. Sixty-five acres (eight paddocks averaging seven to 10 acres each) are in a fescue/common Bermuda mix. The additional two paddocks are existing pastures that fit into the system for summer rotations. They use chicken litter as well as commercial fertilizer on paddocks.

Although access to creeks has not been completely restricted, the quality and health of streambanks has improved because areas in paddocks are rested and allowed time to regrow before cattle move in again.

Stewardship practices have allowed Honeywood to stock more cattle on the same number of acres. They also now feed less hay and prevent overgrazing and depletion of forages. Weaning weights have increased and pasture quality has improved with less continuous grazing pressure.

The farm is used as a training site on beef cattle best management practices (BMPs) for Natural Resources Conservation Service personnel.

"The installation of the practices (BMPs) over the past four years has improved the quality of the farm and made the management easier than the previous nine years that I've been farm manager," says Allen.

REGION III Dave and Lisa Lubben believe a formal business plan is an essential part of their Monticello, IA, operation. They've been writing one for the last 10 years to ensure financial stability with their 1,125 acres, 130-head commercial cow herd and 280-head feedlot.

"The business plan is a notebook I use as a guide for all decisions about the major facets of our operation," Dave says.

Their philosophy, he says "is to be in a continual learning process and analyze both personal and business growth to optimize strengths and reduce weaknesses."

Sustainable agriculture is a goal that fits well into their philosophy. The Lubbens use minimum and no-till practices on crop production acres, leaving more crop residue which helps retain moisture and control erosion. Stream crossings have been fenced to protect soil on banks and new water lines added to reduce wear and tear on crossing lanes.

Rotational grazing became a part of their plan in 1989 and has grown from seven paddocks to 16 major paddocks that are now subdivided into 50 smaller units with portable fencing.

The Lubbens experienced a severe tornado in 1995 which destroyed nearly half the trees on their farm. "In 1996 we began establishing a shelter belt within our grazing paddock system," says Dave. "We continue to plant trees to replace those lost by the storm."

To remain sustainable, they recycle old tires by turning them inside out and creating portable, almost indestructible feed troughs. "They work well for feeding silage and haylage in cornstalk fields during the winter," says Dave, who's even sold them to neighbors.

Dave summarizes his approach to farming and the cattle business like this: "If farmers moldboard plow a hill, nature will punish them with severe soil erosion. If farmers plan to have their cows calve in winter and a calf is born in a snowbank in the middle of the night, nature will prevail. Conventional agriculture works against Mother Nature; sustainable agriculture tries to work with nature."

REGION IV Wendell and Linda Vigen, Region VI winners, believe good stewards need to be able to work with the resources they have. And, they add, "don't be unrealistic and set your sights too high."

With 3,254 acres of rangeland and 590 acres of hayland, the Vigens started operating Vigen Ranch northwest of Killdeer, ND, in 1986. Since, they've helped the ranch's soil better absorb water in this semi-arid climate by adding three ponds, three springs, two water wells and two pipelines with tanks. These improvements provide more water sources for cattle and wildlife. They also reduce concentrated grazing and water runoff.

The Vigens have added more than 15,000 ft. of crossfencing that allows them to rotate and rest range. Five years ago, they instituted a twice-over grazing program to improve the plants, animals, water, air and soil quality. Since, they've improved the quality of grasses, weaned heavier calves and have increased their stocking rate 18%. They now have a 225-head cow herd and an abundance of wildlife, including mule deer, white-tailed deer, elk, turkey, sharptail grouse, partridge and pheasant.

Along with two neighbors, the Vigens have also started a "River Ranch Retreat." It consists of a rental log cabin on a small ranch located nearby on the banks of the Little Missouri. Although they manage the retreat for scenic beauty, they do allow bow hunting for deer.

REGION V Region V stewardship winner Tony Malmberg's Lander, WY, ranch is almost an open book operation. Sporting pure environmental and conservation measures, it's an educational stop for local school children as well as guests from around the world. Malmberg offers a ranch-recreation program where guests pay to stay and see firsthand stewardship in action.

"The main reason to implement sound stewardship practices is that it changes the way you look at yourself and your role as a steward of natural resources," says Malmberg.

After moving to the ranch in 1978, losing his father, and seeing his mentor and uncle leave a once-viable family business, Malmberg declared bankruptcy. By working on oil rigs and gold mines he began the process of repurchasing the ranch. In 1989 he resumed ownership.

Since the repurchase and attention to management, annual stocking has increased from 5,500 AUMs to 9,000 AUMs, a 60% increase in productivity. In order to sustain this level of use, traditional management methods and local customs were challenged.

Instead of a year-round cow herd, the ranch now is stocked in spring and summer only, with 900 pairs and 500 yearlings. While this change markedly decreased gross income, it radically decreased cost as well, resulting in more reliable annual net profit.

At one time, meadows highly dependent on irrigation were reseeded to native and adapted plants acclimated to water stress.

Decreased water demand has reduced irrigation, enhancing stream flows and improving riparian conditions. Grazing has been oriented to encourage beaver to build dams, in part by adjusting timing of grazing to eliminate hot-season use in riparian areas. As riparian conditions improved, diversity has increased 70% and bird populations have increased by 50%.

Vegetation management is a cornerstone of Malmberg's operation. Each of his 27 pastures is managed for specific community and plant types. Grazing rotations are changed annually to accommodate species diversity.

Riparian areas, for example, are managed primarily for native woody species, including willow, dogwood, chokecherry, aspen and cottonwood.

For the last five years, Three Quarter Circle Ranch has formed a Coordinated Resource Management (CRM) team consisting of federal agencies, state wildlife managers, hunting and ranch-recreation partners, educators and interested local citizens. The CRM team guides planning and management at the ranch.

REGION IV "I believe all cattlemen are environmentalists utilizing a variety of conservation and stewardship practices every day of their lives," says Region IV winner John Dunkin, Tulsa, OK.

Dunkin's operation combines the Rafter D Ranch at Hominy, with 1,750 cow-calf pairs, and 12,000-acre Dunkin Farms, 90 miles away at Wagoner.

At Rafter D he runs a three-breed rotational crossbreeding system using Angus, Hereford and Limousin. About 60% of the herd is fall calved, the remainder calve in the spring. "Dividing the calving seasons allows us to make greater use of the forage resources on the ranch," Dunkin explains. "It also spreads out our labor and offers us a wider marketing window each year."

Besides tillable acres at Dunkin Farms, it's also where weaned calves are sent for backgrounding. Dunkin says that with the two operations he's able to convert more forage to beef without reducing the carrying capacity at the Rafter D.

When Rafter D was purchased, there were over 1,000 acres of highly erodible land - abandoned fields from the Dust Bowl. Dunkin renovated these fields by sprigging Bermuda grass and re-establishing native grasses. That reduced soil erosion and added to the forage resource of the ranch.

At both the Rafter D and Dunkin Farms, incorporating clovers with the Bermuda grass provides a natural nitrogen boost. The result: a 15-20% increase in protein content of hay.

Dunkin also crossfenced pastures, allowing resting to control brush and timber which was suppressing growth of native grasses. And, he's constructed 689 ponds and lakes so the entire forage area of the ranch could be used.

"We applied controlled burning and closely monitored herbicide application," Dunkin says. "As a result, we were able to increase forage production and quality to the point that carrying capacity at the ranch has grown 143%."

At Dunkin Farms he's established more than 20 miles of terraces and drainage systems and over 10 acres of waterways. He's also constructed five miles (135 acres) of riparian areas near and along the Verdigris River. This has enabled him to till an additional 38% of the property. Coupled with reduced-till farming introduced in the 1980s, he's cut soil erosion from 15 tons/acre/year to less than 2 tons/acre/year.

While genetics and management play a major role, Dunkin claims environmental improvements help achieve a 95% calf crop (per cow exposed) and have boosted average weaning weights from 450 lbs. to over 600 lbs. during the past 25 years.

At the same time, wildlife (mostly deer, turkey and quail) and fish populations have flourished. That's also allowed Dunkin to generate additional revenue by offering hunting and fishing leases.