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Articles from 2003 In January


Wreck Avoidance

Have you ever truly considered what would happen if a foreign animal disease like foot-and-mouth disease (FMD) entered the U.S.? Not the billion-dollar industry ramifications, including the depopulation of whole herds to eradicate the disease, or the immediate loss of all export markets for all U.S. meat products — but how it would affect your own operation, even if your stock weren't infected?

“We would ask for a voluntary stop movement of all livestock in the U.S. and ask producers to immediately report any signs of the disease to the state veterinarian,” says Joe Annelli, director of emergency programs for USDA's Animal and Plant Health Inspection Service (APHIS). He explains that once FMD was confirmed — at a sale barn, for instance — state or federal authorities would implement the stop movement. Meanwhile, veterinarians would track down livestock that may have come into contact with the infected ones, test them and determine how widespread the infection might be.

Best case, the stop movement would be in place for three days, but it could last much longer. USDA officials point out even while a stop movement is in place in some parts of the country, movement by permit may be allowed within quarantine zones.

“Three days gives us a good opportunity to see clinical signs showing up, and we would have a good idea about the extent of the disease and what areas of the country might be infected,” says Annelli. “While the stop movement will hurt in the short-run, complying with it is in the best long-term interests of individual producers and the industry as a whole.”

Livestock producers in the Netherlands found that out the hard way a few years ago when classical swine fever infected the southern part of the country. Faced with a stop movement, producers loaded up their livestock during what became known as the “Night of Lights” and moved the animals to the northern part of the country where they could still market them. What happened was the entire country was infected and all movement was stopped.

Even so, stop movements in the U.S. would be based on voluntary compliance because state and federal officials know there is no way to enforce a mandatory one.

Producers — The Front Line

The bottom line is that time can be a blessing or a curse when it comes to diseases like FMD. Kill it in a hurry and you can avoid catastrophe; take too long diagnosing it, tracing it and managing it, and the disease can spread like wildfire in a high wind.

With that in mind, John Clifford, USDA associate deputy administrator of veterinary services, points out, “Identification is important in any trace-back system… Any type of ID system is going to help us in those efforts.”

While the lack of a standardized national ID system today doesn't prevent USDA from tracing animals, it can make tracking them slower than if such a system was in place. With a system, Annelli explains, “You can much more rapidly identify where the disease has been and where it's going.”

That's one reason the National Food Animal Identification (NFAI) Task Force recently recommended that the U.S. Animal Health Association (USAHA) develop a standardized national ID program to enable individual animal trace-back within 48 hours. That's also one reason why USAHA adopted the recommendations and requested USDA-APHIS to use the work plan in constructing a national system.

The preceding may look awfully flat on paper, but the fact that national organizations representing the major livestock species agree there needs to be a national ID system — which they did in order to compile the task force plan — is historic.

“For the first time, we have a work plan that we can build from,” says Neil Hammerschmidt, NFAI Task Force chairman. “As much as anything, the livestock industry has come to a point of agreement that we need to move forward with a national ID program.”

Among other things, the task force plan recommends a national system in which all premises and individual animals can be identified, not all at once, but over time.

This information, along with animal movements, would be recorded in either a central database or within a seamless multi-base infrastructure. This would allow trace-back of individuals or individual groups of livestock within 48 hours. Phasing in the complete plan over a period of several years is recommended.

As USDA-APHIS works its way through this with producer organizations, Hammerschmidt emphasizes, “One of the most important challenges is that we continue to move forward as a total livestock industry rather than as separate components of the industry.”

Industry organizations and other stakeholders will have an opportunity to review and comment on the national ID workplan through March 2003.

“This will allow livestock organizations time to review the plan at their respective conventions, board and committee meetings and to gather producer feedback,” says Hammerschmidt.

So far, producers can thank themselves and USDA for the fact — some would have said a far-fetched notion earlier this year — that FMD remains outside the U.S., along with other feared foreign animal diseases.

Success so far does nothing to minimize the threat, though.

Lunchtime Burger Under Fire

The traditional lunchtime favorite of a burger and fries is being replaced, according to a new report on America's eating patterns.

The NPD Group Inc.'s 17th annual report on “Eating Patterns in America,” — developed from a survey of more than 8,000 Americans — says the percentage of restaurant lunch orders that include burgers and fries has been declining the last four or five years. That's thanks to a new version of fast food at “fast casual” restaurants like Panera Bread, which specializes in cold-cut sandwiches on fresh-baked bread.

As this new version of fast food restaurants expands throughout the country and captures market share, traditional fast food places that specialize in burgers are losing market share.

“It's becoming a market share battle, and the guys that are doing a very good job right now are that lunch crowd of fast casual restaurants,” says Harry Balzer, vice president of the NPD Group's Food Consulting Service.

But, he adds, this doesn't mean America is tiring of burgers, as some folks have suggested. The report shows almost no change in ordering burgers at dinner time.

“Why would we tire of them at lunch but not at dinner time — if we were tiring of them?” Balzer asks.

On the home front, the report shows Americans' intentions of serving beef or burgers are about the same as a year ago, but consumption is declining because items like steak don't fit in with America's needs for an easy-to-prepare complete meal.

“American cooks, as they look at the need for tonight's meal, are thinking about all of the meal, not just one item,” Balzer says.

Cooking doesn't become easier if you have to make three or four items — such as potatoes, salad and bread, he explains.

“You can't just serve a steak for dinner,” he says. “At the moment you start preparing one of these meat products, therein lies one of the issues.”

In developing new products, the entire meat industry needs to start thinking about complete meals that are easy to prepare and serve, Balzer says. The beef industry needs to make its product part of a one-dish meal that provides everything Americans want — including the side dishes of vegetables and potatoes.

“We'd love to have this so that everything fits into one — one meal, one dish,” he says. “Clean one pot or one skillet and that's it.”

NPD's report also shows a 25% increase in serving frozen main dishes at home, compared to a decade ago. And it reveals that 10% fewer meals include a fresh item today.

To purchase the 300-page report — which reveals where food comes from, who prepares it, what appliances are used, the most popular foods at each meal, the types of restaurants growing in popularity and what menu items are ordered most frequently — contact Balzer at 847/692-1704 or e-mail [email protected].

Nexus Nervosa

Federal funding of land management activities on private property is coming into question over the concept of federal nexus. This ominous buzzword buried in the Endangered Species Act (ESA) has pinched a new wrinkle in the application of programs like USDA's Environmental Quality Incentives Program (EQIP). See story on page 50.

“While at this point, federal nexus is not worth losing sleep over, it bears very, very close watching,” says Myra Hyde, Washington, D.C. She is the endangered species subcommittee staff director for the National Cattlemen's Beef Association.

“When a nexus — or relationship created between the landowner and federal government — exists, we're seeing where the landowner may be required to enter into formal consultation with the U.S. Fish and Wildlife Service (FWS) before undertaking a cost-share activity,” says Hyde.

According to the ESA, federal agencies like USDA's Natural Resources Conservation Service (NRCS) are required to enter into ESA Section 7 “habitat effect” consultations with the FWS before undertaking actions with a federal nexus.

“Ag producers may acquire quasi-government status when they enter into agreements that require a federal authorization, permit, license or funding,” explains Hyde.

Under the ESA, “critical habitat” refers to specific geographic areas essential for the conservation of a threatened or endangered species. These areas may require special management considerations or protection. A critical habitat designation does not affect land ownership and only applies to situations where federal funding, authorization or land is involved.

Section 7 consultations have been a common occurrence around the country for many years. But, the nexus issue has blossomed recently with increased critical habitat designation and expanded federal farm programs.

How Deep Does It Go?

As the nexus issue swirls around the country, it's become especially volatile in southeastern Wyoming and adjacent areas of Colorado and Nebraska. There, a lawsuit filed by several private conservation groups and individuals resulted in a court-mediated settlement designating critical habitat for the Preble's meadow jumping mouse and the Topeka shiner.

The FWS maintains that critical habitat designation for the Preble's mouse would have little effect on the agricultural community as most activities associated with ag production would not have a federal nexus. It also explains that critical habitat designation does not affect situations in which a federal agency is not involved. For example, a landowner undertaking a project on private land that involves no federal funding or permits would not be affected.

But, what about projects on private land that do involve federal funding?

“That's exactly the question we've been asking — how deep does the nexus issue go,” says Matt Hoobler, Cheyenne, agricultural farm program coordinator for the Wyoming Agriculture Department.

“We're not trying to undermine what are very useful programs like EQIP,” he explains. “We just want to get some questions answered on behalf of private property owners as to what constitutes a nexus and who should ultimately make that determination.”

If there's anyone who needs to answer these questions, it's the FWS, says Hoobler. “The other federal ag agencies are asking the same questions of the FWS.”

The FWS says it's “automatic” that nexus exists when critical habitat is coupled with a voluntary NRCS program, Army Corps of Engineers water program, emergency feed assistance payments, various range and pasture management programs or a number of other federally-related activities.

NRCS maintains that their programs are voluntary at the request of the landowner. It also maintains that it has the authority to determine if a land management activity — or if a landowner's activity in any other federal program — will affect a listed species or its habitat.

FWS tested that authority this past fall when the agency made a nexus determination in the case of government assistance provided to Laramie County landowners through the drought emergency feed program.

“The FWS made a ‘will not affect’ determination in that case,” explains Hoobler. “The point, though, is that while that determination is good for Laramie County producers, the FWS is making the determination of nexus over a voluntary program.”

Wary Wyoming Landowners

Hoobler says it's critical that federal agencies come together to resolve the nexus determination issue. Meanwhile, some landowners are becoming wary about getting involved with government farm programs.

There have been instances in which landowners had to go into Section 7 consultation over projects that involve listed species — not even necessarily critical habitat for the species. In Wyoming's Goshen County, for example, an NRCS cost-share project came under scrutiny when it was found that Preble's mice might be present.

“The kicker is that NRCS made a ‘will not affect’ determination,” says Hoobler. “But, the FWS rejected NRCS's determination and has held up the project since late last summer.”

Thus, farmers and ranchers are becoming gun-shy. In Wyoming, EQIP funding and emergency feed assistance is being turned back because producers are afraid they'll be “in a nexus” with the FWS.

“The landowners are really becoming concerned about intrusion into their private property rights,” says Hoobler. “That's why we're working so hard to determine what constitutes a Section 7 nexus.”

Wyoming's endangered species coordinator, Jody Levin, Cheyenne, has been asked to pull the agencies together and get the nexus issue resolved in her state. But easier said than done — a nexus could open up a proverbial can of worms.

“The fear is that if we get very deep into this, it will open up the commodity provisions in the farm bill,” says Levin. “But, we need answers so federal conservation programs can be effectively continued.”

Environmental Stewards 2003

A devotion to practices that conserve land, water and energy and promote habitat for wildlife and a harmony between man and nature. That's what distinguishes winners of the 12th annual National Cattlemen's Beef Association's (NCBA) Environmental Stewardship Awards.

Each year in seven regions of the country, this award program recognizes cattle producers whose stewardship practices are inventive, cost-effective and contribute to environmental conservation.

A committee of representatives from university faculty, federal and state government agencies, and conservation and environmental organizations select the recipients of these awards. The program is sponsored by Dow AgroSciences.

At the 2003 Cattle Industry Convention in Nashville, TN, Jan. 29-Feb. 1, the beef industry will honor all seven regional winners, and NCBA will announce a national winner.

Region 1
Armstrong Farms
Saxonburg, PA

Improving the total ecosystem is the goal at Armstrong Farms, a centennial farm established in 1816 in Saxonburg, PA.

Once devoted to row crop production, the farm has been in the same family for six generations. Today, owners John and Kathy Allen run a cow-calf operation of purebred Black Angus and purebred Shorthorn cattle.

The farm has been redeveloped for production of quality grass and legumes. That forage base supports nearly 400 mother cows rotationally grazed for maximum efficiency.

Because preserving and enhancing the farm's wildlife habitat are very important, the Allens have participated in efforts to reintroduce the native barn owl. They've also created and fenced off a wetland area to support waterfowl nesting and migrations.

The farm also is participating in a research study to monitor wind velocity and determine whether windmills could be used there to generate, collect and store electricity. The system would use the electricity to pump fresh water from already developed springs to the cattle, and some electricity might be sold back to local electric suppliers.

Providing hunting and fishing leases, harvesting timber and operating a bed and breakfast bring in additional income for Armstrong Farms.

Region 2
Wakefield Farm
Hartwell, GA

The folks at Wakefield Farm, Hartwell, GA, aim to bring nature and man back into balance, says Asa Phillips. He and wife Julie established the 1,400-acre farm in the early 1980s.

Primarily used as a commercial cow-calf operation today, the land was once heavily used in row-crop production, losing an estimated 22 tons/acre of topsoil/year. The Phillips family has since reduced soil loss to less than one ton/acre by using conventional and no-till crop sequencing for forage production.

Achieving balance also has required fine-tuning the water quality, wildlife habitat, watersheds and other areas. They began fencing out streams and ponds about 10 years ago, and they have drilled nine wells to supply water for 30 concrete watering troughs.

Wakefield Farm worked with the Georgia Forestry Commission to develop a 10-year stewardship management plan, which includes conservation, wildlife and timber. And the farm participates in many research and educational programs through the University of Georgia, which is 45 miles away.

Region 3
Brad Z Ranch
Guthrie Center, IA

Being more efficient in using roughage to produce high-quality protein is a continuing goal at Brad Z Ranch, says Jim Bradford. He and wife Mary own the 1,000-acre ranch in Guthrie Center, IA, and say they have a responsibility to teach others how grass saves soil and how ruminant animals are vital to the ecosystem.

The Bradfords run a 400-head purebred Angus and 100-head purebred Gelbvieh operation, as well as a feedlot. They lease 600 acres of pasture and cornstalks for winter grazing.

To allow for rotational grazing, the ranch is divided into paddocks. Solar electric fences secure most of the ranch's ponds and streams from livestock traffic.

The Bradfords developed water systems to keep cattle away from fragile areas. And a windmill helps decrease the need for electricity to pump fresh water to cattle.

Brad Z Ranch is home to turkey, Canadian geese, pheasants and hundreds of whitetail deer, which feed on pastures and stored hay.

Region 4
Goodson Ranch
Blackwell, OK

Established during the first Oklahoma land run in 1893, the Goodson Ranch in Blackwell, OK, encompasses 2,600 acres of farmland and 3,700 acres of pastures overlooking the Arkansas River and Kaw Lake. Owned by Larry and Tom Goodson Cannon, the ranch includes a cow-calf and stocker operation as well as hay and grain production.

The Cannons have reduced their 400-head cowherd to 60 brood cows. This enabled them to convert to a rotational stocker program. Proper management of the program has increased biodiversity and improved production.

To minimize erosion and maximize surface water for cattle, the Cannons constructed 28 ponds, which also provide additional habitat for wildlife.

The ranch has implemented 100% no-till practices and regularly rotates among wheat, grain sorghum, soybean and corn crops. These practices have increased biodiversity, soil structure, yield averages and wildlife populations.

With primary grasses like native big and little bluestem, Indiangrass and Switchgrass, the ranch has worked extensively with the Tall Grass Prairie Preserve of the Nature Conservancy, as well as many other organizations, to learn and establish conservation and stewardship practices.

Region 5
Sieben Live Stock Co.
Montana's Big Belt Mountains

Located on the north slope of north central Montana's Big Belt Mountains, Sieben Live Stock Co. plays an active role in forest improvement. The Hibbard family, which owns and operates the ranch, selectively harvests timber as needed to reduce fuels for wildfires.

Established in 1907, the fourth-generation ranch derives income from cow-calf and sheep operations. It maintains a 1,900-head cowherd and 300 to 400 head of stocker cattle. Farming on a 10-year alfalfa/small grain rotation provides winter feed.

Rest rotation grazing has allowed for improved plant vigor, filled bare ground with plants, encouraged native grass species, prevented soil erosion and improved watershed. Cross fencing pastures into a deferred rotation system has reduced the impact of spring transitional pasture.

The Hibbards guide a few big game hunts and allow public hunting. Some oil and gas exploration has been done on the ranch. The family is also negotiating to install wind power turbines for income diversification.

Elk, mule deer, whitetail deer, antelope, coyotes, bear, fox, badgers and mountain lion are found and managed on the ranch.

Region 6
Y Bar D Ranch
Arizona's Prescott National Forest

When George and Sharon Yard established Y Bar D Ranch in 1991, the grassland and riparian wetland was run down.

“We made it our goal to bring this land back to a productive and environmentally sound state and to use cattle as a tool in doing so,” George says.

Mostly sustained on federal land in Arizona's Prescott National Forest, the ranch includes a 225-head, cow-calf operation and a small, privately owned farm operation.

Nine years ago, the Yards voluntarily removed livestock from riparian pastures and developed other management strategies for upland range sites.

To bring the ranch back to a productive state, the Yards implemented pasture rotation and constructed cross fences to take advantage of a rotational grazing system. They also cleaned sediment-filled water tanks to increase water facilities, and they installed a water well and pipeline to provide fresh water to additional areas. With no natural water supply for several miles, these facilities provide water for the deer and antelope herds that live on the ranch.

Region 7
Kelly Ranch
Nebraska Sandhills

Partnering with others has enabled the Kelly Ranch to achieve its production and environmental goals.

Located on more than 20,000 acres near the southern edge of the Nebraska Sandhills, the cow-calf and stocker operation has been in the family since 1885. Michael Kelly, who owns the enterprise with wife Cynthia, is the third generation to ranch the land.

The Kellys have enhanced the ranch with seven miles of cross fencing, 11 livestock water wells, more than 7,500 feet of livestock water pipeline, 12 new windmills and 19 new livestock water tanks. Some of these improvements have been funded through cost-sharing programs with the Environmental Quality Incentive Program and the Wildlife Habitat Incentive Program.

For livestock and wildlife windbreaks, the Kellys have planted more than 11,000 trees. And a rotational grazing system has increased available forages for livestock and increased wildlife on the ranch, too.

Social Security Basics

Many ranchers think of Social Security strictly in terms of retirement, unaware of the benefits available in situations of accidental sudden death or a long-term medical disability.

The vast majority of us won't have to take advantage of the disability or survivor portions of our benefits. But we all can profit from knowing exactly what our benefits are and considering them, along with other personal retirement resources, in planning for the future.

Let's begin by looking at how much we pay into the Social Security system.

Your Social Security contributions basically consist of Federal Insurance Contributions Act (FICA) taxes, which earners pay the government in exchange for financial assistance in retirement and disability, survivor and Medicare benefits. Think of it like insurance protection.

FICA taxes amount to 7.65% of earnings. Of that 7.65%, the Social Security portion is 6.20%. The remaining 1.45% is for Medicare.

  • If you're an employee and receive a W-2 form each year, you pay 7.65% of your salary in FICA taxes. Your employer then matches that 7.65% dollar for dollar up to the maximum earnings limit of $84,900 in 2002.

    If you earn more than $84,900 in 2002, you still pay Medicare taxes of 1.45% on all your earnings. But you don't pay the 6.20% portion on any earnings beyond $84,900. Remember, however, that the maximum earnings limit goes up each year.

  • If you're considered contract labor and receive a 1099 at the end of the year, or if you're self-employed, then you must pay the entire amount yourself. That amounts to 15.30% of your net self-employment income up to the $84,900 earnings limit. You also pay 2.90% (1.45% x 2) for Medicare on all earnings over the limit.

The reason for the larger amount for self-employed workers is that you're responsible for the entire amount since you have no employer to match your contribution.

Your Social Security Statement

Each year — about three months prior to your birthday — you should receive a Social Security statement at your home address (the address listed on your previous year's tax return. The Social Security Administration is required by law to provide these statements to all workers 25 and older who are not already receiving monthly Social Security benefits.

This four-page document lists your estimates of retirement, survivor and disability benefits. It's also an easy way to ensure your earnings or self-employment income is accurately posted. It's very important to check your earnings for accuracy since your eventual benefits are based on your lifetime earnings.

Confirming your numbers are accurate is particularly important if you've worked for an operation that's no longer in business due to bankruptcy. It's not uncommon for an employee to have a year of missed earnings from a bankrupt operation.

In such a case, you need to provide your original W-2 from that year to ensure you are credited for those missing earnings, even though the company is no longer in business. Not all bankrupt operations fail to report earnings, but some do fail to pay all their FICA taxes.

Social Security uses your entire earnings record to determine your benefits. For full retirement-age workers, this is the formula:

  • First, the highest 40 years of an individual's earnings are determined. Then the five lowest years of earnings are eliminated, leaving the highest 35 years to determine an individual's level of benefits.

  • Your wages are then indexed to current wage standards. Your 1975 earnings, for example, are probably considerably less than your income today. After indexing, they become much closer than you would think.

Upon receiving your Social Security statement, you and your spouse should review the benefits on your record. It isn't uncommon for a married couple that has worked together in a family operation to file all the self-employment income under the husband's Social Security number as a way to reduce tax obligations.

In such a case, the wife has worked for the business but was never paid a salary, leaving her with no earnings posted to her Social Security number. Without an earnings record, she's ineligible for Social Security benefits based on her own earnings record, and she may only be eligible for widow's benefits if the husband dies or spouse's benefits when they both reach retirement age.

If a tragedy strikes, such as death or disability, your spouse needs to be aware of the family's eligibility for Social Security benefits. The Social Security statements provide this information.

What About Retirement?

A recent national poll found that 75% of U.S. workers worry about not having enough money to live comfortably in retirement. This percentage is probably even higher among cattle producers, many of whom have experienced the equity drain of the past few years.

A financial advisor's rule of thumb to clients is that they will need about 70% of pre-retirement income to live comfortably in retirement. Social Security only replaces about 40% of an average wage earner's salary.

Currently, you can retire at age 62, even if your full-retirement age falls between 65 and 67. But the full-retirement age is increasing for those people born in 1938 and after.

If your full retirement age is older than age 65, (born after 1937) you can still retire at age 62. But the reduction in your benefit amount will be greater than those folks who reached full retirement age at 65. Here's how it works:

If your full retirement age is 67, the reduction for starting your benefits at age 62 is about 30%. It's 25% at age 63, 20% at age 64, 13⅓% at age 65 and 6⅔% at age 66.

As a general rule, early retirement gives you about the same total Social Security benefits over your lifetime but in smaller monthly payments. You have to take into account the number of monthly payments you will receive during your lifetime. Everyone needs to be aware of his or her retirement figures and check to see what benefits, if any, may be available at age 62.

The only other incomes that may affect your Social Security retirement benefits are wages or self-employment income. Everyone should strive to have other sources of retirement income such as investments, individual retirement accounts (IRAs), personal savings and/or 401K accounts, none of which have any impact on your Social Security retirement benefits.

The Importance Of Disability

Imagine that tomorrow you're unable — by accident or medical condition — to perform even the simple indoor duties of managing your cattle operation. Few agricultural-related careers offer employees a private long-term disability policy, but nearly all workers have Social Security disability protection.

Under Social Security, workers are considered disabled if they can't do work they did before and their medical condition doesn't allow them to adjust to other work. Such a disability must be expected to last for at least 12 months or to result in death, as Social Security doesn't pay any short-term disability benefits. Once benefits begin, they continue for as long as the worker is disabled and can't work.

The average monthly payment to a disabled worker is $815. For a disabled worker with a spouse and one or more children, the average payment is $1,360. After receiving disability payments for two years, the worker becomes eligible for Medicare.

Survivor Benefits

Survivor benefits are monthly benefits paid continuously to a deceased worker's family. The value of such survivor benefits for an average wage earner that dies and leaves a spouse and two children is equivalent to a $403,000 life insurance policy. The difference is that the Social Security benefits are paid monthly, not in a lump sum.

The average monthly payment for a family consisting of the surviving spouse with two children is $1,747/month. The payments increase based on the annual cost-of-living index, which is something few private insurance plans offer.

Children age 18 or younger, or 19 but still in high school, are eligible for survivor benefits. So can a child who is 18 or older but becomes disabled before age 22.

A surviving spouse who is disabled or caring for children under age 16 may receive benefits depending on his/her income from wages or self-employment. The surviving spouse (age 60 or older, or 50 or older and disabled) may also receive benefits.

While this isn't an all-inclusive discussion of your Social Security benefits, it should aid you in understanding the benefits your tax money can provide. Depending on your age, past earnings and family composition, Social Security benefits will be a little different for all of us.

For more information, log on to www.ssa.gov or contact your local Social Security office.

Shawn Mercer is a public affairs specialist for the Social Security Administration and owns/operates a cow-calf and stocker operation in southern Mississippi. E-mail questions or comments to [email protected].

7 Facts About Social Security

  1. In 2002, more than 45 million Americans received more than $450 billion in Social Security benefits.

  2. Social Security is the major source of income for most of the elderly.

  3. Social Security provides more than just retirement benefits.

  4. An estimated 154 million workers, 96% of all workers, are covered under Social Security.

  5. In 1940 the life expectancy of a 65-year-old was 12.5 years; today it is 17.5 years.

  6. By 2030 there will be twice as many older Americans as today — increasing from 35 million today to 70 million in 2030.

  7. There are currently 3.4 workers for each Social Security beneficiary. By 2030, there will be 2.1 workers for each beneficiary.

For more information about Social Security, visit the Social Security Administration's Web site at www.ssa.gov or call 800/772-1213.

Are You EQIPed?

The ink might be dry on USDA's Environmental Quality Incentives Program (EQIP), but that ink might very well be invisible. EQIP, as reauthorized in the Farm Security and Rural Investment Act of 2002, is intended to give farmers and ranchers financial and technical help in developing conservation practices on eligible land. But funding authorization and coordination between the federal government and the states is bogging down the program.

Under EQIP, the government will pay up to 75% of the costs of producer-initiated conservation practices. Administered through the Natural Resources Conservation Service (NRCS), EQIP funding comes from the Commodity Credit Corp.

The land management practices covered include nutrient management, manure management, integrated pest management, irrigation water management and wildlife habitat management.

“Limited resource” producers and beginning farmers and ranchers may be eligible for cost-shares up to 90%. The practices are subject to NRCS technical standards adapted for local conditions. Local conservation districts are the final screen in approving the plans.

But the changing dynamics of EQIP have producers wondering how the revamped program will be put to work on the ground.

“NRCS is struggling with how to manage the program,” says Myra Hyde, Washington, D.C. She's staff director for the National Cattlemen's Beef Association's environmental management committee. States now have more say in how the program will implemented. But, Hyde says, a myriad of national standards still must be adhered to.

“It's a Catch-22 situation,” she says. “The new EQIP language gives states more flexibility in granting funding, but the state technical committees really don't know how far they can go in approving plans — or what their guidelines are in establishing conservation priorities.”

Presently, Hyde says most states are sticking with what they've done in the past. “Therefore, with their previous ranking and indexing systems, some producers aren't necessarily getting the money that's really intended for them.”

EQIP offers contracts with a minimum term of one year after implementation of the last scheduled practice and a maximum term of 10 years. These contracts provide incentive payments and cost-share payments for implementing conservation practices.

“Total cost-share and incentive payments are limited to $450,000/individual over the period of the 2002 farm bill,” Hyde explains, “regardless of the number of farms or contracts.” Payments may also be used to develop a comprehensive nutrient management plan (CNMP).

Plans must be approved by the local conservation district. And as Hyde notes, practices are subject to NRCS technical standards adapted for local conditions.

Other EQIP provisions allow for additional funding specifically to:

  • Promote groundwater and surface water conservation activities to improve irrigation systems.

  • Convert to the production of less water-intensive agricultural commodities.

  • Improve water storage through measures such as water banking and groundwater recharge.

  • Institute other measures that improve groundwater and surface water conservation, as determined by the USDA Secretary.

Assistance to a producer may be provided only to facilitate a conservation measure that results in a net savings in groundwater or surface water resources in the agricultural operation of the producer. This provision is funded through 2007.

But before producers can even begin to think that far ahead, USDA needs to get EQIP squared away for 2003. If and when the wrinkles can be ironed out of EQIP, applications will be evaluated throughout the year.

NCBA is working on both the funding issue for 2003 and on clearing up confusion over who has the final say in how allocated money gets spent.

“We're working hard with the agency to get past the point where producers are being told one thing by the feds and another thing by the state,” concludes Hyde.

For more information on EQIP, visit http://hill.beef.org/farmbill.

Conservation Innovation Grants

EQIP funds may be awarded to government or non-government organizations or individuals who leverage federal funds to implement innovative approaches to conservation. Grant amounts may not exceed 50% of the total cost of each project.

These Conservation Innovation Grants provide the opportunity for USDA to work with other public and private entities to accelerate technology transfer and implementation of promising technologies to address agricultural-related natural resource problems. The grants are intended to give producers facing the most difficult challenges more options in enhancing the environment and meeting federal, state and local regulations.

Valuing post-drought bred cows

In anticipation of the post-drought repopulation of cattle herds once the rains come again, last month's column focused on valuing post-drought bred replacement heifers. This month, we'll look at valuing alternative-aged, bred cows in the same post-drought era.

A key point in valuing both classes of females is for ranchers to appreciate at which stage of the cattle cycle the industry is in currently. The cattle cycle makes a big difference in the economic value of bred females.

Here are my five steps for determining the economic value of alternative-aged beef cows.

Step 1: Develop a set of long-run planning prices.

I project we are in for volatile calf prices the next few years — all triggered by the extended drought. This fall's calf prices were weak due to record beef production and record carcass weights. But calf prices are projected to now show some strength as a result of lowered beef supplies and the upcoming demands of repopulation.

About two years following that repopulation, beef prices will again be pressured as supplies increase due to the repopulation buildup in cattle numbers. That latter stage will complete the down phase of this current cattle cycle.

Note: In discussing the valuation of alternative-aged bred heifers, I will use the same long-run planning prices as presented in last month's discussion.

Step 2: Prepare a cash flow budget for your beef cowherd.

The economic value of bred females in your herd depends on your herd's cost structure. This isn't your neighbors' average or the regional average; it is your own herd's average cash costs of production.

To get started, you must generate a cash flow account documenting your herd's net cash flow. Figure 1 shows my recommended cash flow account format and summarizes the average cash flow account for my 1999 Integrated Resource Management (IRM) Cooperator herds.

The herds in Figure 1 are well-managed herds run by individuals with one to seven years of formal IRM cost-cutting experience. My experience indicates it takes two to five years to effectively implement cost-cutting strategies.

These IRM herds average 163 cows with an average capital investment of $2,007/cow. This includes the breeding herd, beef cow facilities, beef cow equipment and pasture land. Investments in farming machinery and farmland are not included.

The average gross cash income per cow is $433. The average feed costs of raised feeds, purchased feeds and pasture is $170/cow. Non-feed cash costs, including livestock expenses and debt service costs, total $176/cow for a total average cash cost of $346/cow.

In addition, the average unit cash cost of producing a hundredweight of calf is $81. When the $60 average family living draw is included, there's an average of $27/cow earned net cash flow/cow before taxes.

Some cash flow adjustments need to be made when using a net cash flow account in evaluating the proposed purchase of bred females. Debts on existing cows should not be allocated to new purchased cows. As a result, the $55 debt service on the old cows was added back, as well as the $60 family living draw.

Thus, the total net cash flow projected for the proposed purchased bred females is $142/cow. This $142 could be applied to the purchase of bred females.

I then recalculated the net cash flow annually for 2003 to 2009 based on the long-run planning prices constructed in Step 1. These annual, projected, long-run net cash flows were presented in chart form in last month's column.

Step 3: Project the value of a cull cow in the year of her last calf.

I recommend using the Food and Agricultural Policy Research Institute's (FAPRI) long-run cull cow prices for determining the future value of cull cows. (See Figure 2.)

Step 4: Determine the appropriate discount interest rate.

Use the interest rate that you're paying on your long-term land loan. I used 6% in this example.

Step 5: Calculate the net present value (NPV) for bred females with different lifetime calf numbers.

As described last month, each year's projected net income from that female, including her value as a cull cow, must be discounted back to today's dollars. The sum of all discounted annual net incomes is the economic value of a beef cow having that number of calves. Figure 3 presents the NPV for cows producing multiple lifetime number of calves.

In Figure 3, column 4 summarizes the calculated economic value for a bred heifer in fall 2003 that starts calving in spring 2004 and has seven consecutive calves. The annual nominal incomes for this heifer total $1,273. The discounted NPV of this fall 2003 pregnancy-checked heifer is projected at $971. (Not that this is $53 less than the value reported last month due to some formula corrections made in this month's calculations.)

Figure 3 suggests that if a pregnancy-checked heifer can be purchased for $971 in fall 2003, this investment would earn a 6% rate of return on that investment.

Column 5 represents a special case in which the heifer calves as a two-year old, is open as three-year old, but has five consecutive calves after that. Note that in 2003 it costs $275 to run her for that open year. Her calculated NPV is $596. By missing her second calf, her NPV is reduced by $375.

The key point is that this heifer is projected to be open early in her lifetime and during one of the high market-price years. This example reinforces how the stage of the cattle cycle can affect the economic value of open females.

Column 5 presents the economic value of a bred female who has six consecutive calves, beginning with her first calf in spring 2004. After accounting for a higher projected cull cow salvage value and the loss of the seventh calf's discounted net income, the economic value of this bred female is $928 — only $43 less than a bred heifer that has seven calves.

This illustrates that the seventh calf isn't projected to contribute much to the economic value. Given where we are in the cattle cycle, it's more critical for these females to have consecutive calves early in their lifetime than to have the seventh calf.

Columns 6-9 present the calculated economic value for a bred female having five, four, three or two consecutive calves. The drop in calculated economic value is relatively small as the number of calves produced goes down. This reinforces the notion that the high-profit calves will be produced in the early part of the time period being considered.

I recommend drought-induced ranchers go through this exact set of calculations when contemplating their repopulation strategy. You just can't escape the financial impact of the cattle cycle and its resulting beef price cycle, even in a drought repopulation.

Harlan Hughes is a North Dakota State University professor emeritus. He lives in Laramie, WY. Reach him at 701/238-9607 or [email protected].

2002 BEEF Quality Challenge

This month, we wrap up the fifth annual Beef Quality Challenge. This year's winners are pictured below, but a special thanks to all the folks across the U.S. who participated in this year's edition of the Beef Quality Challenge.

Interestingly, all our winners this year were decided on a tiebreaker basis as a total of 10 entrants correctly matched each of the 10 steers to the marketing grid best suited to their individual attributes. Another interesting note is that all four winners of this year's contest hail from Texas. And two of our winners — Kyle Jones and Diana Jones — are mother and son.

Congratulations to our category winners, but every participant should have gained from this contest experience. The real payoff of this exercise is the better understanding gained by all participants about how our industry works from gate to plate.

This contest tested your ability to match 10 individual steers to their optimal marketing grid. Here are four major lessons:

  • When you begin to compare grids, it's important to know the current live price the packer is offering for cattle and the carcass specifications the packer requires for you to receive the base carcass price. This live cash price often reflects the average value of cattle that the packer is willing to pay for all cattle they purchase. Producers may not realize that when they take the live cash cattle price they are getting an average price for all cattle harvested.

  • The most common discount assessed on grids is for carcasses with a USDA Select Quality Grade. The most common premiums paid are for Yield Grade (YG) 2 carcasses. Determine how many cattle will fit those categories.

  • “Out” type of cattle greatly reduce the income you receive for a set of cattle in a grid marketing environment. The term outs is used for carcasses that receive the greatest discounts. The most common out carcass categories include No Roll, dark cutters, hardbone (advanced carcass maturity), YG 4, and heavy and light carcasses. Buying uniform frame size, condition and weight cattle will allow you to manage them more optimally and eliminate many of the outs.

  • Once you thoroughly understand how each grid works on different groups of cattle, match the cattle to their best marketing option. Accurately predicting the types of carcasses a pen of cattle will produce allows you to match the cattle with their optimal marketing option. Matching cattle to the right marketing option is easier if the manager has some previous history on the cattle from a particular ranch.

The take home message from the contest, then, is that you should follow your cattle through the feedyard and into the cooler, on at least a test group of cattle, to obtain as much information as possible about what you are producing. This information will give you greater power when selecting the best marketing option.

A special thanks to BEEF magazine and my Texas A&M University (TAMU) colleagues Pat Mies, David Lunt, Davey Griffin, Larry Boleman and the staff at the TAMU Research Center at McGregor for their help with this project. In addition, I also owe thanks to Mike De La Zerda and Doug Perkins of the Texas Beef Council for their contributions. And, lastly, thanks to the fine folks at Zinpro Corp. for their support of the 2002 Beef Quality Challenge.

Winners

Age 13 & Under

$500 savings bond and trophy
Kyle Jones
Cedar Creek, TX

Age 14-18

$500 savings bond and trophy
Randy Schmeltekopf
East Kyle, TX

Age 19 & Over

$1,500 in cash
Diana L. Jones
Cedar Creek, TX

Feedyard Team

$5,000 in Zinpro® nutrition products
Bret Hull, Hull Cattle
Jacksboro, TX

International Livestock Congress

The 2003 International Livestock Congress, set for Feb. 25-28 in Houston, TX, will focus on profitability in the horse and beef industries. In each species, a keynote speaker will preface a program of breakout sessions addressing critical issues facing the two industries.

“The volatile nature of the beef industry… demands that we keep a sharp eye focused on the trends shaping consumer perceptions and needs so the beef industry can remain profitable,” says Gary Smith of Colorado State University, who, along with Jack Allen, Michigan State University professor emeritus, is a co-chair of the beef program.

Addressing that topic in the opening session are four prominent beef industry figures: Chuck Schroeder, former National Cattleman's Beef Association executive vice president; Paul C. Genho, vice president and general manager for King Ranch Inc.; Bill Buckner, co-leader of Cargill's Meat Solutions Platform; and Randy Blach, executive vice president of Cattle-Fax.

For program and registration, contact Julie Kimball at 817/367-6563, e-mail her at [email protected] or go to www.livestockcongress.com.

New Internet Directory

Looking for an online, all-breeds, one-stop shop for your bull listing and buying needs? Check out www.bullshop.com. The new Web site brings all elements of the cattle industry together — all breeds and all herd sizes, both seedstock and commercial — to encourage interaction on the Web.

Folks looking to gain exposure for their herds, regardless if they have a Web site or not, can create for no charge their own listing on www.bullshop.com using their home or office computer. The site plans to soon offer listers the opportunity to promote private auctions, private treaty sales, and semen or embryo offerings, plus more.