Spring 2013
Managing Volatility
yields
Spring 2013
FEATURE STORY > 5 How much is the consumer willing to pay for beef? That may be the $62 billion question facing U.S. cattle producers. Everything boils down to supply and demand and beef cow numbers in the United States are at a 50 year low. Normally, stronger cattle prices would encourage producers to expand their herds. But volatility prevails.
Who we are: Northwest Farm Credit Services is a customer-owned, financial services cooperative, providing $11 billion in credit, crop insurance, and related services to farmers, ranchers, agribusinesses, commercial fishermen, forest products producers, equipment dealers, chemical suppliers, part-time farmers, and country homeowners.
Board of Directors Kevin Riel, Chair, Yakima, WA Karen Schott, Vice Chair, Broadview, MT Rick Barnes, Callahan, CA Christy Burmeister-Smith, Newman Lake, WA Drew Eggers, Meridian, ID Jim Farmer, Nyssa, OR Mark Gehring, Salem, OR Dave Hedlin, Mount Vernon, WA John Helle, Dillon, MT Herb Karst, Billings, MT Bruce Nelson, Spokane, WA Dave Nisbet, Bay Center, WA Julie Shiflett, Spokane, WA Shawn Walters, Newdale, ID
About Yields Yields is produced for stockholders of Northwest FCS, an Agricultural Credit Association. Comments and story ideas can be sent to the Marketing Department, c/o Northwest FCS, P.O. Box 2515, Spokane, Washington 99220-2515.
Peer Financial Benchmarks > 3 Knowledge Center > 12 Market Snapshots and Business Tools > 13-14 Dr. Gary Brester > Competitive Advantages for Northwest Cattle Producers > 15
website: northwestfcs.com
Northwest Farm Credit Services is an equal opportunity employer and does not discriminate on the basis of race, color, religion, sex, national origin, marital status, age, disability, disabled veteran, Vietnam era or other eligible veteran status.
Trusted Advisors Phil DiPofi, President and CEO
Being a dependable source of financial services and a trusted advisor to the customers we serve is the heart of our mission at Northwest FCS. World demand for food and fiber will continue to increase and the opportunities for agriculture over the long term are tremendous. But, we also know the marketplace has become much more complex and volatile. Managing risk will be essential to the positioning of both our customers’ businesses as well as our association’s business for the future.
At Northwest FCS, we continue to build upon the depth and experience of our staff who will serve the next generation of agriculture. Our tenured employees are deeply engrained in the industries we serve. As trusted advisors they have worked with hundreds of operations through various business cycles. They help our customers evaluate business decisions from different perspectives and provide honest and objective feedback, which is critical to managing risk.
Our seasoned staff is also training and mentoring the next generation of employees who will carry on this legacy as trusted advisors. We continue to invest heavily in developing our employees to ensure these talented people are well equipped to help customers manage risk and explore opportunities.
The future is bright for agriculture and we are privileged to support the Northwest food and fiber industries that perform a vital role in the United States and around the world.
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Northwest FCS Peer Financial Benchmarks – Cattle John Gates, Northwest FCS Relationship Manager/VP Cattle Knowledge Center Team
Peer Financial Benchmarks are a great tool to help customers make good financial decisions. Customers want to know how they stack up to their peers and the trends we’re seeing in the Northwest and beyond. Benchmarking helps them to analyze their operation’s performance compared to data gathered from similar operations. Peer benchmarking allows customer to identify strengths or focus areas in their operation. They can also use the peer studies to run “whatif” scenarios to see how expansion or changes will impact their financial position. Peer Benchmarks focus on unique, industry-specific measures, like operating expense per animal unit. The peer groups represent a good, unbiased, cross-section of Northwest FCS customers. In the cattle peer study for example, we are able to show five years of historical peer financial data, as well as project trends that compare to the customer’s information. Here’s how the tool works.
Cattle Benchmark Sample A customer’s specific information is entered into the benchmarking tool. The study compares their numbers to peer group averages for operations, per-head measures and financial ratios. We can also use pro-forma financial information to help customers project how changes – like buying more land – will impact the numbers.
Peer Average
2011
2011
Variance
$1,026
$870
-$156
Cost of Production per AU
$832 $738
$820 $598
-$12 -$140
Base Operating Expense per AU
$649
$562
-$87
Net Farm Income per AU
$288 $109
$272 $131
-$16 $22
Vet & Medicine Cost per AU
$24
$18
-$6
Labor Cost per AU
$58
$0
-$58
Taxes & Living per AU
$79 $57
$28 $0
-$51 -$57
Debt Service per AU
$119
$158
$39
Term Debt per AU
$828 $543
$746 $148
-$82 -$395
Gross Farm Income per AU Cattle Income per AU
Per Head Measures
Sample Ranch
Feed Cost per AU
Net Non-Farm Income per AU
Working Capital per AU
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Sample Charts Base Operating Expense per AU
Net Farm Income per AU $450
$900
$400 $800 $350 $700
$300 $250
$600
$200 $500
$150 $100
$400
$50 $300 2007
2008
2009
2010
2011
2012
$0 2007
Middle 50 Percent
Peer Average
Sample Ranch
2008
2009
Middle 50 Percent
2010
Peer Average
2011
2012
Sample Ranch
The charts in the benchmark tool often give a better picture of the impact and trend, versus just looking at the numbers on paper. Charts show comparisons to the peer group in a number of areas. In this example, the information is divided into quartiles. The green bar represents the middle 50 percent of producers in the peer group. 25 percent of the operations are above or below the peer average. It’s important to note that each chart is independent of the others. So, ranches that comprise the upper 25 percent for animal units may not be the same ranches that comprise the top 25 percent for working capital or other measures. It is also important to understand that all of the operations in the peer group are successful and ongoing. So, being in the lower quartile, or lower 25 percent, is not necessarily a bad thing. The benchmark study also shows customers how their key financial ratios compare to Northwest FCS underwriting guidelines. The charts in the cattle peer benchmark that correspond to our underwriting criteria have a different colored background. The red, yellow and green areas correlate to levels of high, medium and low risk. We think it’s important for customers to understand how we view the operation from a lending perspective compared to their peers in the industry. It’s important to recognize though, that an operation can be in the red or yellow zone for a particular metric and still be a “green light operation” overall. Debt Coverage Ratio 6.0
Northwest FCS Peer Financial Benchmarks
5.0
4.0
• Cattle
3.0
• Dairy 2.0
• Forest Products 1.0
• Hay • Nursery/Greenhouse
0.0 2007
2008
2009
2010
2011
2012
• Row Crops Middle 50 Percent
Peer Average
Sample Ranch
• Small Grains (Wheat)
Peer Benchmark Studies are a terrific tool to help our customers manage profitability and measure performance. The studies help to broaden perspectives beyond the scope of your operation. If you’re interested in learning more, please contact your local Northwest FCS representative.
• Tree Fruit - Producer and Vertically Integrated • Oregon Winery • Washington Wine Grape
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Managing Volatility
5 | Nor thwest Farm Credit Ser vices
How much is the consumer willing (and able) to pay for beef and other proteins? That may be the $62 billion question facing U.S. cattle producers. With tight beef supplies, retail prices reached $4.70/lb. in 2012, a 16 percent increase in just two years. Prices are projected to increase another 5 percent in 2013. Consumer incomes, on the other hand, remain flat in a sluggish economy. Everything boils down to supply and demand and beef cow numbers in the United States are at a 50 year low. Normally, stronger cattle prices would encourage cow/calf producers to expand their herds. But volatility prevails. In 2012, crippling drought across the country scorched thousands of acres of pasture and sent feed prices soaring. Imagine having a 500-year flood one year, followed by drought-fueled wild fires the next. Bill and Jennifer Bergin in Melstone, Montana can tell you the stories. The Bergins run a 4,500-head feedlot, 900 cow/calf pairs, and farm more than 2,000 irrigated acres in Eastern Montana. It takes some 30,000 acres of rangeland to support the operation. Bill knows volatility is a given: with weather, feed costs, export markets and the domestic economy. So he tracks his costs down to the cow and the acre. And uses risk management tools to protect price and input costs as he manages the margins in the middle.
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Factors Limiting Cattle Herd Expansion
If everything comes down to supply
• Historically, agricultural producers have raised livestock to generate additional income, diversify, and manage income risk. Today, subsidized crop insurance programs may be providing a less expensive risk-management alternative to livestock production.
To understand the volatility in the
born in the spring are usually
beef industry today, it’s important to
weaned in the fall weighing 450 to
start with the cattle production cycle .
600 pounds. From there, the goal is
• The age profile of U.S. agricultural producers is increasing. As producers age, they tend to focus more on crop production which is less physically demanding than raising livestock. • Agricultural labor costs are increasing. Growers are able to improve efficiency and save money with new farm technology (i.e. machinery). Reducing labor costs for livestock production is more difficult. • U.S. producers continue to face increasing restriction on land uses, particularly from non-agricultural sources. With larger animals that need more forage, the U.S. grazing base may not be able to sustain increased cow numbers. • When cow/calf producers chose to expand their herd and raise replacement heifers, income is deferred for two years. The uncertainty surrounding future input costs and calf prices may be tempering producer appetite for risk.
and demand, high beef and cattle prices would normally signal producers to expand their herds. Yet surprisingly, U.S. cattle numbers continue to decline as prices reach record levels.
to add weight or ‘background’ calves Bringing beef to the plates of consum-
– on the range or in a feed lot – as
ers is a multi-stage process. While
they grow into yearlings weighing
there is some vertical integration,
800 to 950 pounds. Generally, U.S.
most cattle operations focus on just
consumers prefer the taste of grain-
one or two aspects of the food chain.
fed beef, so most cattle are sold to
First, purebred cattle producers, or
commercial feedlots where they’re
‘seed-stock’ producers, improve the
finished on a grain-rich ration.
genetic make-up of cattle that are
Commercial feedlots and meat
bred into U.S. herds. Larger animals
packers are primarily centered in
produce more beef. Thanks to im-
the Midwest closer to the nation’s
proved genetics, beef production in
corn belt which was devastated by
the United States reflects levels con-
drought conditions last year.
sistent with a much larger herd size. Cow/calf producers are in the driver’s Seed stock is sold to cow/calf
seat of the beef industry today, with
producers who maintain the herd
limited supply and high calf prices.
through the calving process. Calves
But, making decisions to expand
U.S. Drought Conditions August 21, 2012
Abnormally Dry
Moderate Drought
Severe Drought
Extreme Drought
Exceptional Drought
Data Sources: U.S. Drought Monitor, National Drought Mitigation Center, U.S. Department of Agriculture and the National Oceanic and Atmospheric Administration
7 | Nor thwest Farm Credit Ser vices
depends on profitability and land. Input costs for labor and herd health continue to increase. More traditional pasture lands are being converted to crops as prices increase for wheat, corn and soybeans. Non-agricultural interests are completing for land resources too. And last year, drought in the Southwest moved north to the Midwest and Great Plains. With limited grass and soaring feed costs, many producers were forced to reduce their herds even further in 2012.
Managing in the middle Bill Bergin manages his business in the middle. Like
In 2011 a state of emergency was declared in 51 Montana counties, cities, and Indian reservations. Flood waters on the Musselshell River blocked the Bergin’s bridge access to the feedlot so neighbors fed their cattle for two days.
most Montana ranchers, he
irrigated ground you can grow your own feed. But
runs a cow/calf operation. But
everything depends on conditions. Last year I was
instead of selling calves in the
selling hay early and then the drought hit. By the end, I
fall, he feeds them through
was buying hay to mix into our feed rations. Prices went
the winter and spring to add
from $115/ton to around $250/ton delivered.”
valuable pounds. Plus, he buys Bill Bergin
more calves that will eventually
be sold as feeder cattle to larger finishing lots. The Bergins will background some 4,500 cattle on their land and in their feedlot. They also custom feed for other Montana ranchers.
Managing feed costs To manage rising feed costs the Bergins now grow almost all their own feed . While most ranchers in the area use flood irrigation, the Bergins have invested in pivot-irrigation systems to improve efficiency and yields. Fertilizers and other inputs are applied through
“We’re able to capture value from the cow to the calf on rangeland in the summer,” explains Bill. “Then we’re able to capture more value if we add pounds on them over the winter and spring in the feedlot. If you have
the pivots, reducing tractor time in the field. And pivots use about half the water of traditional flood irrigation. The Bergins grow corn, corn for silage, alfalfa, sorghum, Sudan grass, barley and wheat to use in their cattle rations.
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“If you’re growing a feed base you need to have crop insurance for risk protection,” says Bill. “You have to understand your budgets and insure yourself with a floor price to cover costs. With the flood in 2011, insurance saved us on the corn crop. We were able to recoup the cost of inputs and buy some of the feed we needed. In a drought year, we’ve used rangeland protection. Our coverage plans look a little different every year. But we always have a safety net if something goes wrong.”
Adapting to technology
“To manage risk we try to protect the price of our inputs and protect the price of our cattle. The more variables we lock up, the better off we are.” -Bill Bergin
The Bergins continue to find ways to reduce costs and
gross income, costs, projected net income, and break-even points for every segment of the operation. Details count. Budgets are broken down by the cow, calf, and by the acre of corn or alfalfa. Next year Bill plans to track costs back to each piece of equipment to see if the input is giving the output they need for profits. If not, they’ll make different decisions.
improve efficiency. They use the latest farm technology
“Every aspect of the business needs a budget to
– automatic steering and Global Positioning Systems –
formulate the plan,” says Bill. “Markets go up and down.
to ultimately save money on seed and fuel. And, reduce
There are a million variables. To manage risk we try to
operator error. To adapt and progress, Bill upgrades
protect the price of our inputs and protect the price
machinery while there’s still value left in the older
of our cattle. The more variables we can lock up, the
technology. He says you won’t believe how precise the
better off we are. I’ve already contracted the price for
innovations get from one generation to the next.
our diesel this year so it’s a fixed cost in our budget. If something happens in the Middle East we’re protected.
Controlling the variables
If the economy crashes I may have missed out on a
When it comes to managing volatility, Bill turns to
better price. But, if we stay within our budgets we’ll
the numbers. With an enterprise budget he estimates
come out ahead.”
Marketing Playing Field Sample The key to managing margins is to know your breakeven points. Then, you can clearly identify your overall appetite for risk. Set a bottom and top sales price range based on a certain percentage above or below your breakeven point. With the pricing targets identified, you can evaluate using risk management tools like forward contracts and hedges on both revenue and input costs. $190
Discipline doesn't mean missing out on extraordinary prices. It does mean protecting from downside risk. When markets are trending higher, should you create a price floor?
$180 $170
$/cwt
$160 $150 $140
Effective margin management may cap earnings potential, but when was the last time prices exceeded your top range target? Is it appropriate to lock in a price?
$130 $120
What do cattle futures tell you about the direction of the market? What do market fundamentals suggest? Where are input costs headed?
$110 $100 $90
When do you sell in a down market? How long can/should you wait? Does your bottom range target reflect a loss level your operation can absorb?
550# Steer Price
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Breakeven
Top Range
Bottom Range
Managing the margins The Bergins say the key to managing margins is to know your cost of production and breakeven points. From there, you can better match the cost of inputs with commodity prices to capture the best possible profit margin. Given today’s volatility, trouble can happen when people market at a price they think is good, only to end up paying much higher input costs. On the other hand, if they lock in their input costs without locking in a price for at least a portion of their cattle, they are exposed to more risk.
Selling through the Internet
“Video-auction announcers will read a background sheet on cattle if you provide one. Buyers are willing to pay a little more if you’ve added value through genetics, preconditioning, etc.” – John Gates, Northwest FCS Relationship Manager
calves locally. When we sell, we need to estimate weight by a certain point in time. So, I’m projecting by the 20th of April the cattle will be 900 pounds. I’m going to do my projections and market some then. If they weigh above or below 900 pounds the buyer gets a little better deal. But,
if I’m still selling at a profit and hit my target weights 90 percent of the time we’ll maintain our profit margins.”
Video auctions are changing the way producers buy and sell cattle. A traditional cattle sale in Billings, Montana, may feature 5,000 head. Conversely, a video auction on the Internet may introduce 50,000 head of cattle to hundreds of buyers across the country . “I sat in my room, watched news on TV, and purchased 2,000 cattle this morning,” jokes Bill. “It’s definitely interesting. You may be bidding against someone in Kansas or Nebraska, or a local guy you know. In 2011, I bought most of my cattle off the video auction. Last year, video prices were higher so I purchased more
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Using trusted advisors The Begins use trusted advisors to make wise riskmanagement decisions. They work closely with an
honest input. He may say no, but then I would ask him why. If we do decide to go ahead, then I know what to be looking out for. He’s been behind us solidly over the years.”
agronomist to adjust fertilizer applications and budget numbers. They keep in close contact with other buyers and sellers. During the video sales season they rely on Northwest FCS Relationship Manager John Gates for summaries to track the market – number of cattle sold, at a certain weight and price. John does this for all his cattle customers in Eastern Montana.
“We’re here to be a resource for our customers,” says John. “We use a number of tools to help them make good financial decisions. Our information comes from the field up with boots on the ground. In our Market Snapshots, we talk about Northwest prices for pasture leases or hay instead of just looking at the overall U.S. market. We also use Peer Benchmark studies to help customers see trends in their business relative to other Northwest producers.”
Looking ahead
Northwest FCS Relationship Manager John Gates and Bill Bergin overlook rangeland areas impacted by wildfires in 2012.
“We use John as a sounding board for making decisions,” says Bill. “He works with a large number of cattle producers. And Northwest Farm Credit works with even more. He’s a resource I use to make final decisions. When we’re planning to buy more cows we ask John for his
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In 2013, beef production is expected to decline another 5 percent from 2012 levels. The calf crop will certainly be smaller and it’s too early to call the drought over yet. Overall though, cattle producers are counting the blessings of relatively-strong prices. Cattle backgrounders, like the Bergins, will continue to manage through volatile feed costs and higher-priced calves. Commercial feedlots are hopeful margins will improve with lower-priced corn and grains. And beef consumers? Well, it’s still unknown just how much they’re willing and able to pay for beef. One thing is more certain, consumers will continue to demand a premium product if they are paying premium prices.
Knowledge Center The mission of the Knowledge Center is to seek, interpret, and share knowledge about agriculture. We gather and share information from industry experts to help you position your business for long-term success. By gaining access to the latest market information and forecasts and best management practices, you can make more informed business decisions. In short, our goal is to share what we know, what we’ve experienced, and what we see ahead to help you manage your business more effectively.
Knowledge Teams
Knowledge Center Tools
Knowledge teams, focused on specific industries, gather and synthesize market information using a multitude of sources, including insight from industry experts and successful producers. These teams are comprised of experienced staff who’ve worked closely with customers through many business phases and industry cycles.
Knowledge teams have been formed for the following industries:
• Industry Perspectives are published annually. These perspectives focus on the market environment, drivers in the industry, best management practices, and market forecasts. • Market Snapshots are distributed quarterly through an electronic newsletter. These snapshots provide an updated look at industry specific measures such as production and prices, along with recent events or trends in the market. • Peer Financial Benchmarks show customers how they stack up to their peers. These annual peer assessments focus on key financial measurements and ratios.
• Cattle • Dairy • Forest products
• Industry Symposiums bring customers, staff, and industry experts together to share information and network with others in the business.
• Hay • Nursery/greenhouse • Row crops • Small grains • Tree fruit • Wine/vineyard • Rural property investors • Processors and manufacturers
• Collective wisdom is one of the most valuable aspects of the Knowledge Center. Our knowledge teams work together beyond their own state or region, sharing information and experiences to help customers solve problems. If you have a question, or need input on management decisions, you have access to the collective wisdom shared by a team of our seasoned, industry experts.
For more information contact the Northwest FCS Knowledge Center
800.743.2125, ext. 5428 or visit northwestfcs.com/resources
2013 Industry Symposiums May June June July July
Cattle Symposium – Billings, Mont. and Great Falls, Mont. Row Crops Symposium – Pasco, Wash. Forest Products Symposium – Portland, Ore. Dairy Symposium – Twin Falls, Idaho Wine/Vineyard Symposium – Kennewick, Wash.
Participation in the Industry Symposiums is limited and by invitation. If you are interested in participating, please contact your local Northwest FCS representative.
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Market Snapshots The Northwest FCS Knowledge Center provides the latest updates on industry-specific information, gathered and interpreted by our front-line Knowledge Team staff. Sign up to receive the Knowledge Center e-newsletter with special articles on agricultural issues, the general economy and quarterly Market Snapshots. These Market Snapshots provide an updated look at industry-specific measures, such as production and prices, along with recent events or trends in the market. Market Snapshots are available for key commodities including: cattle, dairy, forest products, hay, nursery/ greenhouse, row crops, small grains, energy, tree fruit, wine/vineyard, feed grains, and processors/manufacturers. Register to receive the Knowledge Center e-newsletter at northwestfcs.com and gain access to other Northwest FCS resources. Learn more about our Business Management Center workshops and seminars. Read up on Industry Perspectives, economic indicators and articles from leading agricultural sources across the country.
To receive the Knowledge Center e-newsletter and access Northwest FCS Resources, visit
northwestfcs.com/resources or call 800.743.2125 ext. 5428
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Business Management Publications Northwest FCS recognizes the vital role of management decisions in the success of an agricultural business, and offers publications discussing various management topics for producers.
Risk Management Planning In today’s global agricultural economy, risks to producers, processors, and marketers are expanding and surfacing in many ways – exposing all to more unfavorable circumstances and increasing uncertainty. Developing a risk management plan helps business owners anticipate and mitigate risks, thus reducing their negative impact.
Strategic Business Planning Farm and ranch managers generally spend most of their time making day-to-day operational decisions such as when to seed or harvest, when to sell cows, or whether to purchase new equipment, now or later. While short-term operational planning is important, it doesn’t substitute for long-term planning.
How Lending Decisions Are Made Every lending institution has a set of credit standards or guidelines that are used to analyze and approve loans. To help our customers better understand the decision-making process for approving and renewing loans, we commonly refer to these standards as the Five C’s of Credit: Character, Capital, Capacity, Collateral, and Conditions.
Preparing Agricultural Financial Statements Thoroughly understanding your business’ financial performance is critical for success in today’s increasingly competitive agricultural environment.
Financing Agriculture: The Business Borrower-Lender Relationship One of the most critical decisions a businessperson makes is choosing a lender.
Land Buying Checklist Buying, selling, or financing rural properties is often different than properties within city limits. In this guide, you’ll find helpful planning tips and practical advice for buying rural land.
Understanding Key Financial Ratios and Benchmarks How does my business stack up compared to my neighbors? This question is becoming more and more common as the agricultural industry enters the 21st century.
To access these Business Management Publications, visit
northwestfcs.com/resources
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Northwest Competitive Advantage in the U.S. Cattle Industry Flexibility and Risk Management Dr. Gary Brester, Professor Dept. of Agricultural Economics Montana State University
receive a premium product if they are paying premium prices, so the beef industry will need to continue to offer high-quality, consistent, convenient, safe, and healthy products.
The prices of agricultural commodities are ultimately
Demand appears to be increasing in many foreign
dictated by demand and
markets and U.S. beef exports are at record levels. As
supply. Increased demand
per capita incomes in developing countries increase,
for beef by consumers in
consumers substitute animal-sourced protein for plant
the United States and foreign countries places upward
sources. Foreign demand for U.S. beef will continue to be
pressure on cattle prices and vice versa. Hence, the
a strong driving force for U.S. cattle prices provided that
factors that influence consumer demand play a critical
food safety, age and source verification, product quality,
role in cattle producer profitability.
and market access issues continue to be addressed by the industry in a positive fashion.
From the supply side of the market, recent declines in beef production in the United States and worldwide have also placed upward pressure on cattle prices. Some of this reduction may be caused by increases in the prices of inputs used to produce cattle. However, other factors may also be driving reductions in cattle supplies.
Supply Drivers Barring any major animal disease problems, the overarching factor that will influence beef prices over the next two-to-three years will be a continuing decline in beef production. Beef supplies have declined in the United States and worldwide over the past several years.
Understanding these factors is important for cattle
This trend will likely continue in the near future.
producers’ strategic planning. This may be especially important for Northwest producers who often struggle
World cattle inventories declined between 1999 and
to compete with the scale of backgrounding and feeding
2012. However, the percentage declines were much
operations in other parts of the United States.
higher in traditional beef exporting countries. World
Demand Drivers
cattle numbers would be much lower if not for increases in Brazil and India. But, productivity in both of these
After declining for many years, U.S. beef demand
countries continues to be quite low so that cattle
regained some ground between 1998 and 2008. However,
inventory increases did not provide substantial increases
demand has flattened over the past several years
in beef production. Although world beef production
primarily due to the lingering effects of the U.S. recession.
increased substantially between 1980 and 2007,
Yet, the price of beef remains much higher than the price
production has declined about 4 percent over the past
of other animal protein substitutes. Consumers expect to
five years.
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The U.S. inventory of cattle and calves totaled only 89.3
a disadvantage relative to other U.S. regions. Yet, many
million head on January 1, 2013 which is the lowest
producers overcome these disadvantages by engaging in
level since 1952. This represents a 1.6 percent decline
activities that create value but are often not attractive to
from to a year ago. Once the data are available, the
larger production systems.
2012 calf crop will likely be 800,000 head less than that occurring in 2011. The 2013 calf crop will certainly be
For example, it is relatively expensive for large
even smaller and will likely reach levels not experienced
backgrounders/feedlots to alter their portfolio of feed
since the 1950s. Although cattle numbers have declined
inputs given the volume of feed that must be fed
substantially since their record level of 132 million head
each day. However, smaller producers can often use
in 1975, productivity increases have kept beef production
their entrepreneurial skills to find lower-priced feed
from declining at the same rate. However, cattle numbers
ingredients and alter their usage in feed mixes. Such
have now reached a level in which production declines
activities can help smaller producers compete with larger
are expected to occur.
operations. In addition, many larger operations do not have the ability to tailor feeding programs to animals of
In 2012, U.S. commercial cattle slaughter numbers
different weights or classes. Smaller operations are often
declined 3.4 percent from a year earlier and reached their
less committed to purchasing specific-sized animals. In
lowest level since 2005. However, record average dressed
addition, many smaller operations have the flexibility
slaughter weights (859 pounds) offset some of this
to feed cows or maintain the weights of bred heifers on
decline such that overall production (25.9 billion pounds)
a custom basis. Such flexibilities offer opportunities for
was only 1.2 percent lower than the previous year.
producers in non-traditional backgrounding and feeding areas to create value and compete with larger operations.
In 2013, beef production is expected to be at its lowest level (24.6 billion pounds) since 2004. Cattle slaughter
Risk Management
in 2013 is forecast to decline across all categories (steers,
Because of weather, agricultural commodity prices
heifers, cows, and bulls). For the year, slaughter numbers
have always experienced a relatively large amount of
are expected to be 4 percent to 6 percent lower than that
variability. Such risks can be reduced through the use of a
occurring in 2012, and cattle slaughter weights will likely
variety of tools including forward contracting, futures and
return to trend levels. The combination will probably
options markets, diversification, and insurance. Given that
cause 2013 U.S. beef production to decline 5 percent
Northwest cattle producers are often unable to compete
from 2012 levels. Furthermore, declining cattle numbers
on a cost basis with other production regions, the
will likely generate lower beef production in 2014.
management of price and production risk is often highly
Forecasts indicate that production may decline to 23.5
important for sustained profitability.
billion pounds, which would be the lowest level since 1993. Finally, reductions in worldwide production have
For farmer/feeders, the use of revenue-based crop
also caused U.S. beef imports to decline even though
insurance can mitigate the effects of weather and price
domestic U.S. beef prices are at record levels.
variability. For backgrounders, forage insurance products (e.g., rainfall insurance or the Non-insured Assistance
Flexibility
Program) can help offset some of the effects of drought.
The Northwest has strong advantages over other
In terms of cattle prices, Livestock Revenue Protection
regions in calf production. However, weather, scale,
products, futures markets, options, and forward
distance to market, and feed availability are all factors
contracting are commonly being used to manage risk.
which place many producers of feeder and fed cattle at
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THE FORECAST CALLS FOR
UNCERTAINTY
Since we can’t predict when hail will strike, apply for HAIL COVERAGE before it’s too late.
Contact an experienced Northwest FCS Crop Insurance Agent Today.
New Loan Accounting System Coming Summer 2013 Northwest FCS is modernizing our loan accounting system to a more efficient platform that will allow us to improve our operations and service to customers. What this means for you: • New account numbers • New account titles to more easily identify individual accounts • One combined billing statement that includes monthly activity of all individual accounts
Look for new monthly billing statements in August. Additional information about the system change will be mailed and available on northwestfcs.com in June.
17 | Nor thwest Farm Credit Ser vices
local
advisors and locations
IDAHO Robert Ball Cody Bingham Jeff Blanksma, Jr. Adrian Boer Ray Carlson Bill Clayton Cade Crapo Ron Elkin Carl Ellsworth David Funk LeRoy Funk Brent Griffin John Hepton Jackie Hillman Brian Huettig Ken Koompin Karen Lustig Marty Luxa Dan Mader Ray Matsuura Kyle Meyer Ron Mio Greg Moss Kirk Nickerson Jeff Pahl Lisa Patterson Erick Peterson David Rallison D. Brad Reed Nate Riggers Doug Ruff Royce Schwenkfelder Kirt Schwieder Scott Searle Todd Simmons Robert Swainston Ryan Telford Bernie Teunissen Dale Thomas Camellia Thurgood Justin Tindall Steven Toone James Udy Todd Webb Shawn Webster Berkley Wray
MONTANA Hamer Jerome Hammett Jerome Blackfoot Wilder St. Anthony Buhl Leadore Hansen Burley Rupert Nampa Dubois Hazelton American Falls Cottonwood Nezperce Genesee Blackfoot Rathdrum Fruitland Ketchum Howe Pocatello Heyburn Moscow Franklin Idaho Falls Nez Perce Aberdeen Cambridge Idaho Falls Shelley Terreton Preston Richfield Caldwell Gooding Nampa Bruneau Grace American Falls Declo Rexburg Blackfoot
73 Fort Hall Avenue, Suite A American Falls, Idaho 83211 (208) 226-1340 370 North Meridian Street, Suite A Blackfoot, Idaho 83221 (208) 782-3800 1408 Pomerelle Avenue, Suite B Burley, Idaho 83318 (208) 678-6650 501 King Street Cottonwood, Idaho 83522 (208) 962-2280 2225 West Broadway, Suite A Idaho Falls, Idaho 83402 (208) 552-2300 2631 Nez Perce Drive, Suite 201 Lewiston, Idaho 83501 (208) 799-4800 16034 Equine Drive Nampa, Idaho 83687 (208) 468-1600 102 North State, Suite 2 Preston, Idaho 83263 (208) 852-2145 1036 Erikson Drive Rexburg, Idaho 83440 (208) 656-2100 815 North College Road Twin Falls, Idaho 83301 (208) 732-1000
Les Arthun Bill Bergin Adam Billmayer Bart Bitz Keven Bradley Sandy Carey Tom Cheetham Calvin Danreuther Nels DeBruycker Vicki Eggebrecht Warren Flynn Conni French Joe Fretheim Beth Granger Greg Grove Chad Hansen Craig Henke Courtney Herzog Dale Hirsch Craig Iverson Tim Johnson Alan Klempel Paul Kronebusch Tim Lake Bill Lauckner, Jr. Kirk Montgomery Bryan Mussard Corie Mydland Traci Mytty Tracey Pearce Shawn Rettig Scott Ruff Dave Sattoriva Nancy Schlepp Dennis Schmierer Kim Skinner Carmie Steffes Steve Swank Kurt Swanson Duane Talcott Dale Tarum Bob Taylor Miles Torske Carl Traeholt Brian Tutvedt Larry Tveit, Jr. Bruce Udelhoven Jeff Volf Mike Wallewein Steve Wood
1001 West Oak Farm Credit Building, Suite 200 Bozeman, Montana 59772 (406) 556-7300 519 South Main Conrad, Montana 59425 (406) 278-4600 134 East Reeder Street Dillon, Montana 59725 (406) 683-1200 501 First Avenue South Glasgow, Montana 59230 (406) 228-3900 700 River Drive South Great Falls, Montana 59405 (406) 268-2200 1705 Highway 2 Northwest, Suite A Havre, Montana 59501 (406) 265-7878
502 South Haynes Miles City, Montana 59301 (406) 233-3100 3021 Palmer Street, Suite B Missoula, Montana 59808 (406) 532-4900
P.O. Box 2515, 1700 S. Assembly St. Spokane, Washington 99220-2515 509.340.5300 | farm-credit.com
OREGON Wilsall Melstone Hogeland Big Sandy Cut Bank Boulder Redstone Loma Choteau Malta Townsend Malta Shelby Great Falls Moccasin Dillon Chester Rapelje Kinsey Winnett Dutton Bloomfield Conrad Polson Nashua Rosebud Dillon Joliet Florence Sheridan Rudyard Custer Hingham Ringling Savage Hall Plevna Chinook Valier Hammond Richland Denton Hardin Wolf Point Kalispell Fairview Winifred Judith Gap Conrad Sheridan
Tech Plaza, Building 1, Suite 300 3490 Gabel Road Billings, Montana 59108 (406) 651-1670
120 Wunderlin Street, Suite 6 Lewistown, Montana 59457 (406) 538-7737
Headquarters
Monet Allen Roben Arnoldus Ed Bair Lori Baley Tim Bare Glenn Barrett John Boyer Greg Brink Ron Brown George Bussman Warren Chamberlain Tim Dahle Dan Dawson Mike DeWall Susan Doverspike Rod Fessler Joe Finegan Bruce Ford Skip Gray Dennis Harmon Ron Hjort Gary Hull Matt Insko Kenneth Jensen Alan Keudell Mark Krautmann David Kunkel Leland Lage Dan C. Lewis Sharon Livingston Bill Martin Scott McClaran Ron Meyer Greg Myers David Neal Mary Olson Larry Parker Alan Parks Amy Doerfler Phelan Vikki Price John Reerslev Stephen Roth Shannon Rust Anna Sullivan Steve Walker
WASHINGTON Montague, CA Cove Klamath Falls Malin Roseburg Bonanza Haines Joseph Milton-Freewater Sixes Vale The Dalles Roseburg Harrisburg Burns Madras Cornelius Hermiston Albany Grants Pass Oakland Lebanon LaGrande Vale Aumsville Salem Portland Hood River Gaston Mt. Vernon Rufus Joseph Talent Tillamook Tangent Monmouth Helix Silver Lake Aumsville Nyssa Junction City Brothers Echo Hereford Stanfield
3370 10th Street, Suite B Baker City, Oregon 97814 (541) 524-2920 2345 N.W. Amberbrook Drive, Suite 100 Beaverton, Oregon 97006 (503) 844-7920 650 E. Pine, Suite 106A Central Point, Oregon 97502 (541) 665-6100 2911 Tennyson Avenue, Suite 301 Eugene, Oregon 97408 (541) 685-6140 300 Klamath Avenue, Suite 200 Klamath Falls, Oregon 97601 (541) 850-7500 378 West Idaho Avenue Ontario, Oregon 97914 (541) 823-2660 12 Southwest Nye Pendleton, Oregon 97801 (541) 278-3300 3113 S. Highway 97, Suite 100 Redmond, Oregon 97756 (541) 504-3500 2222 Northwest Kline Street Roseburg, Oregon 97471 (541) 464-6700 650 Hawthorne Ave. S.E., Suite 210 Salem, Oregon 97301 (503) 373-3000 3591 Klindt Drive, Suite 110 The Dalles, Oregon 97058 (541) 298-3400
Dave Allan Wapato Melissa Bedlington-Kleindel Lynden Jeff Bosma Outlook Russ Byerley Touchet Roger Canfield Olympia Mike Cobb Ephrata Bill denHoed Grandview Richard DeRuwe Dayton Frank DeVries Lynden Scott Eschbach Yakima Patrick Escure Quincy Kevin Filbrun Pasco Stacy Gilmore Pasco Alan Groff Wenatchee Lori Hayles Pasco Jim Kile St. John Cris Kincaid Pullman Jim Klaustermeyer Othello Dave Klaveano Pomeroy Tristan Klesick Stanwood Chris Kontos Walla Walla Steve Krupke Reardan David Lange Colfax Josh Lawrence Royal City Poppie Mantone Bingen Dan McKay Almira Alan Mesman Mt. Vernon John Miller Toledo Pat Murphy Chehalis Chuck Podlich Orondo Jeff Raap Ellensburg Sara Rolfs Wenatchee Derek Schafer Ritzville Jeff Schilter Olympia Danielle Scrupps Ritzville Ben Smith Sequim Jerry Smith Benton City Lori Stonecipher Walla Walla Mark Tudor Grandview Jake Wardenaar Royal City Andy Werkhoven Monroe 265 East George Hopper Road Burlington, Washington 98233 (360) 707-2353 629 South Market Boulevard Chehalis, Washington 98532 (360) 767-1100 224 North Main Colfax, Washington 99111 (509) 397-2840 1501 East Yonezawa Boulevard Moses Lake, Washington 98837 (509) 764-2700 455 East Hemlock Street, Suite D Othello, Washington 99344 (509) 488-2396 9530 Bedford Street Pasco, Washington 99301 (509) 542-3720 1223 Sheridan Avenue, Suite A Prosser, Washington 99350 (509) 786-6400 1900 W. Nickerson Street, Suite 215 Seattle, Washington 98119 (206) 691-2000 1515 S. Technology Blvd., Suite B Spokane, Washington 99224 (509) 340-5600 2735 Allen Road Sunnyside, Washington 98944 (509) 836-3080 1 West Pine Walla Walla, Washington 99362 (509) 525-2400 667 Grant Road, Suite 1 East Wenatchee, Washington 98802 (509) 665-2160 1360 North 16th Avenue Yakima, Washington 98902 (509) 225-3200
123 North Central Avenue Sidney, Montana 59270 (406) 433-3920
yields Spring 2013
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P.O. Box 2515 Spokane, Washington 99220-2515 New address? Please notify your local Northwest FCS office.
Kevin Riel - Board Chair
But that comes with the territory when you’re a farmer or a rancher. You work hard all day with crops and animals. Equipment and machines. You’re on the ground, in the thick of things. At customer-owned Northwest Farm Credit Services, actual farmers and ranchers make up the board and advisory committees that govern the cooperative. These leaders understand ag because they work in it every day.
northwestfcs.com | 800.743.2125