View
216
Download
2
Tags:
Embed Size (px)
DESCRIPTION
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.
Citation preview
Spring 2013
ManagingVolatility
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.
Peer Financial Benchmarks > 3
Knowledge Center > 12
Market Snapshots and Business Tools > 13-14
Dr. Gary Brester > Competitive Advantages
for Northwest Cattle Producers > 15
yiel
dsWho 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 DirectorsKevin 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 YieldsYields 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.
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.
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.
TrustedAdvisors
yields Spring 2013 | 2
Phil DiPofi, President and CEO
3 | Nor thwest Farm Credit Ser vices
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 “what-if” 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.
Northwest FCS Peer Financial Benchmarks – CattleJohn Gates, Northwest FCS Relationship Manager/VPCattle Knowledge Center Team
Peer Average
Gross Farm Income per AU $1,026 $870 -$156
Cattle Income per AU $832 $820 -$12
Cost of Production per AU $738 $598 -$140
Base Operating Expense per AU $649 $562 -$87
Net Farm Income per AU $288 $272 -$16
Feed Cost per AU $109 $131 $22
Vet & Medicine Cost per AU $24 $18 -$6
Labor Cost per AU $58 $0 -$58
Taxes & Living per AU $79 $28 -$51
Net Non-Farm Income per AU $57 $0 -$57
Debt Service per AU $119 $158 $39
Term Debt per AU $828 $746 -$82
Working Capital per AU $543 $148 -$395
Sample Ranch
2011 2011 Variance
Pe
r H
ea
d M
ea
sure
s
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.
yields Spring 2013 | 4
Northwest FCSPeer Financial Benchmarks
• Cattle
• Dairy
• Forest Products
• Hay
• Nursery/Greenhouse
• Row Crops
• Small Grains (Wheat)
• Tree Fruit - Producer andVertically Integrated
• Oregon Winery
• Washington Wine Grape
$300
$400
$500
$600
$700
$800
$900
2007 2008 2009 2010 2011 2012
Base Operating Expense per AU
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
2007 2008 2009 2010 2011 2012
Net Farm Income per AU
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.
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2007 2008 2009 2010 2011 2012
Debt Coverage Ratio
Middle 50 Percent Peer Average Sample Ranch
Middle 50 Percent Peer Average Sample Ranch Middle 50 Percent Peer Average Sample Ranch
Sample Charts
5 | Nor thwest Farm Credit Ser vices
ManagingVolatility
yields Spring 2013 | 6
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.
7 | Nor thwest Farm Credit Ser vices
If everything comes down to supply
and demand, high beef and cattle
prices would normally signal produc-
ers to expand their herds. Yet surpris-
ingly, U.S. cattle numbers continue to
decline as prices reach record levels.
To understand the volatility in the
beef industry today, it’s important to
start with the cattle production cycle .
Bringing beef to the plates of consum-
ers is a multi-stage process. While
there is some vertical integration,
most cattle operations focus on just
one or two aspects of the food chain.
First, purebred cattle producers, or
‘seed-stock’ producers, improve the
genetic make-up of cattle that are
bred into U.S. herds. Larger animals
produce more beef. Thanks to im-
proved genetics, beef production in
the United States reflects levels con-
sistent with a much larger herd size.
Seed stock is sold to cow/calf
producers who maintain the herd
through the calving process. Calves
born in the spring are usually
weaned in the fall weighing 450 to
600 pounds. From there, the goal is
to add weight or ‘background’ calves
– on the range or in a feed lot – as
they grow into yearlings weighing
800 to 950 pounds. Generally, U.S.
consumers prefer the taste of grain-
fed beef, so most cattle are sold to
commercial feedlots where they’re
finished on a grain-rich ration.
Commercial feedlots and meat
packers are primarily centered in
the Midwest closer to the nation’s
corn belt which was devastated by
drought conditions last year.
Cow/calf producers are in the driver’s
seat of the beef industry today, with
limited supply and high calf prices.
But, making decisions to expand
Factors Limiting Cattle Herd Expansion• Historically, agricultural pro-
ducers have raised livestock to generate additional in-come, diversify, and manage income risk. Today, subsidized crop insurance programs may be providing a less expensive risk-management alternative to livestock production.
• The age profile of U.S. agricul-tural producers is increasing. As producers age, they tend to focus more on crop pro-duction which is less physi-cally 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 heif-ers, income is deferred for two years. The uncertainty surrounding future input costs and calf prices may be tempering producer appetite for risk.
U.S. Drought Conditions August 21, 2012
Data Sources: U.S. Drought Monitor, National Drought Mitigation Center,U.S. Department of Agriculture and the National Oceanic and Atmospheric Administration
Abnormally Dry Moderate Drought Severe Drought Extreme Drought Exceptional Drought
yields Spring 2013 | 8
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 middleBill Bergin manages his
business in the middle. Like
most Montana ranchers, he
runs a cow/calf operation. But
instead of selling calves in the
fall, he feeds them through
the winter and spring to add
valuable pounds. Plus, he buys
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.
“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
irrigated ground you can grow your own feed. But
everything depends on conditions. Last year I was
selling hay early and then the drought hit. By the end, I
was buying hay to mix into our feed rations. Prices went
from $115/ton to around $250/ton delivered.”
Managing feed costsTo 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
the pivots,
reducing
tractor time
in the field.
And pivots
use about
half the water
of traditional
flood irriga-
tion. The
Bergins grow
corn, corn for
silage, alfalfa, sorghum, Sudan grass, barley and wheat
to use in their cattle rations.
Bill Bergin
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.
9 | Nor thwest Farm Credit Ser vices
“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 The Bergins continue to find ways to reduce costs and
improve efficiency. They use the latest farm technology
– automatic steering and Global Positioning Systems –
to ultimately save money on seed and fuel. And, reduce
operator error. To adapt and progress, Bill upgrades
machinery while there’s still value left in the older
technology. He says you won’t believe how precise the
innovations get from one generation to the next.
Controlling the variablesWhen it comes to managing volatility, Bill turns to
the numbers. With an enterprise budget he estimates
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.
“Every aspect of the business needs a budget to
formulate the plan,” says Bill. “Markets go up and down.
There are a million variables. To manage risk we try to
protect the price of our inputs and protect the price
of our cattle. The more variables we can lock up, the
better off we are. I’ve already contracted the price for
our diesel this year so it’s a fixed cost in our budget. If
something happens in the Middle East we’re protected.
If the economy crashes I may have missed out on a
better price. But, if we stay within our budgets we’ll
come out ahead.”
“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
$90
$100
$110
$120
$130
$140
$150
$160
$170
$180
$190
$/cw
t
550# Steer Price Breakeven Top Range Bottom Range
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.
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?
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?
Marketing Playing Field Sample
What do cattle futures tell you about the direction of the market? What do market fundamentals suggest? Where are input costs headed?
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?
yields Spring 2013 | 10
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 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
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-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, pre-conditioning, etc.”
– John Gates, Northwest FCS Relationship Manager
11 | Nor thwest Farm Credit Ser vices
Using trusted advisorsThe Begins use trusted advisors to make wise risk-
management decisions. They work closely with an
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 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
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.”
“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 aheadIn 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.
Northwest FCS Relationship Manager John Gates and Bill Bergin overlook rangeland areas impacted by wildfires in 2012.
yields Spring 2013 | 12
Knowledge TeamsKnowledge 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:
• Cattle
• Dairy
• Forest products
• Hay
• Nursery/greenhouse
• Row crops
• Small grains
• Tree fruit
• Wine/vineyard
• Rural property investors
• Processors and manufacturers
Knowledge Center Tools• 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.
• Industry Symposiums bring customers, staff, and industry experts together to share information and network with others in the business.
• 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.
Knowledge CenterThe 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.
For more information contact the Northwest FCS Knowledge Center
800.743.2125, ext. 5428or visit northwestfcs.com/resources
2013 Industry Symposiums
May Cattle Symposium – Billings, Mont. and Great Falls, Mont. June Row Crops Symposium – Pasco, Wash. June Forest Products Symposium – Portland, Ore. July Dairy Symposium – Twin Falls, Idaho July 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.
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.
Market Snapshots
13 | Nor thwest Farm Credit Ser vices
To receive the Knowledge Center e-newsletter and accessNorthwest FCS Resources, visit
northwestfcs.com/resourcesor call 800.743.2125 ext. 5428
yields Spring 2013 | 14
Risk Management PlanningIn 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 PlanningFarm 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 MadeEvery 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 StatementsThoroughly understanding your business’ financial performance is critical for success in today’s increasingly competitive agricultural environment.
Financing Agriculture: The Business Borrower-Lender RelationshipOne of the most critical decisions a businessperson makes is choosing a lender.
Land Buying ChecklistBuying, 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 BenchmarksHow 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.
Business Management PublicationsNorthwest FCS recognizes the vital role of management decisions in the success of an agricultural business, and offers publications discussing various management topics for producers.
To access these Business Management Publications, visit
northwestfcs.com/resources
15 | Nor thwest Farm Credit Ser vices
Northwest Competitive Advantage in the U.S. Cattle IndustryFlexibility and Risk Management
Dr. Gary Brester, ProfessorDept. of Agricultural EconomicsMontana State University
The prices of agricultural
commodities are ultimately
dictated by demand and
supply. Increased demand
for beef by consumers in
the United States and foreign countries places upward
pressure on cattle prices and vice versa. Hence, the
factors that influence consumer demand play a critical
role in cattle producer profitability.
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.
Understanding these factors is important for cattle
producers’ strategic planning. This may be especially
important for Northwest producers who often struggle
to compete with the scale of backgrounding and feeding
operations in other parts of the United States.
Demand DriversAfter declining for many years, U.S. beef demand
regained some ground between 1998 and 2008. However,
demand has flattened over the past several years
primarily due to the lingering effects of the U.S. recession.
Yet, the price of beef remains much higher than the price
of other animal protein substitutes. Consumers expect to
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.
Demand appears to be increasing in many foreign
markets and U.S. beef exports are at record levels. As
per capita incomes in developing countries increase,
consumers substitute animal-sourced protein for plant
sources. Foreign demand for U.S. beef will continue to be
a strong driving force for U.S. cattle prices provided that
food safety, age and source verification, product quality,
and market access issues continue to be addressed by the
industry in a positive fashion.
Supply DriversBarring 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.
This trend will likely continue in the near future.
World cattle inventories declined between 1999 and
2012. However, the percentage declines were much
higher in traditional beef exporting countries. World
cattle numbers would be much lower if not for increases
in Brazil and India. But, productivity in both of these
countries continues to be quite low so that cattle
inventory increases did not provide substantial increases
in beef production. Although world beef production
increased substantially between 1980 and 2007,
production has declined about 4 percent over the past
five years.
The U.S. inventory of cattle and calves totaled only 89.3
million head on January 1, 2013 which is the lowest
level since 1952. This represents a 1.6 percent decline
from to a year ago. Once the data are available, the
2012 calf crop will likely be 800,000 head less than that
occurring in 2011. The 2013 calf crop will certainly be
even smaller and will likely reach levels not experienced
since the 1950s. Although cattle numbers have declined
substantially since their record level of 132 million head
in 1975, productivity increases have kept beef production
from declining at the same rate. However, cattle numbers
have now reached a level in which production declines
are expected to occur.
In 2012, U.S. commercial cattle slaughter numbers
declined 3.4 percent from a year earlier and reached their
lowest level since 2005. However, record average dressed
slaughter weights (859 pounds) offset some of this
decline such that overall production (25.9 billion pounds)
was only 1.2 percent lower than the previous year.
In 2013, beef production is expected to be at its lowest
level (24.6 billion pounds) since 2004. Cattle slaughter
in 2013 is forecast to decline across all categories (steers,
heifers, cows, and bulls). For the year, slaughter numbers
are expected to be 4 percent to 6 percent lower than that
occurring in 2012, and cattle slaughter weights will likely
return to trend levels. The combination will probably
cause 2013 U.S. beef production to decline 5 percent
from 2012 levels. Furthermore, declining cattle numbers
will likely generate lower beef production in 2014.
Forecasts indicate that production may decline to 23.5
billion pounds, which would be the lowest level since
1993. Finally, reductions in worldwide production have
also caused U.S. beef imports to decline even though
domestic U.S. beef prices are at record levels.
FlexibilityThe Northwest has strong advantages over other
regions in calf production. However, weather, scale,
distance to market, and feed availability are all factors
which place many producers of feeder and fed cattle at
a disadvantage relative to other U.S. regions. Yet, many
producers overcome these disadvantages by engaging in
activities that create value but are often not attractive to
larger production systems.
For example, it is relatively expensive for large
backgrounders/feedlots to alter their portfolio of feed
inputs given the volume of feed that must be fed
each day. However, smaller producers can often use
their entrepreneurial skills to find lower-priced feed
ingredients and alter their usage in feed mixes. Such
activities can help smaller producers compete with larger
operations. In addition, many larger operations do not
have the ability to tailor feeding programs to animals of
different weights or classes. Smaller operations are often
less committed to purchasing specific-sized animals. In
addition, many smaller operations have the flexibility
to feed cows or maintain the weights of bred heifers on
a custom basis. Such flexibilities offer opportunities for
producers in non-traditional backgrounding and feeding
areas to create value and compete with larger operations.
Risk ManagementBecause of weather, agricultural commodity prices
have always experienced a relatively large amount of
variability. Such risks can be reduced through the use of a
variety of tools including forward contracting, futures and
options markets, diversification, and insurance. Given that
Northwest cattle producers are often unable to compete
on a cost basis with other production regions, the
management of price and production risk is often highly
important for sustained profitability.
For farmer/feeders, the use of revenue-based crop
insurance can mitigate the effects of weather and price
variability. For backgrounders, forage insurance products
(e.g., rainfall insurance or the Non-insured Assistance
Program) can help offset some of the effects of drought.
In terms of cattle prices, Livestock Revenue Protection
products, futures markets, options, and forward
contracting are commonly being used to manage risk.
yields Spring 2013 | 16
17 | Nor thwest Farm Credit Ser vices
Since we can’t predict when hail will strike,apply for HAIL COVERAGE before it’s too late.
THE FORECAST CALLS FORUNCERTAINTY
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.
IDAHORobert Ball HamerCody Bingham JeromeJeff Blanksma, Jr. HammettAdrian Boer JeromeRay Carlson BlackfootBill Clayton WilderCade Crapo St. AnthonyRon Elkin BuhlCarl Ellsworth LeadoreDavid Funk HansenLeRoy Funk BurleyBrent Griffin RupertJohn Hepton NampaJackie Hillman DuboisBrian Huettig HazeltonKen Koompin American FallsKaren Lustig CottonwoodMarty Luxa NezperceDan Mader GeneseeRay Matsuura BlackfootKyle Meyer RathdrumRon Mio FruitlandGreg Moss KetchumKirk Nickerson HoweJeff Pahl PocatelloLisa Patterson HeyburnErick Peterson MoscowDavid Rallison FranklinD. Brad Reed Idaho FallsNate Riggers Nez PerceDoug Ruff AberdeenRoyce Schwenkfelder CambridgeKirt Schwieder Idaho FallsScott Searle ShelleyTodd Simmons TerretonRobert Swainston PrestonRyan Telford RichfieldBernie Teunissen CaldwellDale Thomas GoodingCamellia Thurgood NampaJustin Tindall BruneauSteven Toone GraceJames Udy American FallsTodd Webb DecloShawn Webster RexburgBerkley Wray Blackfoot
73 Fort Hall Avenue, Suite AAmerican Falls, Idaho 83211(208) 226-1340
370 North Meridian Street, Suite ABlackfoot, Idaho 83221(208) 782-3800
1408 Pomerelle Avenue, Suite BBurley, Idaho 83318(208) 678-6650
501 King StreetCottonwood, Idaho 83522(208) 962-2280
2225 West Broadway, Suite AIdaho Falls, Idaho 83402(208) 552-2300
2631 Nez Perce Drive, Suite 201Lewiston, Idaho 83501(208) 799-4800
16034 Equine DriveNampa, Idaho 83687(208) 468-1600
102 North State, Suite 2Preston, Idaho 83263(208) 852-2145
1036 Erikson DriveRexburg, Idaho 83440(208) 656-2100
815 North College RoadTwin Falls, Idaho 83301(208) 732-1000
MONTANALes Arthun WilsallBill Bergin MelstoneAdam Billmayer HogelandBart Bitz Big SandyKeven Bradley Cut BankSandy Carey BoulderTom Cheetham RedstoneCalvin Danreuther LomaNels DeBruycker ChoteauVicki Eggebrecht MaltaWarren Flynn TownsendConni French MaltaJoe Fretheim ShelbyBeth Granger Great FallsGreg Grove MoccasinChad Hansen DillonCraig Henke ChesterCourtney Herzog RapeljeDale Hirsch KinseyCraig Iverson WinnettTim Johnson DuttonAlan Klempel BloomfieldPaul Kronebusch ConradTim Lake PolsonBill Lauckner, Jr. NashuaKirk Montgomery RosebudBryan Mussard DillonCorie Mydland JolietTraci Mytty FlorenceTracey Pearce SheridanShawn Rettig RudyardScott Ruff CusterDave Sattoriva HinghamNancy Schlepp RinglingDennis Schmierer SavageKim Skinner HallCarmie Steffes PlevnaSteve Swank ChinookKurt Swanson ValierDuane Talcott HammondDale Tarum RichlandBob Taylor DentonMiles Torske HardinCarl Traeholt Wolf PointBrian Tutvedt KalispellLarry Tveit, Jr. FairviewBruce Udelhoven WinifredJeff Volf Judith GapMike Wallewein ConradSteve Wood Sheridan
Tech Plaza, Building 1, Suite 3003490 Gabel RoadBillings, Montana 59108(406) 651-1670
1001 West OakFarm Credit Building, Suite 200Bozeman, Montana 59772(406) 556-7300
519 South MainConrad, Montana 59425(406) 278-4600
134 East Reeder StreetDillon, Montana 59725(406) 683-1200
501 First Avenue SouthGlasgow, Montana 59230(406) 228-3900
700 River Drive SouthGreat Falls, Montana 59405(406) 268-2200
1705 Highway 2 Northwest, Suite AHavre, Montana 59501(406) 265-7878
120 Wunderlin Street, Suite 6Lewistown, Montana 59457(406) 538-7737
502 South HaynesMiles City, Montana 59301(406) 233-3100
3021 Palmer Street, Suite BMissoula, Montana 59808(406) 532-4900
123 North Central AvenueSidney, Montana 59270(406) 433-3920
OREGONMonet Allen Montague, CARoben Arnoldus CoveEd Bair Klamath FallsLori Baley MalinTim Bare RoseburgGlenn Barrett BonanzaJohn Boyer HainesGreg Brink JosephRon Brown Milton-FreewaterGeorge Bussman SixesWarren Chamberlain ValeTim Dahle The DallesDan Dawson RoseburgMike DeWall HarrisburgSusan Doverspike BurnsRod Fessler MadrasJoe Finegan CorneliusBruce Ford HermistonSkip Gray AlbanyDennis Harmon Grants PassRon Hjort OaklandGary Hull LebanonMatt Insko LaGrandeKenneth Jensen ValeAlan Keudell AumsvilleMark Krautmann SalemDavid Kunkel PortlandLeland Lage Hood RiverDan C. Lewis GastonSharon Livingston Mt. VernonBill Martin RufusScott McClaran JosephRon Meyer TalentGreg Myers TillamookDavid Neal TangentMary Olson MonmouthLarry Parker HelixAlan Parks Silver LakeAmy Doerfler Phelan AumsvilleVikki Price NyssaJohn Reerslev Junction CityStephen Roth BrothersShannon Rust EchoAnna Sullivan HerefordSteve Walker Stanfield
3370 10th Street, Suite BBaker City, Oregon 97814(541) 524-2920
2345 N.W. Amberbrook Drive, Suite 100Beaverton, Oregon 97006(503) 844-7920
650 E. Pine, Suite 106ACentral Point, Oregon 97502(541) 665-6100
2911 Tennyson Avenue, Suite 301Eugene, Oregon 97408(541) 685-6140
300 Klamath Avenue, Suite 200Klamath Falls, Oregon 97601(541) 850-7500
378 West Idaho AvenueOntario, Oregon 97914(541) 823-2660
12 Southwest NyePendleton, Oregon 97801(541) 278-3300
3113 S. Highway 97, Suite 100Redmond, Oregon 97756(541) 504-3500
2222 Northwest Kline StreetRoseburg, Oregon 97471(541) 464-6700
650 Hawthorne Ave. S.E., Suite 210Salem, Oregon 97301(503) 373-3000
3591 Klindt Drive, Suite 110The Dalles, Oregon 97058(541) 298-3400
WASHINGTONDave Allan WapatoMelissa Bedlington-Kleindel LyndenJeff Bosma OutlookRuss Byerley TouchetRoger Canfield OlympiaMike Cobb EphrataBill denHoed GrandviewRichard DeRuwe DaytonFrank DeVries LyndenScott Eschbach YakimaPatrick Escure QuincyKevin Filbrun PascoStacy Gilmore PascoAlan Groff WenatcheeLori Hayles PascoJim Kile St. JohnCris Kincaid PullmanJim Klaustermeyer OthelloDave Klaveano PomeroyTristan Klesick StanwoodChris Kontos Walla WallaSteve Krupke ReardanDavid Lange ColfaxJosh Lawrence Royal CityPoppie Mantone BingenDan McKay AlmiraAlan Mesman Mt. VernonJohn Miller ToledoPat Murphy ChehalisChuck Podlich OrondoJeff Raap EllensburgSara Rolfs WenatcheeDerek Schafer RitzvilleJeff Schilter OlympiaDanielle Scrupps RitzvilleBen Smith SequimJerry Smith Benton CityLori Stonecipher Walla WallaMark Tudor GrandviewJake Wardenaar Royal CityAndy Werkhoven Monroe
265 East George Hopper RoadBurlington, Washington 98233(360) 707-2353
629 South Market BoulevardChehalis, Washington 98532(360) 767-1100
224 North MainColfax, Washington 99111(509) 397-2840
1501 East Yonezawa BoulevardMoses Lake, Washington 98837(509) 764-2700
455 East Hemlock Street, Suite DOthello, Washington 99344(509) 488-2396
9530 Bedford StreetPasco, Washington 99301(509) 542-3720
1223 Sheridan Avenue, Suite AProsser, Washington 99350(509) 786-6400
1900 W. Nickerson Street, Suite 215Seattle, Washington 98119(206) 691-2000
1515 S. Technology Blvd., Suite BSpokane, Washington 99224(509) 340-5600
2735 Allen RoadSunnyside, Washington 98944(509) 836-3080
1 West PineWalla Walla, Washington 99362(509) 525-2400
667 Grant Road, Suite 1East Wenatchee, Washington 98802(509) 665-2160
1360 North 16th AvenueYakima, Washington 98902(509) 225-3200
advisors and locations HeadquartersP.O. Box 2515, 1700 S. Assembly St.Spokane, Washington 99220-2515509.340.5300 | farm-credit.com
local
yields Spring 2013 | 18
P.O. Box 2515Spokane, Washington 99220-2515
New address?Please notify your local Northwest FCS office.
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
Kevin Riel - Board Chair