Every day, across the nation, thousands, no, millions of business decisions are made. Some of these are founded on education, research and good business sense. Some are based on reactions and emotions. Some are just fly by the seat of the pants. One decision that gets made regularly I know because I get the e-mails and calls is that where someone has decided to get into or perhaps get back into the cattle business in some shape, form or fashion. Often times this is coupled with someone who has inherited the family farm or who has decided to invest some of their hard-earned dollars into farming and ranching property and would subsequently like to start running a few cows maybe more than a few. Guessing there are probably more folks out there who are in this or a similar position I wanted to share a few thoughts on how one might go about starting from the ground floor. If you have been a rancher all your life, this article may be elementary to you or it may give you some opportunity to reflect on how and why you have gotten to where you are.
Research and Planning is Mandatory
Just because a new cattle producer is, in fact, new or has been away from the industry for a while does not mean that they have to come into an enterprise with their eyes closed. However, what I have recommended to numerous individuals wanting to undertake such an endeavor is to first sit back and reflect on why they are interested in getting into the cattle business and to be honest with themselves. Here are some thoughts that have been passed on to me as to why an individual, family or business group has decided to enter into the cattle business. One or more may be applicable to a new cattlemen:
1) It's something my family has always done and is part of my heritage.
2) I like the lifestyle and/or it's something I'm interested in.
3) I've inherited the family farm/ranch and would really like to get it running again.
4) I've got a number of friends in the business, looks like they are making some money and I'd like to take a shot at it.
5) I feel like there is a certain amount of prestige to being in the cattle business and my friends will be impressed (these folks have obviously never had their arm up in a cow trying to deliver a calf at 2 a.m. in the middle of a rainstorm on New Year's Eve).
6) I feel like it would be a good hobby or leisure activity (please see the note on No. 5 above).
At one time there were a lot of tax incentives to owning a cattle operation so this drove a lot of these types of programs. Unfortunately, this is not so much the case any longer although you definitely need to talk to your CPA before venturing in. Do not get me wrong, there are no wrong reasons, but it is very important that you evaluate WHY you want to be there. Also remember that they need to be your reasons and not some bill of goods that someone has sold you. And finally, no matter how much homework and planning you do, more than likely, fairly soon in the process, Murphy's law will come into play. Above all, if you are entering in because you think this is an opportunity to get rich quick (or get rich at all), stop now, take a couple of asprin and go lay down until the urge passes.
Back to the real purpose of this section. Once you've determined why you want to start your cattle operation it can then be assumed that regardless of the reason you would like it to be at least marginally profitable. I don't know too many people that consider throwing money out the window a recreational sport. This means that some planning and thought needs to go into the start-up process and in initial subsequent input costs, operational costs, marketing programs, product sales, etc. Just like any new business it is very important to develop a business plan. This provides a road-map for you to follow as you go into your project. Also, unless you are flush with cash, you may have the need to procure some financing. A sound business plan is certainly a useful tool in this process as well.
In developing a plan of this sort you need to look at a number of factors. The first step is to decide which sector of the beef industry you would like to involve yourself in. The following is a list of sectors commonly found in the beef industry:
1) Purebred (Seedstock) Producer this type of operation produces breeding cattle which are subsequently resold back into other seedstock operations or to the commercial cattle producer.
2) Commercial Cow/Calf Producer this operation produces cattle that are used primarily for meat production. It also produces a replacements for cows that must be culled far a variety of reasons.
3) Stocker Cattle Producer these operations purchase cattle from commercial breeding operations and grow the cattle by grazing, feeding or a combination and sell them onto the next phase.
4) Preconditioner/Backgrounder this operation can be easily positioned with a stocker cattle operation or can function independently. It's primary function is to act as a go-between one sector and another to assist in preparing growing cattle for the next step in the process. For instance it can be positioned between the ranch and a stocker operation, between the ranch and a feedlot or between a stocker operation and a feedlot.
5) Feedlot This operation feeds cattle from a relatively light weight to a finished weight as dictated by the market and provides cattle for slaughter
6) Meat Packer processor of fattened or finished cattle and sells the meat products to wholesalers or retailers.
One thing to consider is that there are countless variations to this group as well as entities which service the overall infrastructure in one area or another. I have had producers lament the concern to me that eventually the beef industry will become as vertically integrated as the poultry industry, where one entity owns the animals from the time they are born (meaning they would own the cows and control the land too) until the time they are slaughtered and the meat marketed. This is highly unlikely given the amount of resources (especially the land) and time required to produce one animal all the way through this process. It might be possible on a limited scale but in order to produce all the cattle needed to supply a packing house which slaughters 3500 head per day (i.e. an IBP, Excel or Monfort) would require a cow herd of almost 2 million head (estimated cow investment = $1.5 billion) and over 20 million acres of land (estimated land investment of $15 billion) and an estimated labor force of 3000 people with a gross annual salary of around $75 million. This goes to show us that there will be room for the small producer but he needs to be well set up and know his stuff.
After the new, prospective producer considers which sector he is interested in venturing into, he (or she) needs to take stock of his resources. In virtually every case, the first limiting factor is money. The second is time and labor availability.
Let's assume, for argument's sake, that a prospective new producer has decided on one of the first four areas discussed. Obviously, we need to evaluate the pros and cons of getting into each but first let's consider some givens. Each operation will require a certain amount of land. One then has to consider land cost, taxes, location (how or if the operation will effect neighbors), will any environmental issues come into play, etc. Secondly, we'll assume the base forage production will come from the land (i.e. grazing). Where will supplemental forages/feeds come from? Can hay or silage be produced on the property as well, in addition to grazing? Can grass be stockpiled effectively or will all supplemental forage have to be purchased (this is not necessarily a negative). If it is produced on the farm will it be custom harvested or will the producer purchase the equipment and harvest the hay or silage himself? Will any supplemental feeds (grains) be produced on the farm. If so, how will planting/cultivation/harvest take place? Where will the feed/grain be stored? If it is purchased, will it be bought in bulk or in bags (different initial cost factors)?
What handling equipment will be needed? A tractor with a hayfork or front-end loader will be needed to handle most stored forages. What type of cattle handling equipment will be required. At a bare minimum it will require a corral or set of pens to trap and hold cattle for working, treatment or sale. A minimum of a self-catching head-gate will be required to hold cattle for working purposes or to administer veterinary services. A truck and trailer will be necessary to transport cattle to market or bring in new purchases. Will cattle be supplemental fed on the ground or in bunks or troughs? There is not necessarily one right answer to these questions but they need to be thought through and the decision made concerning which will be right for your operation.
Purebred or Seedstock Producer: The first concern will be the initial investment into the base herd. Purebred cattle, since you are purchasing a set of genetics are more expensive than commercial animals. This is true for several reasons including, knowledge of the sire and dam and subsequent generations back, performance information on a number of production traits (milking ability, weaning weights, yearling weights, calving ease, etc.). Building a good purebred herd takes time and a LOT of study. The best breeders I know are almost obsessed with the background information of their herds and where they will go from where they are today. When it comes to purebred cattle, the sky is almost the limit on what they can cost. Once you have these cattle purchased then you have to figure out how or where you are going to sell the offspring (bulls and heifers). Frankly this is a component of the program that needs to come first. In many cases it is quite simple for an individual to get involved in this or any other sector of the business, it primarily requires the money to purchase the initial breeding animals. Selling or marketing their offspring in a manner that is appropriate for the enterprise is another story. It is simply not cost effective to purchase purebred animals at the prices they normally command then to only sell them through the typical commercial auction facility. When establishing a purebred program, it is very important that you simultaneously develop your marketing program. The breeders you are purchasing your base stock from, and/or the breed association can help. Once again it is very important to do your homework to determine which breeds are in significant demand in the overall industry. Unfortunately, due to the large number of breeds and the diversity that exists, some are in greater demand than others.
Commercial Cow/Calf Operations: Commercial operations are typically the norm and are far more numerous than purebred operations. Buying into a commercial operation is less expensive than a purebred operation simply because the cattle command a lower price per head. Good quality commercial replacement females are always in demand, however and in many cases are not significantly cheaper than purebred females in some instances. In many cases a commercial operation may be comprised of a herd of cows that are more or less of one breed and are crossed with bulls of another breed to produce calves that exhibit traits of both the breeds. In many cases this crossbreeding program, especially if well designed, produces offspring which exhibit hybrid
vigor or an improvement in certain performance characteristics such as gains or feed efficiency over the average performance common to one of the parental breeds. The offspring here are used, in many cases in two ways. One is to produce steers and heifers which will ultimately be used for beef production. Second is to produce replacement heifers which may come back into the herd or may be sold as commercial replacement. Once again, it is very important to evaluate the markets to determine how these cattle will be sold to produce your income. Depending on your operation size you have the option of selling through your local auction facility (this is the simplest), to a local order buyer (someone who deals in cattle, this is a little more complicated), through video or internet sales or directly to another producer who will take these cattle through the next phase of production. In many cases a commercial operation is position where it can take advantage of other sectors as well as the production and sale of commercial cattle as noted. Depending on the land and capital resource you have it may be feasible to incorporate a small purebred operation or possibly a stocker cattle or cattle growing operation as well.
As you can begin to see there are a lot of options that have to be considered and a lot of questions to be answered. In the next part of this series we will evaluate other sectors in the beef industry and consider the positives and negatives of these types of operations as well.
Dr. Steve Blezinger is a nutritional and management consultant with an office in Sulphur Springs, TX. He can be reached at 667 CR 4711 Sulphur Springs, TX 75482, by phone at (903) 885-7992 or by e-mail at [email protected]