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Last Updated on Saturday, 17 March 2012 13:43

Written by Saige Albert

Cheyenne – With economic uncertainty, food insecurity and new technology on the horizon, managing risk to remain in production is crucial, according to Executive Director of the Wyoming Ag Business Association and Wyoming Wheat Marketing Commission Keith Kennedy.
    “Risk is thinking about change and the possibility or probability of a bad outcome,” he said. “Risk management is about choosing among alternatives and what we do with management practices.”
    Agriculture risk, production risk, market risks, human risk and legal risk are factors that ag producers encounter daily, and at the Wyoming Farm Bureau legislative meeting on Feb. 28, Kennedy noted that there are opportunities to manage risk to avoid devastation, while still reaping rewards.
Transfer the risks
    “Producers can transfer risk with hedging, futures, options or contracting, for example,” he explained. “The basic idea is to take the valleys out of market fluctuations and set a floor under what you get.”
    Because of the market fluctuation, Kennedy mentioned that averages end up being about the same from year to year, but transferring risk protects producers from terrible losses. An important note, however, is that some loss may still be incurred.
    “It doesn’t protect from all the loss, and we give up some of the topside,” he said, “but we protect the places where we are most at risk, or where there are huge dips.”
Protection from the worst
    Insurance options are available to help producers ensure that a particularly bad year doesn’t break the operation, but Kennedy also cautioned against going too far. Crop, livestock and pasture insurance programs are all available to provide protection against risk.
    “If you’ve got a sure thing, there is no profit left and no upside anymore,” he explained. “Beyond 85 to 90 percent insurance coverage, we have covered our risks so well that our return is only what we get back from the policy.”
    Eliminating risk by over-insuring erases the possibility for larger profits, he said, and there are other ways to manage risk.
Diversification
    Diversifying an operation can provide multiple sources of income to mitigate devastating losses in a specific industry segment, but cautions are to be had in diversification, as well.
    “Don’t put all your eggs in one basket,” said Kennedy, but, at the same time, cautioned, “If you’re getting into something new, take baby steps.”
    He continued that jumping in to a new technology or an emerging market may prove to be unsuccessful, noting that often first-generation technology is slightly flawed, or emerging markets may fizzle.
    Producers are already aware of their options to diversify, and many take advantage of it, said Kennedy, encouraging that producers should also look into synthetic diversification.
    “The price of corn matters when you are in the cattle business, so think about, for example, setting a call on corn,” suggested Kennedy. “If the price of corn goes up, you can recapture some value, and it will show up.”
    “Even if you can’t grow corn or diversify in your own operation, having the right to some corn at a price where you make money on your feeder cattle will offset what you lose if the price of corn goes through the roof,” he continued.
Playing favorites
    In operations that are diversified, Kennedy noted that analyzing different aspects of an operation can identify areas for improvement.
    “We tend to do some things because we have to, and others because we enjoy them,” he said. “It’s easy to play favorites.”
    However, in paying more attention to one aspect of an operation, other areas will suffer and more risk will be incurred.
    Thinking about risk management strategies and goals is important for producers, and Kennedy mentioned, “Think about problems versus predicaments. Problems have a range of solutions, but predicaments have outcomes.”
    By solving problems and protecting an operation against predicaments, risk can be effectively managed and profits can be made.
    Saige Albert is editor of the Wyoming Livestock Roundup and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. .

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Last Updated on Monday, 27 July 2009 10:12

Written by Christy Hemken

Worland – A session led by UW Extension Farm Management Specialist John Hewlett at WESTI Ag Days in early February focused on estimating machinery costs using the Wyoming Machinery and Operating Costs Bulletin.
    Compiled in 1993, the bulletin provides a basis to estimate machinery costs and outlines how to do that for one’s own operation. In addition, there is now software that will help an operator accomplish the same thing.
    “With machinery costs, there are two categories we’re worried about – ownership, or fixed costs that remain constant and variable, or operating costs that increase the more you use the machinery. The two of those together make the total cost,” said Hewlett.
    Averages dictate that machinery and the labor to run the machine total 30 percent of the costs on a farm in the Big Horn Basin. “Machinery costs are high, and we can’t take them away. They have a direct impact on the bottom line, and if we can better manage them we can help increase our dollars of return,” noted Hewlett. “It’s not unusual that 30 to 50 percent of an operation’s costs are made up by machinery and related services in a typical farm situation.”
    Fixed costs on machinery include taxes, housing, insurance and depreciation. “Housing is important. If you keep equipment shedded it won’t wear out as fast and have as high of repair bills,” he explained. “You’ll either have that cost in repairs or in housing.
    He mentions insurance against theft, fire or vandalism and depreciation due to wear, age and obsolescence. “Depreciation is the sense of management,” he stated. “You need to allocate the initial cost of the machine over its useful life, or how long you’d expect a $100,000 tractor to last. You can’t assign that cost to one crop next year, but you need to allocate some of that initial crop and each crop you produce.”
    Fixed costs also include long-term interest. “You need to charge yourself for the capital tied up in that machine after purchase, whether you purchased it with your own funds or borrowed. Either way there’s an interest charge associated with that machine and it ought to be returning some sort of rate of return.”
    Hewlett said the variable costs are the ones that get noticed most often. “Many of your fixed costs are non-cash, but you’ve got to pay the variable costs on a regular basis, including fuel and maintenance.”
    Fuel and lubrication includes fuel, obviously, as well as grease, oil, hydraulic fluids the labor that goes into fueling and lubricating the machine. Repair and maintenance include all costs to keep the machine in working condition, including parts, welding and other services, as well as the labor that makes it happen. “That includes not only off-farm costs, but what we’re doing on-farm with our own labor and parts,” said Hewlett. “That needs to be accounted for.”
    Another variable cost is the labor to operate the machine, whether that be day labor, hired labor or owner labor. “There needs to be an hourly charge for someone to sit on the tractor and make it go down the row,” instructed Hewlett.
    UW’s machinery costs bulletin goes down through each cost, describing it and giving  the method for calculating it. The results are given on either an annual basis or per hour for a number of different machines and implements.
    “We’ve provided some background to allow operators to see if the tables match up with their equipment. Typically people don’t have the list price, and if it’s older equipment that you’re not quite sure of the value, the table gives you an estimate of list prices,” said Hewlett. UW came up with those figures through a survey of machinery dealers around Wyoming.
    Hewlett said the university has again collected similar data to update the bulletin. “But even brand new data needs to be reflective of your situation. The best data is your own information if you can come up with it.”
    Why go to all the trouble of figuring out exactly what it costs to operate your machinery? Hewlett said the data is helpful in estimating the cost and return of various enterprises. “Accurately estimating the machinery cost is an important piece of estimating the total cost of an enterprise,” he said. “Then you can calculate various break even points.”
    He said one scenario when this is extremely helpful is setting custom rates. “If you do any custom work, having the ability to calculate the cost of operating your machinery is a whole lot better than looking it up in a custom rates guide, because that’s just a survey of operators and can vary greatly. You’ve got to calculate the rate for your particular situation.”
    Both the Wyoming Machinery and Operating Costs Bulletin and the Wyoming Machinery Cost Calculation software are available through the UW Extension website. Christy Hemken is assistant editor of the Wyoming Livestock Roundup and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. .

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Last Updated on Monday, 19 May 2008 07:30

Written by Jennifer Womack

Fuel costs keep challenging Wyo ag

    “Our fuel expenses have gone up from first quarter of ‘07 to first quarter ‘08 by 60 percent,” says Dennis Huckfeldt, owner of Torrington-based Huckfeldt Trucking.
    Pull into the local truck stop to fuel up your tractor trailer and he says, “Right now, on today’s prices, it’s going to cost $1,100 to $1,150.”
    The U.S. Energy Information Administration predicts diesel will average $3.62 per gallon in 2008, 26 percent higher than the 2007 average. So far in 2008, diesel prices have risen more than 18 percent.
    “Fuel price crisis,” is the term the American Trucking Association (ATA) uses to refer to the problem they say is a threat to the backbone of America’s economy - the trucking industry. It’s also a crisis driving the cost of nearly every input for American agriculture. “At the current price, compared with five years earlier,” says information from the ATA, “it costs 155 percent, or $720, more to fuel up a typical tractor-trailer. Compared with 10 years earlier, it costs 271 percent, or $866, more to fuel up a typical tractor-trailer.” ATA says a one-cent change in diesel prices results in a million dollar a year difference for the nation’s trucking industry.
    “First quarter of ‘07 to first quarter of ’08 I have not raised my freight charges,” says Huckfeldt, “but my fuel surcharge has gone up 58 percent from a year ago to this year.” It’s a difficult situation for Huckfeldt Trucking and its customers for multiple reasons.
    It’s not the only area where Wyoming agriculture is seeing increased costs. “If you got it, it was brought by a truck,” says Huckfeldt. “Fuel surcharges are going up on all of the industry.” He adds, “It’s also affecting anything made from, or using, petroleum. On anything from paper to cows, it all has to do with trucking.”
    “It’s affecting every single thing we do, not just what shows at the pump or on the fuel bill,” says Greybull rancher Mary Flitner. “Everything we do, everywhere we go, everything we grow or buy or sell has its worth altered by fuel costs, probably several times along the way. We’ll have to hope our market allows us to pass this cost on, as other industries are doing.”
    “We’re seeing it a lot with farmers and the inputs for their fields,” says Jana Shimic of Lingle-based L&M Irrigation. “Fertilizer has more than doubled.” Noting that underground irrigation pipe is a petroleum-based product she adds, “The cost of fuel has not only affected our grain business, but our irrigation business as well.”
    While grain prices have gone up, Shimic says farmers aren’t making more money than before because of escalating input costs. “It’s not better than it was before, we’re just operating at a higher level than we were,” she explains.
    Fuel efficiency has consistently increased since Huckfeldt’s grandfather launched the trucking business in 1942, but he says he’d like to see that effort continue. By reducing speeds and running a smaller generator for overnight stays, he says the industry is doing its part to make fuel go farther. His business has also added fairings to the tops of trucks to make them more aerodynamic. “We’re also trying to work more loaded miles versus miles ran,” he says, noting that’s easier in some segments of the industry. Hauling cattle usually calls for running only one direction loaded.
    Huckfeldt would also like to see the state reconsider its weight limits on highways, but says he realizes there are trade-offs with road damage and maintenance. “We need to work with alternative fuels, not necessarily for the transportation sector, but in the energy generation industry,” he says. “All of that would cut petroleum free to be used for cars and trucks.”
    Jennifer Womack is managing editor of the Wyoming Livestock Roundup. Send comments on this article to This email address is being protected from spambots. You need JavaScript enabled to view it. .

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Last Updated on Friday, 03 April 2009 10:02

Written by Jennifer Womack

Casper – There’s something to support nearly every viewpoint amidst the 2009 predictions for American agriculture. There are also a few viewpoints that are sure to inspire a good, old-fashioned family debate around the kitchen table.
    If one federal agency is correct, corn prices are heading for a decade-long slump below $4 as production in the U.S. catches up with demand. According to an article on the Livestock Marketing Association’s news pages, that’s the prediction from the Congressional Budget Office (CBO), in a document used as part of a government-wide estimate of federal spending over the next decade.
    According to the LMA, the CBO said the average cash price for corn will bottom out at $3.65 in the 2012-2013 marketing year, then rise no higher than $3.94 through 2019. While the CBO predicts total use will jump by 18 percent, to 14.719 billion bushels by the end of the decade, they also forecast production will increase 23 percent over the same period, to 14.738 billion bushels. Those figures, and a predicted gain in yields, will absorb rising demand for corn for exports, and as a source of ethanol.  Corn is the biggest U.S. crop, valued in 2007 at $52.1 billion.
    Meanwhile, the U.S. Department of Agriculture is predicting that the global financial situation will result in reduced beef exports in 2009. “The big unknown in this whole global beef market is…the impact of the global financial crisis,” said a USDA deputy undersecretary, Chuck Lambert.  For example, he said, export sales and shipments to South Korea looked “really good into Korea until early October, but then they declined on a weekly basis.”
    Speaking to attendees at the 90th Annual American Farm Bureau Federation convention this past week in San Antonio, Texas, Purdue University ag economist Chris Hurt predicted a “year of struggle” for the livestock industry. Hurt noted that livestock producers were hit with the “double whammy” of a recession and high feed costs last year. “We’re going to see another year of struggle” for producers, he said at a livestock market outlook session at the meeting.  Keeping beef supplies down is necessary for the cattle industry to make a profit, he said.  Higher feed costs have trimmed meat production for the past two years, and Hurt said because of the recession, he expects another decline in production this year.
    Late December 2008, a Certified Angus Beef statement predicted that feed costs wouldn’t be a feedlot’s biggest worry in 2009. Rising to the top instead? Sourcing feeder cattle.
    “I’d argue that the biggest challenges cattle feeders will face over the next few years are going to be sourcing feeder cattle and economically utilizing excess feedlot capacity,” said Mike Sands of Informa Economics at a CAB-sponsored forum.
    According to CAB, cowherd returns fell from $180 a head in 2005 to just a few dollars in 2008.
    “Typically, changes in profitability have about a two-year lag effect in the size of the cowherd,” said Sands, “so the slowdown in returns in 2007 and 2008 will continue to impact the size of the beef cow herd as we go into 2009 and 2010.”
    This past summer, said CAB, cow slaughter hung around 20 percent above a year earlier, suggesting about 700,000 cows were taken out of the nation’s cowherd during the calendar year. That reduction could extend into the next few years, bringing total cutbacks to a million head.
    “Well, if we don’t raise our own feeders, why not just import them from Canada?” Sands asked. “We’ve been fairly aggressive in doing that in the past, but they’re under the same kind of economic pressure we are and reducing the size of their cow herds as well.”
    Sands estimates the industry is peaking seasonally at 80 percent feeding capacity right now and he expects that number to dip to under 70 percent by late spring or summer.
    “It’s going to be real tough for a lot of cattle feeders to maintain profitable operations with capacity utilization rates slipping that low,” he said. This could lead to changes to dairy or beef heifer developing, more specifically backgrounding yards and more consolidation.
    Sands said the worldwide demand for beef continues to grow despite the recession. Noting places like China, India, South Korea, Hong Kong and Singapore, Sands said, “In the past two or three years, we’ve probably added about a billion people to the worldwide middle class. That demand on resources is not going away.”
    Sands aid economics favor higher retail beef prices and strong beef demand despite the U.S. recession and worldwide economic slowdown.
    “I keep hearing that we’re in a recession, and isn’t that negative for beef demand? Historically, no,” he said. Beef consumption will get smaller, but mainly because we’re going to produce less.
    “People are going to talk about eroding beef demand — and that still is a risk — but historically, that’s concentrated in the foodservice industry while retail demand increases. Taken together, beef demand during recessions does not fair badly,” Sands explained.
    To hold or grow that line over time Sands said producers need to keep supplying consumers with the type of beef they’ve continued to crave.
    “Over the past couple of years, we’ve gotten used to a certain level of quality in the industry — more choice cattle in the slaughter mix,” he said. “I don’t think consumers are ready to compromise that. They’re going to want to see grading continue to increase.”
    Compiled by Roundup managing editor Jennifer Womack using reports from the USDA, the Livestock Marketing Association and Certified Angus Beef.