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Ranch profitability is influenced by many factors.  Oftentimes, on Wyoming ranches, there are enterprises other than livestock that may account for significant sources of income.  However, the primary source of income on most Wyoming ranches is livestock production.

A majority of Wyoming ranches can be characterized as cow/calf operations.  A smaller number could be characterized as sheep operations. There are also a few ranches that utilize both cattle and sheep for livestock production.

The Livestock Marketing Information Center (LMIC) estimates returns for cow/calf producers in the U.S.  The estimates are returns over cash costs plus pasture rent. LMIC has consistently ratcheted-down estimated cow/calf returns this year, as forecasted cattle prices for the fourth quarter were lowered.  As of late September’s revisions, LMIC’s 2016 estimate was a return over cash costs plus pasture rent of about $15 per cow, which is the lowest since 2009. That is a huge one-year decline of about $285 per cow – 2015 was about $300 per cow – and was even more disappointing when compared to 2014’s record high level, about $550 per cow.  

Returns this year will not cover the total economic costs for most cow/calf operations.  While estimated costs of production have decreased slightly in 2016, based on cheaper fuel, feed and slight drops in pasture cost, it has not been enough to offset declining calf prices.

An LMIC working group also recently developed and published a “U.S. Baseline Lamb Cost of Production Model.”  Best estimate industry parameters were used to generate regionally representative budgets.  These budgets were then aggregated into a national model.  I shared the Western Region budget in a Wyoming Livestock Roundup article a couple of months ago. 

Utilizing the aggregated national model, I calculated an estimate for lamb returns as cash costs plus pasture rent for 2010-15.  The high was $71 per ewe in 2011 with the low being $8.20 per ewe in 2013.

It is important to note that in both cattle and sheep, these calculated returns do not include all economic costs of production. They are used in market analysis and estimated cash costs plus pasture rent.  Of course, every operation has different resources and costs.  Year-over-year changes in calculated returns are more insightful than the specific numeric levels. 

With that said, I was interested in comparing cow/calf returns with sheep production returns from 2010-15. At first glance, it seems like cattle is the clear winner.  The low return for cow/calf in the 2010-15 timeframe was $30 per cow while the high was $530 per cow. Clearly on a per-cow versus per-ewe basis, cattle is king.

However, this is not an accurate comparison based on resource use.  Ranchers are generally able to run five ewes on the same set of resources as one cow. Therefore I adjusted the sheep returns to reflect this relationship.

While the specific numeric levels are not as important as the trend, it is very instructive that the six-year average for adjusted sheep production is nearly identical to the cow/calf average.  It is also interesting to note that over the last six years, while the average was nearly identical, the timing and magnitude of the returns have been different. Certainly over the last six years, those few ranches in Wyoming that have a mix of sheep and cattle have had a more consistent return than those that relied on one or the other species.

Not all ranches have resources that can be utilized efficiently by both sheep and cattle, and not all ranches are structured with appropriate personnel and management skill sets to run both species.  However, for those ranches that are able to run multiple species, a combination approach may serve to mitigate fluctuations in returns. 

Worland – UW Range Extension Specialist Mike Smith says the Western Sustainable Agriculture Research and Education (SARE) Grant Program is a program to provide education to the public and, more especially, to agriculturalists across the West.
    The SARE program was authorized in 1985 and funded soon after, and Smith says it’s been ongoing since. “We try to fund things that are different and not just standard practice,” says Smith, who’s the Professional Development Coordinator for SARE in Wyoming.
    Jim Freeburn, who also works with UW’s Sustainable Agriculture Research and Extension Center (SAREC) at Lingle, is also involved in SARE as the Western region’s Sustainable Agriculture Professional Development Program coordinator. Utah State University hosts the Western Sustainable Agriculture program.
    Smith says the grant program encompasses many projects. “Your definition of sustainability might be different from mine or anybody else’s, and sustainability in your environment could be quite a bit different than the guy’s in the next county or state.”
    “The application of all the programs varies quite a bit, but it includes anything but business as usual – with the idea of sustainable agriculture, it’s kind of like apple pie, nobody can disagree with you,” notes Smith.
    One aspect of SARE is the Farmer/Rancher Grant Program, which involves the producer coming up with an idea, developing it as an experiment or demonstration on his farm, or partnering with other farmers, and then incorporating that into an educational effort.
    Another dimension is the Agriculture Professional Grant Program, in which the only difference from the Farmer/Rancher program is that the partners are county, federal, or other agency professionals that handle the funding.
    “In agriculture we’ve got to broaden our perspectives a little bit. What we do not want to do is go out of business because things changed and we didn’t adapt,” says Smith. “And that’s where sustainable ag comes into the picture.”
    He says it’s all about simple economics on the one hand. “To be sustainable you have to make money. We also have to preserve the quality of our environment, or improve it in come cases, and look after our communities,” says Smith.
    He says one of the big differences between standard ag programs with the USDA and sustainable ag program is that the sustainable ag funding almost always puts a lot of focus on small farms and communities, as opposed to simply supporting big farmers. “You can see a little bit of shift in ag programs over the years, particularly lately, as it relates to promoting smaller farmers,” he adds.
    Many years ago farmers used to receive the majority of the retail cost of their products. “Now farmers get pennies of the retail price of a product, and there are some opportunities there,” says Smith. “We find a lot of things that help promote farmers maintaining a higher level of return off what they produce.” He mentions beef marketing programs as an example.
    In the Farmer/Rancher Grant Program, $15,000 is available per farmer, or $30,000 for groups of three or more. “There’s some serious money here,” says Smith. “You put together a program like this and you can do quite a bit of on-farm demonstration research, as long as you’ve got a good educational program that goes along with it.”
    In the Farmer/Rancher program, the producer writes the grant application and receives the money in the form of income. “In order to make it a wash for you without tax consequences you have to spend the money on the program,” says Smith.
    Although things such as tractors and large equipment will not qualify for the grant, Smith says expendable equipment may be purchased, as well as special implements that might allow an operation to do something it wasn’t able to before.
    “The real focus here is education of a larger audience than just people who are getting the money, like pamphlet production, farm tours and field days,” says Smith. “It’d be a standard Extension type of a program.”
    He says the key is to develop something that shows promise of making more money than standard operation. “I could see you using this as seed money for an enterprise that you might take to the Small Business Initiative Grant Program,” says Smith. “Let’s say you want to talk about a kill plant that would allow you to get several producers together to producer meat products to market across Wyoming or, better, across state lines. That’s a really serious shortfall in the beef business in Wyoming and across the West of places to kill your beef. Something like that would be a super place to start.”
    “There’s real money and opportunity here for you,” Smith tells producers. He says the new administration hasn’t changed the program much. If anything, it’s added more money. “In the previous administration you had to drag them kicking and screaming into alternative agriculture or anything alternative. If something looks a little bit green, it ought to be better now than it was before, and sustainable ag is definitely on the green side.”
    “There are all kinds of things you can do to take advantage of this program,” says Smith, offering another example of biofuels. “If you could come up with ideas that didn’t involve corn and ethanol, I think you’d be moving ahead in the right direction. Buy a digester, for example.”
    “The sky’s the limit here,” he says. “The imagination and willpower to get up and go is what it takes to get these kind of grants.”
    For more information on the SARE program, contact Mike Smith at 307-766-2337 or This email address is being protected from spambots. You need JavaScript enabled to view it.. 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..

With exceptional commodity prices over the last five years, Platte Valley Bank Wheatland President Keith Geis says many operators saw higher margins and put capital back into their operations.

“In general, the outlook for ag lending is pretty good in Wyoming,” he says.

Commodity prices

“We have seen commodity prices soften somewhat recently,” Geis explains. “Fortunately, the ag industry in our state is not highly leveraged, and it allows some flexibility in respect to how they structure debt and move forward with lower commodity prices.”

He notes, however, that the agriculture industry is in a significantly different position than the crash of the 1980s. In the ‘80s, he explained that much of the industry was highly leveraged, and as a result, the decline in commodity prices and devaluation of land were highly detrimental.

“We have not experienced the devaluation of land in the state of Wyoming,” Geis says. “In 2015, we actually had a positive increase in land value, unlike our sister states of Nebraska, South Dakota and Iowa, which all experienced a decline in value.”

Interest rates

Despite the reductions in commodity prices, interest rates have remained low.

“Interest rates continue to stay relatively low in respect to where they have been,” Geis adds. “The Fed moved the interest rate a quarter of one percent.”

By way of background, Geis explains that the Federal Reserve (Fed) was created Dec. 23, 1913 by Congress to provide the nation with a safer, more flexible and more stable monetary and financial system. The Fed regulates the U.S. monetary system and evaluates the financial health of the U.S. economy.

They provide certain financial services to the U.S. government, U.S. financial institutions and foreign official institutions, playing a major role in operating and overseeing the nation’s payments systems.

In addition, they determine the rate at which banks can borrow money.

“Banks that don’t have any excess capital around can go to the Fed to borrow money and lend it out because of loan demand,” he continues. “We borrow money from the Fed at a rate of 0.05 percent. As they raise that rate, the trickle-down cost of borrowed funds is passed on to the consumer.”

Banks in Wyoming have seen a slight increase show up in their markets related to increased interest rates.

“One-quarter of one percent is not going to be a breaking point for anyone by any means,” he notes.

Other positives

“There are some items that producers can adjust to make up loan interest rate increases,” Geis continues. “We looked at crop information that was put out on Jan. 11, and it looks like some of the costs of production are starting to come down.”

As commodity prices rise, he notes that seed dealers, fertilizer salesmen and others all want a piece of the pie.

“Seed, fertilizer and fuel all have a propensity to move with the commodity prices,” Geis explains. “We usually see a 12-month lag time to react to a downward trend in prices. It looks like we may be seeing that a bit, which will provide some relief to the soft commodity prices right now.”

Banking challenges

With many positives in ag lending for producers, Geis adds that the banking industry sees other challenges, particularly as they relate to regulations.

“Regulatory requirements continue to come out of the woodwork,” he says. Specifically, Geis highlights the Dodd-Frank Bill, which passed nearly five years ago. 

“They continue to write rules, regulations and laws that are associated with that bill,” he says. We see those regulations come out of Washington, D.C.”

Regulations mean increased expenses, and Geis notes that the cost of doing business means that more compliance personnel are necessary to handle new regulations.

Other challenges that face agriculture, including EPA regulations, also affect the banking sector.

Saige Albert is managing 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..

 

Riverton – On May 18-19, bankers and lenders from around the state gathered for the Wyoming Bankers Association Agricultural Bankers Conference.

In addition to discussions on management tools, current market trends and other topics, the conference featured a presentation by John Blanchfield of Agricultural Banking Advisory Services who spoke on agricultural banking in the post farm boom economy.

Farm Bill

As hearings begin for the 2018 Farm Bill, Blanchfield noted that House Ag Committee Chairman Mike Conaway (R-Texas) has stated the farm bill will be delivered on time and under budget.

“The last time a farm bill was delivered on time was 2002,” said Blanchfield.

He continued, “For those who are currently receiving either Agriculture Risk Coverage or Price Loss Coverage, that’s supposed to all end in October of 2018, but the last farm bill went two years longer. You should be prepared for an extended period of wrangling and fighting.”

Ranking member Collin Peterson (D-Minn.) has also asserted that the Conservation Reserve Program needs to increase.

While many of the changes under discussion for the farm bill don’t have a large direct impact on Wyoming, Blanchfield noted that it still is a spillover effect for economies in Wyoming, Idaho and Montana.

According to Blanchfield, crop insurance has become an integral part of the farm bill.

“It’s the cornerstone of the farm safety net,” he said.

He cautioned that 80 percent of crop insurance is subsidized by the government, and some adjustments will be made to the price of crop insurance going forward.

“We need to get the word out because many farmers are not prepared for that, especially in these tight times,” commented Blanchfield.

Payouts

“The farm bill paid out big in 2016, especially in corn country and bean country,” said Blanchfield.

While there will still be considerable pay outs in 2017, he noted that 2018 will be drastically different.

“2018 will be the year the cheese binds because it’s not going to pay out much of anything, if anything,” he continued.

In 2016, the farm bill paid out $7.8 billion, with Wyoming receiving $4.5 million.

“USDA has already projected that farm bill payments are going to go down by four percent this year,” commented Blanchfield.

Blanchfield stressed that it’s not because the market is better but rather because of use of the Olympic average, where the high and low commodity prices are not used.

Good years

Looking back at the last 15 years in agriculture, Blanchfield noted there were certain factors that resulted in the agriculture boom that can’t be counted on the future.

“This goes to my theory that what we’re seeing today is a heck of a lot more like what we’re going to see in the future versus what we saw in the past,” he said.

One factor Blanchfield cited was the rise of ethanol, with 40 percent of U.S. corn production going to ethanol production.

“We’re exporting ethanol now. We’re the Saudi Arabia of ethanol now. Is that going to give us a boost going forward? I don’t think so,” commented Blanchfield.

Another pivotal factor for agriculture success has been trade agreements.

“We’re going to renegotiate the North American Free Trade Agreement. Is it going to be a great win for the United States? That’s what we’ve been told, but are we going to get that? I don’t know,” he continued.

Blanchfield also cited the rise of China and other emerging countries, as well as the improved flow of information to create a world-wide consuming audience over the last two decades.

“I may be wrong on this, but I don’t see a big leap forward of the next generation of countries right now,” he asserted.

New normal

Looking at 2017, Blanchfield predicted the farm economy will be flat.

A major concern for both producers and ag lenders is that farmer liquidity is weakening and farm debt is increasing.

“We’re probably going to lose one-third of our young farmers, and one in five wheat, cotton, poultry and hog farmers are highly leveraged,” he said, noting that highly leveraged means a debt to asset ratio greater than 40 percent.

“These numbers are getting to be kind of scary, and I think this is going to be the new normal,” commented Blanchfield.

According to Blanchfield, there have been major demands on Flexible Spending Account (FSA) funding.

“Every year going forward, FSA is going to run out of money until this farm economy changes in some way,” he concluded. “Who gets the money? The ones who can get the loans approved the fastest.”

Emilee Gibb is editor of Wyoming Livestock Roundup and can be reached at emilee@wylr.net.

To operate a family farm or ranch, all your chips have to be in, and some say you have to have the “disease” to make it work, especially as a beginning producer.
According to Powell’s First National Bank and Trust Vice President of Ag Lending Todd Ernst, that disease is not enough – he says beginning ag producers must also have ag management in their blood.
“If someone has come in talk to me, I know they have agriculture in their blood. What we need to see is if they have ag management in their blood,” says Ernst.
He says he wants beginning producers to be aware of the stages of ag business life – start up, growth, consolidation and transfer.
“I want to get it clear in a young producer’s head that they won’t get rich the first year, the second year, the tenth year or the fifteenth year. There will be stages as they go up through that business life,” he explains. “When you start, you’re unproven, and the biggest place you’re unproven is in your managerial ability. You have to come off the focus of ‘let me at that tractor, or horse.’ It’s not all about production – maybe 50 percent is production, and the other half is managerial ability. You’ve got to have it, or they’ll never make it.”
Ernst says in the growth stage a producer is still young and long on energy, but short on capital. In consolidation, an operation has quit growing and is focusing on paying off debt, because it’s at a place where it can. The transfer stage, he says, is where a producer has enough to retire and to help the next generation come into being.
“There are two words to remember – ‘delayed gratification’ – because that’s what agriculture business is all about,” says Ernst. “You start a pauper, and you stay a pauper, until you get to the consolidation stage.”
“As you’re moving through those stages, hopefully you can see the light at the end of the tunnel, but while you’re doing it, that’s alright, too, because ag is a way of life,” he notes. “Don’t get discouraged. You might not have that big net worth, but you’re sill living the life, and the other will come if you pay attention to detail.”
Regarding the details of ranch or farm management, Ernst says, “I want you to know what your debt to worth is, what your return on assets is, what your working capital is, what your net worth is and how you’re trending in your business. Those are things you should know. To be a good business manager, you have to know how your business is doing.”
Ernst says a first step is to find a good banker. “You can’t hate every banker,” he says. “If someone comes to us from out of town, we’re suspicious, because we think they can’t get along with any of their local bankers.”
Bankers build on the four corners of equity, solvency, liquidity and capital.
“Equity is net worth – what’s left when liabilities come away from assets. If I’m making you a loan, you have to contribute 25 percent equity into that loan. Solvency is your debt to assets – what do you have, and do you have the ability to meet your long-term goals? Do you have a plan going to meet the claims against you in the next 12 months, or the next 24? Liquidity, or working capital, is the ability to meet your current bills. When I started in ag financing, no farmer used a credit card, but that’s the trend to make up for liquidity,” explains Ernst. “I’m seeing more people using credit cards for everything they purchase.”
“When you come to me, I give you a line of credit. That’s different, because when I give that to you it’s monitored and we put together a budget that’s tied to it. With the plastic, there’s no plan to pay it back,” he adds. “With a line of credit you’ve made a budget with income and expenses and you pay it back at the end of the year. A credit card is a whole different story. That’s hurting people – their liquidity is their credit card.”
Continuing with the fourth corner, Ernst says capital is what you need to make the money, or the proper equipment, land and livestock.
“I would recommend putting your thinking caps on and planning what the proper capital is that you need. If you’re going to buy a piece of land, will that service you the best, or is it the one that’s the best deal or the closest to home? Put the capital together that gives you the best return on your dollar.”
Concerning the Farm Service Agency (FSA), Ernst says he doesn’t think there’s anything better.
“No other businesses have it, that I know of. In production agriculture, we have FSA and you can go to their door without anything, and they’re willing to help you,” says Ernst. “For young folks, the best recommendation I can give is go down to the FSA shop and see what they can do for you. They’ll give you a great start with little or nothing.”
“Go to FSA, get a loan and go through the stages, build your net worth and solvency, and there’s only one way to do that – through positive cash flow and being profitable,” says Ernst. “We have to be profitable, because we take the profits to build net worth. There’s nothing else to it other than cash flow, which can be defined by discipline.”
“The most important thing I want to see from any producer who comes through my door is that they understand cash flow, and believe in it, and believe that it’s what will make them whole and successful,” he adds. “What you put down on a loan is not as important to me as cash flow.”
“When you’re putting together the budget, don’t look at it as something you have to do, but something that will make you money,” says Ernst. “That’s what will get the paycheck at the end of the year. Every detail will be scrutinized and studied, and you’re not just doing it to please the banker, but because you’re profit-minded, and you want to reach the end stage and be able to say I did it, and I did it right.”
Ernst says an ideal first meeting with an ag loan officer would include a briefcase, or folder, with details written down as to what the plans are for the ag operation, no matter how crazy they might be.
“That shows you’re thinking about it, and have put in some homework,” he says.
He adds it’s important to find a banker who understands that ag businesses include emotions, and that they’re family-based.
“There’s no better thing than being a production operator,” he says. “You not only get to do the farming, ranching and the work, but you’ve got a business going where you’ve got your finger on the pulse all the time, and with every decision you make, you’re in control of that deal, and you have the opportunity to make that grow. On the flip side, you also have the responsibility that if it flops, it’s your fault.         “What an opportunity it is to produce a crop and feed the world, and have a business of your own, and make a go of it.”
First National Bank and Trust Vice President of Ag Lending Todd Ernst presented his advice for beginning ag producers at the 2011 Spring Roundup held Jan. 27-28 in Powell at Northwest College. Christy Martinez is managing 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..