March 15, 2022
My brother and I milk 180 Holstein cows. For the past six years, we have been using sexed beef bull semen on the bottom half of our herd to get beef bull calves, which we raise. Before that, we bred all our cows to AI Holstein bulls. Every year we sold 30 to 40 fresh heifers to dairy farmers. There is no market now for dairy heifers, so that’s why we switched to beef bulls. We also sell halves and quarters of beef to friends and family. At first, we had eight to 10 steers butchered every year. Since the pandemic began, we have 25 to 30 steers butchered each year because friends of our friends want to buy beef from us instead of at the grocery store. This has proved to be a lucrative but time-consuming venture for us.
We are thinking about expanding our direct-sell business to 45 to 48 steers a year. My wife would like to quit her job at an insurance office and handle this, which would free up my brother and I to do more on the farm. She wants to advertise on social media and create a website. We are wondering what the downsides of expanding our direct beef business might be, and if you think this trend will last?
Tom Kestell: Congratulations on the startup success of your new venture! In my opinion, the future success of direct marketing will be in the quality of the product delivered to the customers you have, as well as to the ones you hope to attract and retain for future business. For many customers, buying a quarter or a half of beef will be a new experience. I think it is important to educate your customers about what to expect in packaging, portion size, etc., for their family needs. Many different cuts of meat are available when butchering steers. There are also specialty meats, such as tongue, liver and heart, that they might not be accustomed to. When shopping at the grocery store, they can visually select the size and volume they want to serve their needs. Try to match the selection process when they order their beef.
Well-raised and finished cattle should lead to a satisfied customer. This must be enhanced by proper butchering and processing to the customer’s needs, including proper “aging” of the beef to enhance flavor and tenderness of the end product. When starting a new venture — or in your case, expanding on what you are already doing — all means of customer acquisition and retention are important. Social media, mouth-to-mouth communication and interaction with your customers may go a long way to attract and retain them. I can visualize an annual cookout used as a promotion tool for customers to sample and enjoy your products before they buy so they can place an order with confidence. Whatever you do, think long term and strive to have high-quality products that keep customers coming back for more. It is always better to retain customers than to seek out new customers. Never compromise on quality, because good word-of-mouth can be quickly undone by a few bad reviews.
Finally, I would like to address your wife leaving her job to take over the daily operation of this beef enterprise. I would form a separate limited liability company for this purpose. I would make her the president of the LLC, and you and your brother can be members. I would give your wife the reins on driving the team to wherever the team wants to go. Her idea of using social media and a website is a good start, but many local businesses also could be contracted to provide top-quality meat supplies. I would not ignore the possibility of also marketing the hamburger from your cull cows. The hamburger could be tailored to the individual needs of your customers. Your wife could network with like entrepreneurs and let her imagination run wild to everything from prime beef to specialty production. Like you used to say … try to utilize everything but the bellow. This is a good place for your wife to use and develop her talents, and give her credit for her achievement along the way.
Sam Miller: You have a great start by already being experienced in the business of producing and marketing farmstead beef with the most important part — repeat customers. As for your question about downsides, I don’t know if your wife has benefits such as health insurance, but you will need to address this need and cost if she does. Growing the business means you need to find additional repeat customers and be able to meet their demand with your supply on a timely basis. If the business has seasonal supply or demand, you will need to have processing, packaging and cooler space to handle the business. Marketing, inspection and regulation, record keeping, and staffing the various aspects of this business will be additional challenges to be identified and protocols established to handle. We are currently in a period of higher animal protein prices. Will your customers remain if prices either get too high or if alternative protein (pork, chicken, etc.) pulls demand away from beef? Establishing a higher fixed cost of a larger business means you could burn cash during periods of low sales. Lastly, a food safety or recall issue or poor social media review could have an adverse impact on the business.
Complete a financial analysis of how the business is currently operating and how it would operate at the expanded level, including additional labor and management charges, to know if the change is worth the investment. Good luck evaluating growing the business.
Katie Wantoch: The trend to use beef semen has been increasing these last few years as more farmers, like you and your brother, take advantage of the opportunity to improve your herd genetics through better selection of semen and genomics. The coronavirus pandemic has placed a spotlight on the meat supply, and more consumers are considering sourcing their meat directly from local farmers. It’s great to hear that you and your wife are looking into direct marketing as supply chain issues continue to plague grocery stores. Direct marketing has advantages over selling steers through commodity-market outlets. However, you and your wife should do your homework before pursuing this business venture. Selling directly to the consumer is a great way to connect with the customer, and social media and a website are key tools that enable you to do this.
If you don’t have marketing or advertising know-how, reach out to local businesses to complete this task. You do need to be available when the customer has questions, so this can be time-consuming and will require you to be more friendly and outgoing to interact with this audience. You will want to reach out to your local processing facility to ensure it has the capacity to match the increased capacity you are planning on. Some may not be able to, or you will need to schedule your slaughter dates months to a year ahead of time. Also, you will want to determine your cost of producing these steers and determine the price that you will be charging for your product. Will you be selling the meat in wholes, halves, quarters or a variety of cuts as a package? Do you have the storage capacity and proper licensing to sell the meat off your farm? Discuss these options before deciding what will work best for your business. Direct marketing has an opportunity to add value to any operation with proper planning.
Renting farmland
Our 26-year-old daughter farms with my wife and me. We farm 300 acres and milk 120 cows in northwestern Wisconsin. We have a 16-year-old neighbor who helps with chores. Last week, our 70-year-old neighbor said he’s decided to retire and is selling his equipment this spring at auction. He asked me if we wanted to rent his 160-acre farm for $180 per acre. I’ve done some figuring and even with skyrocketing fertilizer prices, I think we can make some money on this if we plant corn and soybeans. His soil is fertile, and he has done a good job of farming. We will probably have to hire a second teenager to help with chores in the spring and fall when we have to plant and harvest the crops. Do you think this is a good idea? Please advise.
Tom Kestell: I’m glad your neighbor respects you enough to entrust his farm to you. I agree with you that in the present situation, it should be profitable to operate more land that is close by. I would, however, keep this land in a proper rotation that conserves the soil. I would make sure all highly erodible soils are farmed properly. My second suggestion would be to train any new employees properly, so the standard of care you have established for your herd does not become compromised when you divert your attention to this new venture. If your neighbor is healthy and willing, he could be a great source of labor to assist you in running his farm. Many times, even after retirement, farmers look for something to keep them occupied and involved without the stress of carrying the whole load. Plan for your labor needs and set up the best practices for the work to be done. It is best to train well and then entrust and empower your employees, but don’t forget to monitor and offer support to them.
Sam Miller: This can be a good addition to your business. Start by completing a partial budget to operate the additional acres, including estimating yield, corn and bean prices, and operating expenses, plus a charge for equipment and labor. You may also want to turn this into a breakeven analysis by calculating the costs to operate the additional acres and then divide by expected and average yields. This analysis should provide an economic basis to evaluate the rental decision.
Next, complete the intangible pros and cons of running the additional land such as added labor, additional responsibility for your daughter to grow the business, wear and tear on equipment, marketing grain vs. growing feed, etc. Your ag Extension agent can assist with the partial budget analysis. If you do move forward, put the rental agreement in writing with your neighbor. Good luck with your decision.
Katie Wantoch: Land is a basic resource that you can’t go out and make more of. How much land you need and how you can acquire more are two important decisions for a farm business. I’m glad to hear you have already done some budgeting to review adding this additional land base to your operation. Depending on the future of your farm business, not having enough land can limit the efficiency of the other resources you use on the farm and would limit your ability to expand your operation. However, having too much land may also limit your ability to manage it effectively and may cause cash flow problems that could limit your ability to make other investments.
I think you could look to rent this land for a short term (maybe one year) and see how it impacts your farm business. It sounds like your primary business is dairy farming, so operating this land as cash crop may or may not be in your wheelhouse. Have you looked into crop insurance for this new land? You may not have purchased crop insurance in the past if you are feeding a majority of crops to your dairy cattle. Crop insurance assists in helping you to manage the risks of growing that crop, from natural disasters to commodity price swings. Also, you mention that you’ll need to hire additional labor. There may be a limited pool of farmworkers in your area. New hires may come from other farms, other industries or were previously unemployed. You will need to be sure you are providing adequate pay for new hires, providing education and safety to complete their tasks, and meeting state and federal law requirements for worker compensation, unemployment insurance, and payroll taxes. Be sure to know about all legal requirements that come along with hiring help for your farm.
Agrivision panel: Tom Kestell, dairy farmer, Sheboygan County, Wis; Sam Miller, managing director, group head of agricultural banking, BMO Harris Bank; and Katie Wantoch, Extension agricultural agent specializing in economic development, Dunn County, Wis. If you have questions you would like the panel to answer, send them to: Wisconsin Agriculturist, P.O. Box 236, Brandon, WI 53919; or email [email protected].
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