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Articles from 2018 In April


Animal Health Notebook

The unorthodox discipline of building a cow herd

cows on pasture Alan Newport
The author says create the genetics you need and then close your herd to pollution from genetics that destroy the quality you've created.

I spend a good amount of time reading and studying what other people write in the farm press and I'd say most of it is well put, but often incorrect or at least misses my present day targets.

Y'all probably know that I shoot for the center of the bullseye of the natural model and annual profitability on a per acre basis.

In the past I have written about choosing replacement heifers and bulls by utilizing what nature has taught us. These animals need to be home grown and hopefully have the genetics and epigenetics that fit and work in our environment. I tend to want to close the herd from outside influence as soon as we locate animals that work. This might take a while but I never foresee moving far away from this principle.

I believe that many of us producers and consultants are bound too tightly in pride to actually realize that we cannot pick replacements to the degree that nature can choose them. We can learn to identify the freaks and the dinks, but are guilty of constantly working to force the middle to where we want it to be. In doing this we are normally mistaken.

Recently, I read an article by a young man who attempted to open the entire tool bag. He wanted to use EPDs, indexes and DNA profiles and said that these should shape everyone's decisions. He did warn against single-trait emphasis, and I don’t know what he has in mind but I think it is likely headed way over my head.

I love diversity, but one place I would like to see it stop is in the cow herd. Truth is, it would suit me to a tea if every cow I owned were the same color and size, shed their hair together, milked the same, and calved in a 21-day window. This is likely not only possible but may be feasible. I realize that every animal is an individual, but when I look at the deer population in a given area the does are really close together in size and looks. Fawns are born in a very short period of time.

It was brought up to think that selecting cattle on environment and physical characteristics alone would create deficiencies in economic value traits. This is wrong, wrong, wrong. The same is true for selecting for feeding efficiency (feedyard gains).

Truth of the whole matter is that cattle that perform well on grass year around will perform positively on a TMR in a feed yard, although not the highest gainers. Cattle that are people broke and friendly to trucks and horses have no problem with feedlot routines.

Hard, long yearlings that are healthy and capable of handling the ride west and going quickly onto feed will always be in demand during August and September. I suspect it will not change in the near future.

Make up your mind about what you would like to have to offer when it comes sale time. I bet that it will be yearlings 14 to 18 months old and weighing close to 800 pounds.

It might likely require some discipline, but when we stay close to home and produce and market yearlings, the profitability per acre moves upward.

China demands better soybean quality

At the recent Soybean Symposium on quality and trade, host by the University of Minnesota, a variety of speakers talked about the export challenges with soybeans – from stricter foreign materials issues and declining protein composition, to amino acid profiles and nutritional bundling/component pricing that could lead to a new soybean value chain based on soybean meal component profiles. Check out this gallery to learn how these issues could impact the future soybean market.

Also, check out the two previous galleries we wrote about:

Weekly Grain Movement – Corn exports stay strong

Grain Ship being loaded in Port of Gdansk. nightman1965/ThinkstockPhotos

For the week ending April 26, corn export inspections found semi-bullish numbers, but total marketing-year volume continues to lag behind a year ago. Soybean export inspections beat trade expectations, meantime, while wheat skated in on the low end of the trade guess range. 

Corn export inspections last week reached 57.7 million bushels, down from last week’s total of 68.4 million bushels but solidly in line with trade guesses, which ranged from 39 million to 70 million bushels. The weekly rate needed to meet USDA forecasts inched down to 52.3 million bushels. Year-to-date totals for the 2017/18 marketing year, which began September 1, reached 1.231 billion bushels, which remains almost 19% lower than last year’s pace.

Fourteen countries accounted for at least 1 million bushels of corn export inspections last week. Japan led the way with 13.2 million bushels, with other top destinations including Mexico (11.2 million), Colombia (6.4 million), South Korea (5.0 million) and Spain (2.8 million).

Soybean export inspections last week exceeded the average trade guess of 12 million to 23 million bushels with a total of 25.0 million bushels. That total was moderately better than last week’s tally of 17.4 million bushels and barely stayed ahead of the weekly rate needed to reach USDA forecasts, now at 24.5 million bushels. Cumulative totals for 2017/18 reached 1.599 billion bushels, 12% lower than 2016/17’s pace of 1.819 billion bushels.

China again was the top destination, with 9.4 million bushels, but continued its recent trend of accounting for notably less than half of all export inspections. Mexico was the week’s No. 2 destination, with 5.0 million bushels, followed by Egypt (2.1 million), Bangladesh (2.0 million) and Indonesia (1.7 million). 

Wheat export inspections of 13.8 million bushels last week was in line with the average trade guess, which ranged between 11 million and 18 million bushels. That amount was significantly below the prior week’s total of 23.7 million bushels, however, and did not match the weekly rate needed to reach USDA forecasts, now at 24.1 million bushels. So far for the 2017/18 marketing year, which began June 1, have reached 805 million bushels, versus 897 million a year ago. 

China was the No. 1 destination for U.S. wheat export inspections last week, with 4.6 million bushels. Other top destinations included Guatemala (1.7 million), Bangladesh (1.6 million), Mexico (1.3 million), Ethiopia (1.2 million) and the Philippines (1.2 million).

Building a professional operation

Farmer And Businessman Shaking Hands With Tractor In Background Daisy-Daisy/ThinkstockPhotos

At some point, most farmers realize they want to take their operation to the next level. That might happen when they want their farm to grow, or when the next generation is coming back to the farm, or for any other reason.

Think about other farms – whether in your area or not – that have a reputation of being very ‘professional.’ They don’t cut corners. Everyone in the operation knows the standards – and they’re committed to upholding them. Others outside of the operation have expectations of what it’s like to work or near that farm because they’ve seen how they act and what they’re committed to.

Over time, a reputation develops in the community when a farm is a ‘professional’ operation. That can make a big difference in a number of areas, particularly the overall success of your farm, landlord relationships and even your farm’s level of safety.

Processes and procedures

Having consistent ways that tasks are accomplished on the farm is typically the result of putting processes and procedures in place. For example, there are certain ways that the equipment is operated and cared for. Everyone on the farm knows and executes this, not only because it’s clearly described in a document, such as an employee guidebook, but it’s played out every day by all the stakeholders – from owners to employees.

Safety procedures are some of the most important to put in place as well. Making your farm a safer place to work isn’t just common sense, it’s good business sense too. It’s especially important to have clear procedures for the tasks with the most potential risk – with absolute clarity around safety issues to help reduce risk.

Processes and procedures help many businesses run more consistently – and they can become a great advantage when used in a farm operation. The operational results of the farm can become more consistent, helping the farm run even more professionally.

Financial management

The farm leader who wants to make the operation more professional runs the farm business by the numbers. That means knowing the farm’s numbers – throughout the year, as things change. The leader also has selected and tracks key metrics or ratios for the operation – that are meaningful to their particular operation.

When it’s time to meet with the banker, this farmer isn’t anxious. He’s been updating his lender throughout the year to help tell the story of what’s going on in his operation.

He can speak the financial ‘language’ that his lender understands – and they use that language in their meetings. He brings detailed financial information about his operation to the lender and can explain what’s happening. He’s ready to make business decisions for his operation based on financial reality, even if it might be tough to make them.

Relationships

Everyone that the farm comes in contact with – whether through the farm’s owners or employees – has an experience where they feel they were dealt with professionally. Area landlords all know this operation by name – they’re talked about for how well they treat their landlords. Neighbors know they’re respected because of the careful way employees treat their ground too.

The farm leader looks to others that he has a business relationship with – vendors, dealers, lenders and others – as advisors for his farm. He wants their professional opinion. He looks to them to help educate him about their particular area of expertise so he can apply the knowledge to make his operation better.

This happens when you work with other professional advisors for the farm – finance advisors, tax specialists, ag risk advisors and others – having them walk alongside of you as you up your farm’s game. These farmers view their advisors as an advantage in helping improve the operation day by day.

The opinions of the author are not necessarily those of Farm Futures or Farm Progress.

Trump's inaction creates uncertainty in global metals market

SteelCompaniesTariff030818--1540x800.jpg Natalie Behring/GettyImages
Laborers fill orders of machine grade steel to be shipped throughout the Pacific Northwest at the Pacific Machinery & Tool Steel Company on March 6, 2018, in Portland, Oregon.

by Andrew Mayeda

President Donald Trump hasn’t decided whether to extend relief for allied nations from U.S. steel and aluminum tariffs, creating uncertainty in global metals markets with temporary exemptions set to expire in less than 24 hours. 

“The president has not made any decision yet,” Treasury Secretary Steven Mnuchin told Fox Business Network in an interview that aired Monday, when asked about extending exemptions to trading partners.

“We’ve been having lots of discussions internally, we’ve been having lots of discussions with our counterparts,” he said, adding: “We’re addressing these issues real time.” 

Mnuchin’s comments were similar to those of Commerce Secretary Wilbur Ross, who said late Saturday that the White House will announce its decision on tariffs right before the May 1 deadline.

Trump last month imposed 25% tariffs on steel imports and 10% on aluminum. But he gave temporary reprieves to Australia, Argentina, Brazil, Canada, the European Union, Mexico and South Korea, and directed U.S. Trade Representative Robert Lighthizer to handle negotiations with countries seeking exemptions. 

So far, South Korea is the only nation to be spared from the duties, though nations including France and Germany have been pushing for the EU to be excluded. 

“The president gave us time to address these issues and the president is going to make a decision,” Mnuchin said. “I expect that there will be a decision quickly.”

Harley, Bourbon

Trump’s embrace of tariffs this year has roiled financial markets and sparked fears of a trade war that could undermine the broadest global upswing in years. The EU has threatened to retaliate with duties on iconic American goods such as Harley-Davidson motorcycles and Kentucky bourbon.

The steel decision comes days before Mnuchin and other senior members of Trump’s cabinet travel to China in search of a deal that would head off a brewing trade dispute between the world’s two-biggest economies. Trump has threatened to slap tariffs on as much as $150 billion in Chinese imports, while Beijing has vowed to respond with duties on everything from American soybeans to airplanes. 

“We’re looking to have a very frank discussion on trade, on the issues of the trade imbalance,” Mnuchin said. “President Trump has been very clear for the last year that he’s very focused on the trade deficit, and we’re looking to correct that.”

Deficit Cut

The U.S. had a $337 billion trade deficit in goods and services with China last year. Trump has asked China to cut the gap by $100 billion and open up the Asian nation’s markets to American products such as cars. But Chinese officials will refuse to discuss the $100-billion demand at talks in Beijing this week, the New York Times reported, citing unidentified people.

In exchange for a permanent exemption from the metals tariffs, the Trump administration is pushing countries to accept quotas on the amount of steel and aluminum they export to the U.S. South Korea accepted a quota of 70% of the average of its steel exports to the U.S. between 2015 and 2017, which can come in tariff-free.

The U.S. Aluminum Association last week sent a letter asking Trump to grant exemptions to all “responsible” trade partners. But over the weekend, Century Aluminum Co. Chief Executive Officer Mike Bless, leading the second-largest U.S. aluminum producer, echoed the Commerce Department’s original recommendations to the president that said all imports must be subject to either quotas or tariffs.

The steel threat has complicated talks with Canada and Mexico on a revised North American Free Trade Agreement. Trump has dangled a permanent exemption as incentive to reach a tentative deal. But both Mexico and Canada have resisted the idea of a quota.

“There is no justification whatsoever for tariffs or quotas on Canadian steel and aluminum as a national security consideration,” Canadian Foreign Minster Chrystia Freeland said Friday. The U.S. imposed the tariffs after concluding foreign shipments imperil its security.

Mexican Economy Minister Ildefonso Guajardo said “a quota on steel would not be the best way to go.”

The uncertainty over steel tariffs isn’t just causing unease among allies. The U.S. Commerce Department is wrestling with a flood of requests from companies to exclude products from the steel and aluminum duties, creating a backlog that’s sparked calls for action from lawmakers and trade groups.

The Commerce Department says it’s already boosted staff, and wants approval from Congress to use more of its budgeted funds to help solve the problem. Some 3,500 exclusion requests have yet to be reviewed, while about 550 had been processed as of April 27, according to the department. No decision on a request can be made until it’s been reviewed and posted online for 30 days for any objections.

--With assistance from Mark Niquette, Josh Wingrove and Joe Deaux.

To contact the reporter on this story: Andrew Mayeda in Washington at amayeda@bloomberg.net

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net

Sarah McGregor, Randall Woods

© 2018 Bloomberg L.P

Max Armstrong's Daily Updates

MIDDAY-MidwestDigest-04-30-18-

Tornado alley sure has been quiet so far this year, but that may be about to change. The cool weather has kept severe storms at bay. The peak is usually from beginning of May through end of June in Kansas.

There’s still that fire threat in some areas. There’s red flag warning around Chicago area.

Members of Congress are not in Washington this week. Farmers may want to call local lawmaker office to emphasize importance of farm bill.

If you have a graduate in your family this spring, who is rather blase about the whole process, maybe you should share story from Ankeny, Iowa. Andrew Tressel, 24, was born with spina bifida, which has left him paralyzed from waist down. He had set goal of walking across stage to receive his degree, which he did to cheers and applause.

Cover crops upgrade land quality on South Dakota farm

4.30 south dakota nrcs 1 Janelle Atyeo
NRCS District Conservationist Shane Jordan shows a radish from the cover crop mix after one month of growth. Last season, the radishes grew 7 to 8 feet long.

Source: Natural Resources Conservation Service

By Janelle Atyeo, for the USDA NRCS South Dakota.

A month after planting a cover crop mix, Brian Johnson’s field was thick with leafy radishes and bright green spears of sorghum Sudan grass. In another month, the cows would be turned out for a few weeks of grazing this leafy mix.

It’s all part of a plan to prepare the field, which grew oats this season, for a healthy corn crop next year. Come spring, the cover crop will have decomposed, leaving a soft soil bed for seeding corn. Nutrients from the cover crop and the cows will be left behind as well, helping the corn to a strong start.

The busyness of corn and soybean harvest was still ahead of him, but Johnson was already looking forward to pulling his planter through that field just north of his Frankfort, South Dakota home. Cover crops make the soil conditions just right for planting.

Jamie Johnson

A planter seeds a cover crop mix into wheat stubble at the Brian and Jamie Johnson farm south of Frankfort, S.D.

“It’s definitely mellow,” Johnson says. “It’s my ideal seed bed. It’s like butter.”

Johnson doesn’t till his fields. He aims his seed within the 2-inch row where the cover crops are growing now. That’s where they’ll land in the softest soil. When the corn or soybeans put down roots, they’ll follow the holes where radishes grew deep into the soil before turning to mush with winter’s freeze. Wheat straw residue next to the planting strip holds in moisture and shades the ground until the corn canopies.

Working the soil this way is known as bio stripping. The Johnsons have been seeing big benefits.

Brian farms with his wife Jamie and his parents Alan and Mickie Johnson. They’ve managed many of their fields without tilling for nearly 30 years, and they’ve been using cover crops in their rotation of corn, soybeans and wheat for nearly a decade.

jamie Johnson

NRCS District Conservationist Shane Jordan and producer Brian Johnson stand in a field of cover crops south of Frankfort, S.D. Cattle will graze the mix of millet, radish, turnip and sorghum Sudan grass, and oat bales are nearby for supplemental feed.

Now Jamie, who comes from a livestock background, is encouraging them to add to that diversity using their herd of registered black Angus cattle. She’d like to see the cows out grazing residue after harvest.

Already, they’ve created more pasture land by putting their least productive ground back into grass. It’s the opposite of the trend in 2009 and 2010 when many grassland acres in the area were plowed to plant crops because prices were so high.The area where the Johnsons farm south of Frankfort is known for its high-producing corn ground. Many farmers there plowed the grassland for crops in 

“That’s stressful when you’re up against a blizzard,” Jamie said, recalling the harvest season three years ago when they worked past midnight to finish the work ahead of a November snowstorm.

Spreading out that harvest-time workload is another benefit of growing small grains and cover crops she likes best.

 

 

 

 

Future of small farms

Grain-Bins-Susan-Winsor-2_1.

At a recent question and answer session during a producer conference, one participant from Pennsylvania asked, “What is the future of the small family farm in Pennsylvania and across the U.S.?”   

First of all, it is important to remember that farm and ranch businesses of all sizes are feeling the stress of today’s economic cycle. This “grinder” of an economic cycle comes in sharp contrast to abrupt market declines.  And the elongated erosion of cash flow and balance sheet equity tends to place more pressure on the business operations, flexibility, and sustainability. 

With that said, my general observation is that some small farms and ranches are profitable and maintaining cash flow well. Often, these farms are diversified with two or three enterprises, and in some cases, supplemented by off farm income.

Other small family farms have tapped into the value-added and niche markets particularly in areas that are close to satellite cities, or those that are tied to a larger metropolis in growth mode. I have also observed that these farms are very astute in marketing their products and are constantly developing ways to connect  with consumers.

Still others small farms are very modest in their lifestyles and personal withdrawals from the business. Another individual at the conference showed me her family budget using Quicken software, which allowed her to easily track expenses and income each month. 

Another small producer entered into agreement with a nonfamily member, who was gradually phasing out of his business. The young producer organized their agreement to allow his use of the older producer’s equipment, while running a separate enterprise. This arrangement also gave him an opportunity to learn how to be a good manager with mitigated risk and on-site experience. This small producer developed a plan of production, operations, marketing, finance, and lending through the young farmer program. By the time this young producer purchased the entire business from the non-family member, he had experienced every facet of running the business. 

In today’s world, the consolidation of the agriculture industry certainly appears to be the trend. However, as several small farms have shown, entrepreneurial individuals who think outside the box are still viable if they manage and execute their business strategy.  And specifically in regards to Pennsylvania, I see a bright future for small farms. Approximately 30 percent of U.S. consumers with income levels to buy products are within 10 hours of the state.  Even if Pennsylvania is not perceived to be the local point of origin, “food with a face” could still be a differential edge. 

 

 

What are the start-up challenges associated with farm growth?

Farm and ranch land sales increase

Source: University of Illinois. 

By Michael Langemeier and Michael Boehlje, Center for Commercial Agriculture Purdue University

There are numerous motivations for farms to expand their businesses. Even in today's environment of tight margins, many farms are exploring expansion options. When exploring these options, it is important to address key questions pertaining to the farm's strategy. A previous article (farmdoc daily August 5, 2016), discussed ten questions that should be addressed when examining challenges and opportunities associated with farm growth. This article focuses on the ninth question: what are the start-up challenges?

Cash Flow Shortages and Depleted Working Capital

In the long-run, it is important to make decisions that generate earnings and profits (Briggeman and Boehlje, 2009). Having said that, it is important to remember that it is cash flows, not profits that are received by the farm. Also, cash flows, not profits, are reinvested. The farm's profits and cash flows often do not occur together. Capital purchases, such as the purchase of grain bins, livestock buildings, or machinery and equipment, are depreciated and incur benefits over several years. However, cash flows associated with the purchase are often front-loaded, with a large portion of the cash outflow occurring in the first year. For this reason, farms need to examine the impact of a new venture on cash inflows and outflows.

Farms that are growing rapidly often run into cash flow shortages and deplete their working capital. To help gauge the farm's use of cash, it is imperative that a farm utilize pro-forma financial statements. Most farms are familiar with the use of cash flow budgets. Another useful pro-forma statement is a sources and uses of funds statement. Table 1 presents a pro-forma sources and uses of funds statement for a case farm. Cash flows are separated into cash flows from operating activities, cash flows from investment activities, and cash flows from financing activities. This enables us to clearly see whether the cash flows from operating activities are large enough to pay for at least a portion of capital purchases. If cash flow from operating activities are insufficient to pay for capital purchases, which is often the case due to the fact that cash outflows occur prior to cash inflows and we are only looking at the first year's sources and uses of funds statement, term debt financing may be needed. For the case farm depicted in table 1, expected cash flows in 2018 from operating activities are negative so the farm is not projecting any capital purchases during the upcoming year.

A pro-forma sources and uses of funds statement also illustrates the change in cash balances from the beginning to the end of the year. This information could be used along with changes in anticipated crop inventories, accounts receivable, and supply inventories to create an expected change in working capital from the beginning to the end of the year. For the case farm in table 1 cash balances are expected to decline approximately $30,000 during 2018.

Purdue University

Operational Inefficiencies

Operational inefficiencies often occur when adopting new technology (e.g., precision agriculture technology) or producing a new commodity. In other words, the farm faces a learning curve, a curve depicting the relationship between per-unit cost and experience, typically measured in terms of cumulative output. A steep learning curve would imply that per-unit cost declines rapidly with experience while a flatter learning curve would imply that per-unit cost declines slowly with experience.

The important point here is to build higher per-unit costs into your enterprise budgets involving new technology or the production of a new enterprise, particularly in the early years of the project. In most instances, the shape of the learning curve is unknown. In these instances, scenarios involving different assumptions regarding the decline in per-unit costs with increases in cumulative output should be examined.

Management Bottlenecks

Start-up challenges can also be compounded by a management team that is not ready for a new venture. Weak management teams often have a poorly thought out strategy or execution plan. As a farm grows, it becomes increasingly important to prioritize decision making. A few relevant questions are as follows. Has your management team allocated enough time for the new venture? What is important to making the new venture work? What is stopping the farm from successfully growing?

In response to management time issues, farms often respond by hiring a key employee or employees to assist with the new venture. Knowing the skills needed and knowing how to find the "right people" may dictate whether the new venture is successful. Delays to finding key employees or the inability to find these people could lead to severe bottlenecks, and may create a learning curve that is much steeper than it would have been if these problems did not occur.

Once a new venture starts to generate positive net cash flows and profits, it is important to decide whether the farm should scale-up production. For example, a farm that is successfully producing organic crops on 80 acres or that is producing finished hogs under contract through the utilization of two barns needs to decide whether it wants to expand production or scale-up. Key questions to address are as follows. How will expanding production impact the management team? Will we need to hire additional employees to expand production? How will we pay for expansion, or what proportion of the funds for expansion will come from operational activities versus new loans? These questions should sound familiar. Many of these questions were initially addressed when choosing the new venture.

We would be remiss if we did not include a discussion of the impact of a new venture on the management team's comfort zone. How far out of our comfort zone does the new venture take us? How much do we want to push ourselves? Can you make a convincing pitch to lenders to help fund your new venture?

Concluding Thoughts

Start-up challenges may include cash flow shortages and depleted working capital, operational inefficiencies, and management bottlenecks. Comparing and contrasting these challenges among expansion options helps mitigate potential start-up challenges. In particular, if a particular growth option creates large cash flow shortages and depletions in working capital, a plan needs to be put in place to deal with these issues.

The start-up challenges noted above are not insurmountable. We discuss these issues so that farms can take these issues into account when evaluating new ventures. Being the first to adopt a new technology or produce a new enterprise creates challenges. However, it is important to remember that early adopters often reap above average returns. As with other decisions, the tradeoff between benefits and costs is relevant to the analysis of new ventures.

The next article in this series will discuss a farm's sustainable growth rate. In other words, how fast can a farm safely grow from a financial perspective?

References

Boehlje, M., and M. Langemeier. "Farm Growth: Challenges and Opportunities." farmdoc daily (6):148, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, August 5, 2016.

Briggeman, B.C. and M.D. Boehlje. "Cash is King - But Profitability is the Kingdom." Journal of the American Society of Farm Managers and Rural Appraisers, 2009.

Originally posted by University of Illinois. 

 

 

Market Update for April 30, 2018

The weekend of April 28-29 gave farmers their first open weekend to plant across much of the country. Soil temperatures have warmed to the 50 degree range. The weekend of planting activity should boost planting progress in this afternoon's report. Growers have three weeks to get the crop into the ground before the trade gets worried. The trade wants 85% of the nation's corn crop planted by the third week of May.

There's a stronger corn bid and firming futures basis as growers get busy in the field with less time to take corn to the ethanol plant or export port. There was particular strength in the Ohio River Valley. The situation is more mixed for soybeans.

The dollar is sharply higher with eyes focused on the Federal Reserve, which meets this week. The Federal Reserve is not expected to raise interest rates this meeting, but their statement will come out Wednesday. 

Many markets around the world are off tomorrow for May Day.