Monday, August 12, 2013

Cody's Corner

Profitability in Farming

After about 40 years of farming in Southern Missouri I have a fair handle on the economics of at least the business of grazing livestock.  By a large percentage most of the people that I have known over these years who were once in the business have now moved onto other business endeavors.  I believe this is because of the very low economic return most receive in this business of farming.  It is not unusual for a family cow/calf ranch to have a current value of two million dollars or more.  This being the size of ranch large enough to support even only one family may have a return on assets of less than two or three percent.  With this kind of return we are not going to see many new large homes and barns built in the generation that is building this business enterprise.  There is simply not the kind of net income available for such non-essentials on the ranch once all expenses are paid each year.

As I travel across this great country I find many large and beautiful barns and farm and ranch homes that were built 100 or more years ago and many of these would have been extremely isolated from major cities in that time.  And I am sure just like today there are some city people who have purchased a farm or ranch with income from off farm jobs and businesses, but not all.  There appears to have been plenty of real farmers and ranchers who were quite prosperous within their own rights.  So now after comparing all sorts of situations it has become quite clear to me why there is so much disparity between farming and ranching profitability of today and say, 100 or more years ago.  
The price of corn on the farm has been a consistent guide and comparison for farm economics for quite some time.  If we look at the price of corn in 1914, about one hundred years ago, it was $.84/bushel.  At today's current prices, adjusted for inflation, that corn would be priced at over $19/bushel instead of its real current price at about $5/bushel.  This is the result of a system put in place to reduce the cost of food to the consumer no matter what the real costs.  One big problem for the farmer/rancher is that even though the current price of corn has not stayed up with inflation, his costs of production and all his inputs, like, land, fuel, livestock costs, etc., have skyrocketed.  The price the rancher currently receives for his animals on the commodity market is also reflected in the same way in this example of the price of corn.  This hold on farm prices used to keep the artificial price of food at or below the cost of production is one of the base causes of our countries' economic and other serious challenges.  Americans pay a smaller percentage of their income on food purchases than almost any time in history.  And in a consumption society like ours, our population is urged to continue this disaster so that more of that income can be spent on really important things like cell phones, video games, basketball and concert tickets, over sized homes, two or three or more automobiles, and, of course, garages to house them in and the list goes on and on.  Even an elementary understanding of basic sociological economics realizes this system is not sustainable.  Everybody cannot stay in the house and play on the computer; someone will have to actually go outside and do some real work. This is only supported by inflation and debt, and even the very wealthy will someday lose their advantage if this continues.

I retrieved the following link from a newsletter sent out by another rancher friend of mine:

The author of the information is Dallas Mount.  His current analysis of the cow/calf business is demonstrated in the attached link.  He provides specific and accurate data demonstrating that this industry costs the rancher about $990 per year for every cow he owns.  The bad part is that the income derived from this cow herd only earns about $800 per cow.  This per animal loss must be made up or the rancher will soon be out of business.  These numbers demonstrate why as we look around our own countryside here in Missouri most of our neighbors own only a few cows if they own any, on average about 19 head.  This might be because this is all the loss they can afford.  It is an expensive hobby.  Another reason why today's total cow numbers have fallen to the same low level they were in 1952 and falling more while the human population continues to soar.  When I look at Dallas' data it is hard to find fault.  His system is based on standard, industry protocol which by design produces food at a cost higher than its production expenses.  It is easy to see this rancher is never going to build a new, beautiful, large ranch home or one of the grand old, giant barns we see mostly in the eastern states from ranching income.  It will be difficult for this rancher to even save his ranch under this real life scenario.
Although this economic system has been deliberately put into place we at the Rockin H Ranch have been practicing a style of ranching that is not based on standard protocol.  I will go so far as to say that if one is ranching by today's standards set in place by the so-called agriculture experts that the corporations and their bed fellows, the universities, have put in place he will also find financial disaster.  I find that everything written and spoken about in standard modern ranching practices will lead one to the same fate.   The profitable rancher of today will be scrutinized as the radical one and will pass on most all of the advice, technology, chemicals, and protocols put forth by these agriculture experts.  Modern methods of agribusiness is, by design, a system that sells its product at a cost below production expenses and is part of a planned system of subsidies paid for by the taxpayer making his food cost actually higher than any time in history.  It is simply disguised by very clever economists.  The first move one must make to become a profitable rancher is to learn and understand this ordeal.  For him to be profitable he will have to also appear by most as another one of those radical grass farmers.  Our Stockman's School for Profit is coming up in September and we will be taking a deeper look at these radical issues and much more.  


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