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Ken Olson: Opportunity for beginning ranchers

Ken Olson

The age of agriculture producers in the U.S. has steadily increased over the last several decades. At present, the average age of farm and ranch operators in the U.S. is over 57. Turnover of farming and ranching enterprises to the next generation is becoming more and more critical to ensure the future viability of agriculture production. Beginning ranchers have tremendous opportunity to create a bright future in beef cow-calf production.

The beef industry has recently and continues to undergo a transition that is creating a great deal of opportunity for beginning beef cattle producers. Several key factors include:

• The beef cattle inventory in the U.S. has shrunk to the point that it has realigned the supply/demand relationship. While a steadily decreasing inventory has and will increasingly limit supply in the near future, global demand for U.S. beef is on the increase as developing economies around the world increase their appetite for beef as a protein source. Between this increase in demand and a weak U.S. dollar (which makes it cheaper for foreign countries to buy beef and less valuable for foreign producers to import beef into the U.S.), we have seen nice increases in beef exports in recent months, which have dramatically improved beef prices. If and when the U.S. economy improves, domestic demand will increase, further promoting higher prices.

Because calf supplies are so tight, feeders are bidding aggressively to fill empty lots. Recent high returns on fed cattle have supported this, but unfortunately high feed costs are cutting into cattle feeding profit margins and limiting how aggressively feeders dare bid. Despite this limiter, marketing specialists are suggesting good prices for calves and feeder cattle for the foreseeable future.

Taking advantage of the opportunities this transition will provide will require beginning producers to adapt to the changing economy of the beef cattle industry to be successful.

For example, the high feed costs that are affecting cattle feeders are also affecting cow-calf producers. The costs of feeding the cowherd in the TSLN readership area have increased by half or more over what they were as little three or four years ago. Many other costs of production have increased similarly. Besides these dramatic increases in operating costs, the capital investment in a cow-calf operation has also risen, particularly the cost of agricultural land. Opportunities for beginning producers to partner with producers that are approaching retirement to develop a relationship that is conducive to the transition needs of both will be important to their success.

Although interest rates are extremely low, debt will need to be carefully structured as beginning producers invest in their new operations. The magnitude of the investment to debt load will simply out-strip the low interest rates in terms of determining the total amount of interest that will have to be paid to service the debt. To date, the USDA has provided a low-interest loan program for young producers through FSA. We will need to stay tuned to see how that fares in the debate over the new farm bill.

At the beginning of this article I talked about opportunities, but then listed concerns and precautions. Producers that have the ability to manage challenges to create opportunities will be successful. It will be important to be life-long learners and remain adaptive to handle changes as the industry transitions the amidst the challenges it will face in the next few years. It will be important for beginning producers to develop networks of bankers, commodity and investment brokers, and other industry partners to be successful.




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