Iversen: Modern-day Risk Management for Ranchers
Both ranchers and farmers depend on the land and nature to produce an income sufficient to support the business and their family; however, farmers in South Dakota are supported by federally subsidized insurance safety nets and a variety of USDA programs as well as several interest groups lobbying in Washington on their behalf, while ranchers are being pushed dangerously close to the edge of failure.
Nearly everyone knows that agriculture is South Dakota’s largest industry, and a lot of people know that livestock production makes up the largest portion of agriculture’s contribution to the state’s economy. Some people even know that cattle and calves from South Dakota ranches make up nearly two-thirds of that “livestock production” number. What few people likely understand though is how razor thin ranchers’ margins are as we operate every year, and with today’s high input costs and prolonged drought conditions, how close many of us are to going under if we don’t find some solutions.
Ranchers are usually lumped in with farmers for many “ag” economic statistics. There are likely several reasons for this, but I think a big one is most economists and statisticians don’t even know where to start with us. A lot of us ranchers bristle at being called a farmer, not that there’s anything wrong with farming but we are very different. Most ranchers are exceptionally independent, distrustful of the government, and prefer to keep their business details close to the vest.
In the ranch world being self-sufficient has been a badge of honor but I worry that if we don’t push for the risk management tools and safety nets that are available to farmers we are on the verge of extinction, thanks to our independence.
Think about it. Farmers’ costs of doing business have gone up over the years …increased land rents, increased fuel costs, increased fertilizer costs, increased machinery costs, increased seed costs. Nearly every input cost has seen massive increases over the years. And a lot of farmers lament the price of their crop. The price of a bushel of wheat on February 4, 2019 was $5.17, a dollar and fifteen cents less than the price on February 11, 1974. The price of corn on October 7, 2019 hit $3.98, a modest eighteen cents higher than the price on October 14, 1974. Read that again. Some commodity prices are the same now as FORTY-FIVE YEARS AGO. And yet…farmers seem to be able continue to pay for their inputs and rental rates continue to rise. On good years building beautiful shops, upgrading equipment, and most importantly, expanding and paying record prices for farm ground. Meanwhile, ranchers are still using their trusted 1982 John Deere 4440 with 12,000+ hours to feed their cowherd.
There have been advancements in fertility products and seed technology that boost yields, but I would argue that federal crop insurance plays a bigger role. Thanks to products like revenue-based crop insurance, farmers can consistently maintain profitability and sleep well at night KNOWING what their bottom line is going to be. Ranchers on the other hand can only rely on hopes and prayers that an October blizzard isn’t going to wipe out half or more of their herd, or that a prairie fire won’t ravage their summer range, or that a late spring frost won’t damage their cool season grazing pastures. The best planning in the world can’t anticipate a foreign invasion that results in grain prices rising several dollars a bushel causing cattle markets to drop below break-evens by several hundred dollars per head. They can’t anticipate a prolonged drought that forces a rancher to sell off his herd of cow-calf pairs in the spring after feeding them $250/ton purchased hay all winter in optimistic hopes of it being a wet spring.
The only serious insurance program in place for ranchers at this time is USDA’s Pasture, Rangeland, and Forage program. This ‘tool’ relies on a rancher basically placing bets on where rain will fall within a 17 X 17 mile grid in any two-month time period throughout the year. It’s not unlike playing Superbowl Squares. It doesn’t take into account confounding elements like temperature, wind speeds, whether the rain comes in several well-spaced showers or in one gully-washing deluge, and there is no way to ground truth the rainfall. One rain event fifteen miles away that passes over the weather station can throw off the whole grid.
And sure there’s NAP, which at 25% coverage is better than nothing but not very much better… and a rancher would only receive the full 25% in the event of a total loss. The comment I most often hear is, NAP is not perfect but it is cheap…to which I respond “you get what you pay for”. There’s an opportunity for farmers to purchase “buy up” protection and receive closer to market rates of the loss, but of course that product isn’t available to ranchers for grass.
Ranchers need access to an affordable, revenue-based insurance program modeled after crop insurance. Grass is our “crop” and cows are our “combine.” One solution would be to treat a rancher’s grass just like a farmer’s crop. USDA has at its disposal decades’ worth of rangeland production information, categorized by soil type and rainfall, already available in Web Soil Survey. This tool has been used by countless range conservationists and rangeland planners. By simply incorporating an exclusion area within each insured pasture, an adjuster would be able to measure ungrazed grassland production against the expected production of that area during a year of normal precipitation.
The 2023 Farm Bill needs to include dependable risk management tools for cattle ranchers so that they can insure their pastures, no different than farmers. Western South Dakota towns were built by cows and local community businesses depend on ranchers to remain profitable. The state’s second largest population center, Rapid City, was originally dubbed “Hay Camp,” as it was formed as a center that supplied feed for livestock during the gold rush. Over time ranchers are slowly being pushed out, unable to compete with land prices pushed higher by farmers looking for new opportunities buoyed by the knowledge that their bottom line is secure. Small towns are getting smaller, main street businesses are disappearing and schools continue to consolidate as a result.
Every year more drought-tolerant seed varieties are created that push the plow further and further into dryland territory that the dust bowl taught us shouldn’t be farmed. The very fertility that made the black-soil regions of the United States was a product of native tallgrass prairie. Virtually all of that prairie has been turned to farm ground to raise more crops. Dryland prairies are some of the last and best reserves for biodiversity in the country. Keeping ranchers and ruminant animals on those prairies allows them to remain commercially viable and economically productive for the state and small communities.
Since 1980 America has lost 50% of its cattle ranches. The share of the food dollar producers receive has diminished from $.53 in 1946 to $.14 today. In order to be sustainable and generational we must remain profitable. In order to be profitable ranchers need a multi-peril risk management tool to kick in when unforeseen circumstances arise. Indemnities are appreciated, but they are not dependable.
Mellette County Cattle Rancher
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