Note: A version of this article originally appeared in the July 2020 edition of my New Foothill Rancher newsletter.

 

 

When my family started raising sheep commercially, we assumed that selling meat directly to consumers would be more profitable (especially at our small scale) than selling live animals. As we went through the logistics of getting animals to our processor, deciding what cuts we thought we could sell, determining our product pricing structure, picking up meat, getting it stored, and then getting it sold, we realized that meat marketing was far more complicated that hauling a load of lambs to the auction. We also got a crash course in the difference between gross profit and net profit.

Value-added marketing is a buzzword in local food system conversations – after all, who wouldn't want to add value to the crops or livestock they produce. Since the disruptions to our food system from COVID-19 have become obvious, producers and consumers alike have a renewed interest in selling (and buying) locally-produced meat. But as a producer, how do we know if we're actually adding value if we're selling meat rather than live animals? From an economic analysis perspective, we have to look at the meat business separately from the livestock production business. In other words, the meat business has to “buy” the live animal from the livestock business. How do we go about this kind of analysis?

In our own business, I started by using the market price for finished lambs (as published in weekly market reports from the closest livestock auctions) as the “purchase” price of lambs for the meat business. If a 100-pound lamb was worth $1.80 per pound at Escalon, my meat business would need to pay my livestock business $180 to buy that lamb, less what I would have paid in commission, yardage, and transportation. Let's value that 100-pound lamb at $160.

In economic analysis terms, the purchase of the lamb was a variable (or direct) expense for the meat business. Other direct expenses included harvest and cut-and-wrap fees (which are typically charged by the head or by the pound). Overhead costs – those expenses that are incurred regardless of the number of animals being processed, included transportation to and from the processor, storage, marketing expenses, and labor.

On the revenue side, I needed to know how much retail product I'd get from that 100-pound lamb. This is different than hot carcass (or hanging) weight – this is how much product actually goes into a package. We found that we typically got a 30-33 percent retail yield – in other words, the 100-pound lamb gave us 30-33 pounds of meat we could sell to our customers. We also needed to know the relative yield by cut – after all, folks will pay more for a rack of lamb than they will for stew meat. From this, we could calculate an average retail price per pound – for us, this came out to about $11 per pound of retail product. At 33 pounds of salable product, that lamb was now worth $363.

Let's look a bit closer at that $160 lamb:

Gross Revenue	Amount
Meat Sales (33 lbs at $12/lb)	$363
Total Gross Revenue	$363
Direct Expenses
Lamb purchase	$160
Slaughter/Cut-and-Wrap (per head)	$145
Total Direct Expenses	$305
Gross Margin	$58
Overhead Expenses
Transportation (live animal – 130 miles @ $0.57/mile)	$74
Transportation (product – 130 miles @ $0.57/mile)	$74
Storage (monthly locker fee)	$125
Marketing (farmers market fee)	$50
Labor (10 hours @ $15/hour)	$150
Total Overhead Expenses	$473
Net Profit (Loss)	($415)

Yikes – “adding” value to a single lamb would create a loss of $415! Maybe we should look at scaling up (so we can spread our overhead expenses over more units). I can take 20 finished lambs in my trailer – let's look at the numbers for 20!

Gross Revenue	Amount
Meat Sales (33 lbs at $12/lb) – 20 lambs	$7,260
Total Gross Revenue	$7,260
Direct Expenses
Lamb purchase	$3,200
Slaughter/Cut-and-Wrap (per head)	$2,900
Total Direct Expenses	$6,100
Gross Margin	$1,160
Overhead Expenses
Transportation (live animal – 130 miles @ $0.57/mile)	$74
Transportation (product – 130 miles @ $0.57/mile)	$74
Storage (monthly locker fee)	$125
Marketing (farmers market fee – 5 weeks to sell 20 head)	$200
Labor (10 hours @ $15/hour)	$150
Total Overhead	$623
Net Profit (Loss)	$537 ($26.85/head)

This time, we made a profit! All of that extra work added a whopping $26.85 per head to the value of our lambs! And this doesn't account for the time value of money – when I sell at the auction, I have a check within a week. When I sell meat, the cash flows in as I'm able to sell product – it may take a month or more.

Obviously, these numbers are sensitive to the current market price, the distance to your processor, and processing fees. In a depressed live market (like we're currently facing), marketing meat may add more value. And it's a complicated question - I found selling meat to my community to be rewarding in non-monetary ways. But non-monetary income didn't pay the bills, unfortunately. The key takeaway here is that it's important to do the analysis.

If you'd like to walk through a more thorough analysis of your own business, contact me at (530) 889-7385 or dmacon@ucanr.edu.

I've been fortunate to have the opportunity to get a fair bit of formal education - from my undergraduate days at UC Davis studying agricultural economics to the online coursework I took while obtaining my master's degree at Colorado State University. The certificates that hang on the wall in my office attest to this formal education; my membership in professional societies (like the Society for Range Management and Western Association of Agricultural Economics) gives me access to continued learning. My formal (and continuing) education has driven my intellectual curiosity.

Thankfully, I've also had the opportunity to learn from experience - my own and that of others. Much of what I've learned through my own experiences has been from mistakes that I've made! In many cases, I've learned what NOT to do next time. I've also had the good fortune to learn from others - from mentors (ranchers and colleagues). This informal learning is interesting - while there are times when it confirms what I've learned from books or in classrooms, it often makes me question my formal instruction. And it certainly drives my intellectual curiosity, as well.

Early on during our shelter-at-home experience this spring, my friend Ryan Mahoney, a sheep producer from Rio Vista, approached me with the idea of starting a podcast about sheep production. While Ryan operates at a very large scale (and we have a much smaller operation), we felt like we could both learn from one another. We also felt like taping a podcast would give us something to do every Wednesday afternoon! And so Sheep Stuff Ewe Should Know was born! We've now produced 12 episodes in our first season, covering topics like risk management, the effects of COVID-19 on the sheep industry, and livestock guardian dogs.

Of all the topics we've discussed, though, I think I learned the most from this week's episode. On Wednesday, we interviewed Ryan's grandfather, Richard Emigh, who will turn 91 this summer. Mr. Emigh recounted his lifelong experience in the sheep business - after an hour long conversation, I felt we'd just scratched the surface! He talked about what makes good sheep range, about the value of multi-species grazing (he ran cows and sheep together), and about the need to be creative in today's sheep industry. Personally, my favorite part of the conversation was our discussion about the importance of experience and local knowledge - Mr. Emigh talked about how a good sheepherder knows what his (or her) sheep need to eat at that moment, telling us:

"The best sheepherder gets the most out of the land by getting the most into the sheep." 

As we continue producing Sheep Stuff Ewe Should Know, Ryan and I hope to interview other producers to learn from their experiences. We'll also be talking with experts in animal health, livestock nutrition, marketing, and business management - learning from their experiences, and having fun along the way!

You can check out our podcast HERE! And let us know what topics you'd like to learn more about!

When we were in the targeted grazing business, I always marveled that many landowners and land managers didn't start thinking about managing their fuel loads until the grasses and other fine fuels really started growing in April. To this day, I still get phone calls and emails in April and May inquiring whether I can provide sheep or goats to reduce someone else's fire danger. Even now, with more producers providing targeted grazing services throughout the state, there simply are not enough livestock in California to treat all of the dangerous fine fuels (what many of us used to call "fall feed"). Consequently, we need to think about where and how we graze strategically - where can we provide the greatest protection to neighborhoods, infrastructure, and even our own farms and ranches?

Every spring, I see a news report where CalFire suggests that we're facing another dangerous fire season. Either we've had lots of precipitation, which means lots of grass (a.k.a., fine fuel), or we've had a dry, warm spring (like this year), which means fire season may start earlier than normal. This week, we're coping with the first heat wave of the summer (even though it's not officially "summer" yet) - which always raises awareness of the fire threat even further. We've even seen the first grass fires in the Sacramento Valley. I know I've started paying more attention to the aircraft flying over our home place - all summer, I glance up to see if it's a fire plane (and if it is, I start looking for smoke on the horizon). Finally, these first hot days remind me that it's time to get serious about our ranch fire plan (click here for a fire planning for ranchers fact sheet).

Now I'm certainly no expert when it comes to fire behavior - that combination of fuels, topography, and weather that drives site-specific wildfire conditions. However, when I look at the areas where we graze our sheep in the summer months, I think this fire behavior triangle is a useful lens. I ask myself the following questions:

1. Where are the fine fuels most likely to create a ladder for fire to get into brush or trees?
2. Where are the likely ignition sources in this landscape? While I can't necessarily control the natural ignition sources (like lightning), are there other potential sources (like recreation areas, roadways, utility infrastructure)?
3. Are there assets in the community or on the particular property that I want to protect from fire? This may include homes, outbuildings, wells, sensitive ecological areas, or other values.
4. Are there areas where modifying the fine fuels could slow a fire, giving firefighters a chance to stop it? This relates, at least in part, to the topography of a particular location.

When it comes to this last point, I think it may be useful to think of grazing like we're creating what my forester friends call a shaded fuel break. My friend Allen Edwards, who owns timber land outside of Colfax, had the foresight to construct a shaded fuel break on his property on either side of an access road along the ridge between the American River canyon and Interstate 80. To create the shaded fuel break, Allen removed the ladder fuels under his mature trees (brush, small trees, and limbs on the larger trees). When the 2001 Ponderosa Fire came out of the canyon on a hot August day, his shaded fuel break allowed firefighters to safely make a stand and keep the fire from moving further east and north, into the town of Colfax. In the lower foothills, we may be able to use targeted grazing in similar manner. A combination of grazing and browsing livestock (cattle, sheep, and goats) can modify the fuel load such that fire behavior will change enough to give firefighters a chance. These "grazed" fuel breaks don't necessarily remove all of the flammable vegetation, but grazing impacts (including removal of the vegetation and trampling, which can reduce oxygen circulation within the dry forage) can slow a fire's advance. These types of fuel modifications should be coupled with roads or other access points that allow firefighter access in the event of a fire.

If you're considering using a targeted grazing contractor, click here for a fact sheet. I also have a list of regional targeted grazing contractors available on my website. If you're a rancher who is thinking about adding targeted grazing as an enterprise, here's a short power point on the Principles of Targeted Grazing. If you still have questions, contact me at dmacon@ucanr.edu. 

One of the things I enjoy most about cooperative extension is the opportunity to organize hands-on learning activities. From our Shepherding Skills Workshops to my California Cattle and Sheep/Goat Grazing Schools, I love the chance to get ranchers and land managers together, outdoors, to learn about grazing management and animal husbandry. But thanks to COVID-19 and the necessity to avoid large gatherings, I've had the opportunity to discover new ways to do my job!

Several weeks into California's shelter-at-home order, my friend and fellow rancher Ryan Mahoney (of R. Emigh Livestock in Rio Vista) came to me with a fun idea for doing a weekly video/podcast on all things sheep. Ryan suggested that we should call our project Sheep Stuff Ewe Should Know, using a conversational format. Each week, one of us comes up with a topic and a list of questions for the other - so far, we've covered wool, feeding lambs, managing pasture, business benchmarks, risk management, and dealing with COVID-19. Our videos are available on my Ranching in the Sierra Foothills YouTube (I prefer EweTube) channel; Ryan has figured out how to turn these into podcasts, which are available on Spotify and Apple Podcast. We've had lots of fun producing them; hopefully, they're useful for other sheep producers, too!

Thanks to a grant I received from the Renewable Resources Education Act program, I've also collaborated to start a bi-weekly webinar series we're calling Working Rangeland Wednesdays. Working with my friend and colleagues Leslie Roche (the rangeland management specialist at UC Davis) and Grace Woodmansee (Leslie's graduate student and my intern), we've produced two webinars so far - both focused on rangeland drought.

And finally, I've been producing short Instagram videos on a variety of topics, including stocking rate and carrying capacity, livestock guardian dogs, and grazing planning. These are available via my IGTV channel (follow me at @flyingmule). For me, these have been fun ways to produce short, spontaneous videos on topics that I find interesting - hopefully others do, too! I generally also post them on my Sustainable Foothill Ranching Facebook Page.

Nothing will replace hands-on, face-to-face workshops for building skills and community. That said, being forced to work from home has allowed me to explore some new technology and reach out to friends and colleagues who are outside of my local area. For example, last week's Working Rangeland Wednesday webinar featured a panel of three ranchers who I respect tremendously - and who probably would not have had time in May to spend an hour in Auburn speaking at a workshop (considering that Auburn is more than an hour's drive for two of the three). Working at home has forced me to become more creative - and I'm enjoying the results! I hope you do, too!