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!

If you're like me, you were probably surprised to look at the calendar this morning and realize that irrigation season begins in here in the Sierra foothills this week. With all that has been happening in our world (sheltering at home, socially distancing, washing my hands constantly), April 15 sneaked up on me this year. Nevertheless, the Nevada Irrigation District will begin delivering summer water in two days - I guess I'd better get ready for it!

I'm sure many of you are well ahead of me in terms of your preparations. You've probably cleaned out ditches, flushed mainlines, and checked sprinklers (depending on how you irrigate your pastures). We use a K-Line pod system for our small pasture near Auburn, so I'll spend Wednesday morning flushing lines and replacing broken sprinklers. I'll also lay out stakes with flags at the end of each set; our K-Line system is designed to run on 24-hour sets and a 12-day rotation. I'll start just about every day for the next six months dragging K-Line pods across our pasture.

If you plan to fertilize your pasture, now is the time to apply nitrogen. For a more comprehensive look at pasture fertilization, read "To Fertilize or Not to Fertilize" in my April 2020 newsletter. Here are the key points when it comes to applying nitrogen:

• Take species composition, water availability, and irrigation uniformity into account.  Don't apply fertilizer if the pasture does not have adequate soil moisture at the time of fertilizer application nor if irrigation or rainfall are not possible in the near future.
• Consider collecting a nitrate soil test in the spring and fall.   It's easy to collect, costs less than $20 per sample, and is a good way to see if fertilizer is needed shortly before application.  It also allows you to develop a history of soil nitrate in your pastures, which will allow you to see trends.   In the future, you may want to sample below the root zone to see if N is accumulating below the root zone and alter your irrigation management accordingly. 
• Most irrigated perennial cool-season grass pastures will benefit from the application of 80-100 lbs. of nitrogen per acre applied in the springtime. It's not worth putting out less than 50 lbs. per acre – the application costs will be the same, but the boost in production will be lower.
• Don't apply N when establishing a new pasture – you'll only boost weed growth.  Seedling grasses need more frequent irrigation then established grass.  They can benefit from nitrogen after the seedling growth stage but only if weeds are not a problem or weeds are controlled with herbicides.   Wait until the planted species have germinated and started growing before applying nitrogen.

Finally, don't neglect grazing management. Proper grazing management can greatly enhance forage production. Allowing forage to re-grow after it's been grazed (and before it's grazed again) will stimulate root growth and increase overall production. Avoid irrigating underneath your livestock - this will reduce the potential for soil compaction and will help protect water quality. Remember the 5 principles of managed grazing:

1. Adjust your pasture rest periods to the growth rate of the plants. Our cool-season forage species will grow rapidly in the spring and fall; they'll go through a summer slump in hottest months. We can get by with shorter rest periods during times of rapid growth; we'll need to provide longer rest in July and August.
2. Use the shortest graze period possible while maintaining adequate rest. We can make more efficient use of forage by using shorter graze periods - livestock will graze more if they're frequently going onto fresh feed.
3. Use the higest stock density possible. Stock density will improve uniformity of grazing.
4. Use the largest herd size possible consistent with sound animal husbandry principles. Fewer herds or groups of animals can simplify management considerations. Larger herd size also allows us to optimize beneficial impacts from hoof action and manure/urine deposition.
5. Adjust stocking rate to seasonal changes in carrying capacity. During the spring flush and fall rebound, forage production can be substantially higher than during the hottest part of the summer. Some producers adjust to this seasonal fluctuation by harvesting hay. In our sheep operation, we use the spring flush to feed lactating ewes and growing lambs. As productivity decreases with warmer temperatures, we reduce our stocking rate by only grazing our replacement ewe lambs on our irrigated pasture. Come fall, when we're putting the ewes on a higher plane of nutrition in anticipation of breeding, we increase our stocking rate as forage productivity increases.

If you have questions about irrigated pasture management, contact me at dmacon@ucanr.edu or by phone at (530) 889-7385. Now if you'll excuse me, I need to go gas up the ATV and find my irrigation tools!

Last month, I had a chance to attend the Society for Range Management annual convention in Denver, Colorado. Among the symposia I attended was one entitled "Transforming ranching through precision livestock management on extensive rangelands" - fancy title, right?! But despite the lengthy (and overly academic) title, I found the talks to be outstanding! And the possibility for using technology to improve livestock management presents an exciting opportunity!

The first speaker was Dr. Mark Trotter from CQ University in Queensland, Australia. He suggested that cooperative extension can and should play an important role in the development and use of new technology. First and foremost, this technology should have economic value for producers - either by increasing revenue or reducing costs. Dr. Trotter also suggested that extension should guide the development of technology and help test the hardware in real-world settings. Extension should help test the animal behavior algorithms that make the technology relevant in production settings. Finally, extension can help prepare the industry for the widespread adoption of these new technologies.

The most exciting technological developments, at least to me, are those that can help make labor more efficient. Dr. Trotter and Dr. Derek Bailey (from New Mexico State University) talked about new applications for global positioning system (GPS) technology and ear tag mounted accelerometers. Researchers are finding that these systems can predict when cattle or sheep will give birth and can even alert a producer about a calving or lambing problem. Other researchers are using these systems to detect diseases and predation impacts. Trotter and Bailey also talked about the potential for using this kind of technology to place water troughs in areas that will facilitate more efficient forage use, as well as helping managers predict when livestock need to move to fresh pasture.

The final speaker was Dr. Tony Waterhouse, professor emeritus from Scotland Rural College. He spoke about the need for durable technology: "Sheep break things a bit; cows break things a lot," he said. He has experimented with technology that records a ewe's proximity to specific lambs as a way to match a ewe with her offspring (often a difficult task in extensive range-based sheep production systems).

At least for me, technology will never replace the need for people to manage livestock. These are complex biological, economic, and social systems - the rancher's "eye" will always be critical. However, I do think that there may be ways - in the not too distant future - where this technology can help our eyes see patterns and behaviors we couldn't see previously. Stay tuned! I hope to begin testing some of this technology in the coming years!

In the meantime, here are some links to several of the technology firms mentioned in the symposium:

https://www.datamuster.net.au/

https://www.gpscows.com/

http://vence.io/