grassfarmer?

[farmers_son]

Blackjack, I agree with your comments. Still the challenge for producers is to develop the skills and means to form alliances with other producers if they wish to improve their competitiveness. Whether we are talking family partnerships or co-op type ventures a proper structure can help ensure success.

[cakadu]

Agriculture - the way we've known it to be the last 40 to 50 years or so - is slowly changing in the directions that have already been mentioned. It might help to know that 95% of new businesses fail within the first 5 years, so having a business outside of agriculture is no guarantee of a good life or of success.

You are 1000% correct cowman when you say that agriculture cannot continue the way it has. By far and away the biggest challenge that producers face is not knowing their costs, which you happen to know but for every producer that knows and understands there costs there are likely 6 to 10 that don't. If you don't know where you are or where you've been, you won't know where to go for the future.

These days everyone is faced with shrinking income while costs soar. Tough decisions have to be made everyday. Greybeard makes a good point when he says that things go in cycles - even the oil patch. This time around the bust, when it does come, is going to be harder on a lot of folks than it was the last time.

The younger generation of farmers needs to be free to make their own choices and decisions, just as all the older producers have been. Some may not make sense to us looking in, but it makes sense for them and their operation.

Albert Einstein said it best when he said that "Imagination is more important than knowledge." We need to be able to look at growing more value-added crops than wheat, barley and canola. How do you know it can't be done unless you try? We need to each find that niche or value-added opportunity that makes sense for our own operation and not worry about whether or not more can grow it. Producers have been stuck in a commodity mentality for a long time and we have a penchant for turning things into commodities, which in turn bring lower prices by their very nature.

Emrald points out that the next generation of producers are getting things like their ag mechanics etc. so that they can still stay home and run their farming business, but make extra money.

Innovation and out of the box thinking are critical and the next generation should be free to make their own decisions and mistakes.

I liken it somewhat to what our grandparents must have thought when their kids bought houses - how will they manage? My own parents wondered how we would make it with house prices and mortgage rates the way they were. Now I wonder how today's generation can make it with high house prices and reasonable mortgage rates - for now at least. We all adjust to the circumstances, some seen -- others unforeseen and we find ways to continue.

Maybe if we listened more to the young producers' and how they see their decisions and farms going and gave them encouragement they just might make it a success story.

[cakadu]

I think that it is a lot easier for younger farmers to make their own decisions if they aren't involved in a family operation. Younger people that have always been involved and treated as a partner by their parents likely have things a bit easier than those who leave home to get an education, or for employment, then return to the farm after not being involved for many years. For one thing their lifestyle will likely have to change significantly if they go from having a regular paycheck with benefits to relying on farm income .

I don't see too many young people even considering farming even if their parents are willing to give them the farm.

[farmers_son]

I noted the comment that 95% of businesses fail within 5 years.

Businesses start up, it should then follow that businesses also cease operating. In Alberta the number of businesses operating increased by 31% during the 1990s. According to Statistics Canada over 33% of new business are still operating 5 or more years after startup. That is not to say all the others failed. They just ceased to pay income tax in their original name. They may have sold or changed their name for any number of reasons or simply ceased operating because the business goals were reached.

The reality is about one million businesses operate in Canada . In 2004, 8100 businesses declared bankruptcy or 0.81% of the total. That is the number of businesses that fail.

See: http://www40.statcan.ca/l01/cst01/econ11a.htm
See: http://www.statcan.ca/Daily/English/050215/d050215a.htm

smcgrath76: You say you are a young farmer who generates most of your income off farm as a means to cash flow expansion. Now I want to make it clear that I am not familiar with your situation. However I have seen quite a few young farmers for who their off farm income is a trap that will keep them grasping at that paycheque for the rest of their lives. That off farm job kills the entrepreneurial spirit. Unless that job is extremely high paying how can it ever see a young person set up on a farm. When does the young person quit the job and go farm full time? When they are 30 or 40 or 50? Farming is a young persons job, it takes a lot of hard work.

Now I know the trend is for young people to have off farm jobs. Just an off the wall suggestion, but the best way to start farming is to farm. The younger the better. As with any long term investment, the sooner you start investing the more you end up with. If a young person 20 years old can find a way to make $10,000 farming each year and have his/her farm grow at 5% a year by the time they are 70 they will have built up a 2 million dollar farm. If they work off farm for 10 years and saved $50,000 cash, which would be quite good, then go farming at age 30 they will have ½ million less when they retire at 70.

[cowman]

Maybe I should have clarified my statement about agriculture being a dog? I meant agriculture as we knew it!
You know cow/calf, maybe background them through, raising the traditional crops...wheat, barley, canola. In my area those seem to be about the only crops that can really cut it. People have tried lentils and beans...usually with disasterous results and more money down the drain!
Now I realize, perhaps there is more money if you move up the value chain? But then are you still a farmer or are you a packer, wholesaler, trader, retailer? And at what point do you realize "hey I'm making my real money after the product leaves the farm gate?" When that day comes do you say to hell with raising the product, I'll just buy it from the peasant?
Now personally I believe the best businessman has to take care of the business and work at it pretty well full time? If we look at a lot of these co-op ventures what do we see? A bunch of "directors" who really don't have a clue and a "professional" management team that are usually the castoffs from the real industry players? A clear example of how this thing won't work is the old Fletchers hog plant in Red Deer? Farmer owned, brought in some high priced management, and basically couldn't cut it! Sold out to a real player(Olymel) who turned it around and made it profitable! And by the way really started to screw the hog farmers!
It would be very interesting to have a crystal ball and see what happens ten years down the road with these new co-op type packing ventures? Do you think any of them will still be functioning as a co-op? It is a sad reality that to succeed in just about any business you need to be involved and get your hands dirty? Nowadays part timers find it difficult to survive.
I always find it amazing that people think they can go into any business and out compete the people who know what they are doing? It can be a real steep learning curve and a very costly lesson in how the real world works!

[farmers_son]

I agree with your statement that agriculture as we know it is underperforming.

Re moving up the value chain; are you still a farmer. My grandfather, father and I were members of the Alberta Wheat Pool which in effect moved us up one rung on the value chain. We never stopped being farmers. For most of three generations the AWP did what it was designed to do, bring fairness into the marketplace. Unfortunately after years of success people forgot what the Wheat Pool was all about and the dream was lost.

I am not familiar at all with the Fletchers plant. But from a farmer standpoint is the situation better or worse now that a “real player” like Olymel is killing hogs and as you say really screwing the farmers. I think part of the challenge for producers is how measure the success of efforts to improve their lot by moving up the value chain. It is my impression from your comments that producer net returns did not improve after Olymel started killing their hogs. Perhaps in hindsight Fletchers was better than it appeared.

I would point out that Tyson and Cargill went up against established competitors before they went into the beef business. In another thread I provided a link to Porters Five Forces Model of Competition. Michael Porter points out that established players like Cargill and Tyson are vulnerable to suppliers moving up the value chain.

From a producer standpoint any value added venture must be measured in terms of increasing producer net returns. I suggest for producer beef packing plants we would measure success in terms of a narrower basis between local prices and the U.S. market.

Look at it this way. This last week a American producer received $181 more than his Canadian counterpart, slightly more than in previous weeks when an American producer received about $165 more than us for the same animal. Now I would point out that there should be no basis between Canada and the U.S in a properly functioning market but for sake of argument lets assume a $81 basis was fair. That leaves a $100 dollar per fat steer and heifer that we are basically getting ripped off. How is that for a costly lesson in how the world really works!

Alberta slaughters about 2 million steers and heifers each year. Yes that is correct, Alberta producers are being ripped off to the tune of $200 million each and every year. That is enough money to buy and completely pay for 2 brand new ultra modern large scale packing plants this year, next year, and every year into the foreseeable future in Alberta alone, forgetting the rest of Canada.

The simple fact of the matter is we do not have to be as good as Cargill and Tyson. We just have to capture some of the $100 per head they are stealing out of our pocket.

[cowman]

farmers son: The hog farmer is not getting a better deal from Olymel than when they owned the packing house. However the packing house was losing so much money that the farmers sold it. So you rob Peter to pay Paul sort of thing?
The management team were supposedly top notch...at least they sure got top dollar for their services! However the board of directors were not up to snuff on the packing business and didn't "take care of business" so to speak! It became more or less an old boys club with lots of freebies and good times!
Alberta Wheat Pool basically went broke because they couldn't cut it...just like Sask Wheat pool!
The amateurs will always have a hard time competing with the professionals? Just like in a hockey game?
I sincerely doubt any of these new co-ops are going to teach Cargill or Tyson anything? They might be a thorn in their side for a few years but in the long run I suspect they will implode and fold? The whole idea of a co-op bothers me a bit...don't like the herd mentality! Don't like someone else making decisions when it comes to my money.
I think the Sunterra businesses will be successful because you have an individual owner (Price) who obviously knows his business and is taking care of his own money.

[farmers_son]

While Sunterra may be successful they have no intention of injecting competition into the marketplace, instead the intention is to quietly share in the profits to had in the packing plant sector, that $100 or so per head.

AWP and Sask Pool were victims of a change in the regulatory environment. For 70 years they "cut it" very well. If producer packing plants can "cut it" for 70 years I would call them a success.

However producer packing plants evolve they do not have to make all the same mistakes as Fletchers did. And maybe more mistakes will be made but as long as producers learn from their mistakes progress can be made.

I believe the "herd mentatlity" is what needs to be developed and fostered because as you point out agriculture as we know it is a dog.

[cakadu]

I would point out farmers_son that I said "new" businesses fail and it depends on how you define "failure".

As greybeard pointed out, even well established businesses handed down have been driven into the ground because they weren't managed properly or didn't change with the changing times - the T. Eaton Co. comes to mind. Too many young people saw that as something that their grandparents shopped at and they wouldn't go there.

As for new venture or new generation co-ops time will tell how they do. I can't say that I am the biggest fan of them and have yet to see an example of one that has sustained itself over the long-term and by that I mean longer than a couple of years or so.

The Sunterra venture is as you say, farmers_son, they have substantially downloaded the risk onto others, but it will likely continue as they have some pretty well established markets into Japan and such - at least on the hog side - so that will go a long way to helping them get a foothold. They are more vertically integrated than what a true value chain would be, but they capture the profit at each level and that is what it is all about.

Agriculture as we have known it, is a dog, cowman so shouldn't we be encouraging the young to try new things and look at it with a new set of eyes? Crop varieties change, most crops can be a wreck in any given year depending on conditions - look at this fall for example, what was looking like bumper crops is now degrading quickly - so to say it can't be done ever is maybe not the way to go. Look at corn - did you ever think you would see the crops of corn that we do? Granted it isn't grown to any great extent, but the crops of it that there are look pretty good.

We seem to be so risk-averse and want to avoid failure at all costs, which to a point is a good thing. We do tend to look on failure as bad, which stifles innovation. Personally, the only time I see failure, is when you quit trying. There are many things to be learned from "failing" and you can do better next time with the knowledge and experience that has been gained.

[cswilson]

It's kind of interesting when we say that Agriculture has to change to be successful to-has anyone ever considered that some outfits are unprofitable because maybe they've changed to much. I see alot of outfits that are adapting new technology and techniques under the guise of increased profitability but alot of times it's just to save time-which is good if the time saved is used productively.How many outfits do you know that have a 10,000 quad to check fences with-for the interest and depreciation most guys could hire their fencing done etc. In ranching we have the technology to take cattle that are perfectly capable of calving unobserved and calve them in a winter enviroment-does it make us more money-add to our quality of life-questionable. We have cows with four stomachs to digest marginal feedstuffs but we process it for her-last I looked most cows have plenty of time on their calendar to chew their cuds. In our country alot of the more profitable outfits are going back in time abit in management techniques. It's kind of refreshing when your feeding system and handling crew -replaces itself every year at foaling time. Change for change sake maybe isn't always the best way to go. Saw a case just across the fence from me-a farmer trying to kill out an alfalfa crop to seed canola in it. A few trips over it with the sprayer and still has alfalfa growing-maybe should of grazed it hard the fall before-generatyed some income and stressed it so it would of been easier to kill. The days of I have a problem-now how big a cheqe do I write the farm supply depot to fix it are maybe gone.

[cowman]

cswilson: A lot of common sense in your post. I do believe in these times we need to let the darned cow start to take care of herself. Not so sure about the horse thing? Little bit too "primitive" for my taste!
Linda: Yep, corn could definitely be added, although we are only looking at it as a source of forage? Not real sure about the numbers for corn? They still are a bit iffy?
Farmers son: Without a doubt Price is not some kind of charity! He is a very savy businessman who can play the game.
Your contention that AWP and Sask Pool were victims of "regulatory circumstances" just goes to point out any venture can succeed if the government mandates it! Were they truly efficient organizations or were they propped up by government rules? I note they dissappeared fairly fast when there was a level playing field? Is this the only way a co-op can make it...government interference in the market place?
If you are a true believer in "free enterprize" I would think you would advocate the concept of "let the best triumph" and the weak fall away? Not a very pretty picture when you are the weak, is it?

[cswilson]

You know cowman it it was approached properly I'm sure we could find tourists who would pay for the privilige of using horses to feed our cows-eliminate labour costs and generate some revenue.The best way to get even with the fuel dealer-equipment peddler etc is to eliminate them as much as possible from your operation. I know the riding arena up here uses German tourists pretty much as paying slaves most of the tme lol.

[cswilson]

cwilson hands on agriculture is a real tourist attraction but it might be a stretch to expect them to hitch up the team in -45 !!!

[farmers_son]

Cowman: Ok, what would you do? You have correctly pointed out that agriculture is a dog. I pointed out that part of the reason agriculture is a dog is because Canadian producers receive $180 or so less than American producers. There would be other reasons as well. Many have suggested packing plants and vertical integration as offering a solution. What I hear from you is let the weak fall. Is that your solution? If so, I would point out that todays weak were yesterdays strong. Margins continued to decline to a point where what was a profitable enterprise 20 years ago is unprofitable today and there is no reason to believe that margins will not continue to decline. How do you see agriculture and in particular cattle production in 20 or 40 years?

[smcgrath76]

F_S - I may have forgotten to mention that I really enjoy my job as well.
That said I do appreciate your insight into going farming, however I have a young family to consider as well as the fact that I have remained relatively debt free while expanding the farm to the point where it will generate a profit this year. Previously we were expanding our cowherd fairly quickly and were not selling a lot of heifers (even though I know I can buy them from cswilson).
I do tend to agree with the concept of moving up the value chain as the place to invest, certainly for someone in my age/business bracket that appears to be the place that provides the most opportunities.
In the traditional sense, expansion through the aquisition of more land is limited only by complete goofiness in our local area due to prices in excess of $1000 / acre for unfenced grazing land that may run at 0.5 AUM per acre. There are other opportunities for our beef herd in crop residue grazing, pasture and cow lease agreements, and others if you want to get creative.
One advantage to working outside the farm that I am not sure how to quantify is that it forces me to work on the farm in a business sense. Additionally, it also has provided me with immeasurable contacts to work on the value adding side (and even the cost cutting side) of things. I would guess that most young producers are not so lucky.