Northwest FCS Yields - Managing Volatility - Spring 2013

Spring 2013

ManagingVolatility

Spring 2013

FEATURE STORY > 5

How much is the consumer willing to pay for beef? That may be the $62 billion question facing U.S. cattle producers. Everything boils down to supply and demand and beef cow numbers in the United States are at a 50 year low. Normally, stronger cattle prices would encourage producers to expand their herds. But volatility prevails.

Peer Financial Benchmarks > 3

Knowledge Center > 12

Market Snapshots and Business Tools > 13-14

Dr. Gary Brester > Competitive Advantages

for Northwest Cattle Producers > 15

yiel

dsWho we are: Northwest Farm Credit Services is a

customer-owned, financial services cooperative, providing

$11 billion in credit, crop insurance, and related services to

farmers, ranchers, agribusinesses, commercial fishermen,

forest products producers, equipment dealers, chemical

suppliers, part-time farmers, and country homeowners.

Board of DirectorsKevin Riel, Chair, Yakima, WA

Karen Schott, Vice Chair, Broadview, MT

Rick Barnes, Callahan, CA

Christy Burmeister-Smith , Newman Lake, WA

Drew Eggers, Meridian, ID

Jim Farmer, Nyssa, OR

Mark Gehring, Salem, OR

Dave Hedlin, Mount Vernon, WA

John Helle, Dillon, MT

Herb Karst, Billings, MT

Bruce Nelson, Spokane, WA

Dave Nisbet, Bay Center, WA

Julie Shiflett, Spokane, WA

Shawn Walters, Newdale, ID

About YieldsYields is produced for stockholders of Northwest FCS, an

Agricultural Credit Association. Comments and story ideas

can be sent to the Marketing Department, c/o Northwest

FCS, P.O. Box 2515, Spokane, Washington 99220-2515.

website: northwestfcs.com

Northwest Farm Credit Services is an equal opportunity employer and does not discriminate on the basis of race, color, religion, sex, national origin, marital status, age, disability, disabled veteran, Vietnam era or other eligible veteran status.

Being a dependable source of financial services and a trusted advisor to the customers we serve is

the heart of our mission at Northwest FCS. World demand for food and fiber will continue to increase

and the opportunities for agriculture over the long term are tremendous. But, we also know the

marketplace has become much more complex and volatile. Managing risk will be essential to the

positioning of both our customers’ businesses as well as our association’s business for the future.

At Northwest FCS, we continue to build upon the depth and experience of our staff who will serve

the next generation of agriculture. Our tenured employees are deeply engrained in the industries we

serve. As trusted advisors they have worked with hundreds of operations through various business

cycles. They help our customers evaluate business decisions from different perspectives and provide

honest and objective feedback, which is critical to managing risk.

Our seasoned staff is also training and mentoring the next generation of employees who will carry on

this legacy as trusted advisors. We continue to invest heavily in developing our employees to ensure

these talented people are well equipped to help customers manage risk and explore opportunities.

The future is bright for agriculture and we are privileged to support the Northwest food and fiber

industries that perform a vital role in the United States and around the world.

TrustedAdvisors

yields Spring 2013 | 2

Phil DiPofi, President and CEO

3 | Nor thwest Farm Credit Ser vices

Peer Financial Benchmarks are a great tool to help customers make good financial decisions. Customers want to know how they stack up to their peers and the trends we’re seeing in the Northwest and beyond. Benchmarking helps them to analyze their operation’s performance compared to data gathered from similar operations. Peer benchmarking allows customer to identify strengths or focus areas in their operation. They can also use the peer studies to run “what-if” scenarios to see how expansion or changes will impact their financial position.

Peer Benchmarks focus on unique, industry-specific measures, like operating expense per animal unit. The peer groups represent a good, unbiased, cross-section of Northwest FCS customers. In the cattle peer study for example, we are able to show five years of historical peer financial data, as well as project trends that compare to the customer’s information. Here’s how the tool works.

Cattle Benchmark Sample

A customer’s specific information is entered into the benchmarking tool. The study compares their numbers to peer group averages for operations, per-head measures and financial ratios. We can also use pro-forma financial information to help customers project how changes – like buying more land – will impact the numbers.

Northwest FCS Peer Financial Benchmarks – CattleJohn Gates, Northwest FCS Relationship Manager/VPCattle Knowledge Center Team

Peer Average

Gross Farm Income per AU $1,026 $870 -$156

Cattle Income per AU $832 $820 -$12

Cost of Production per AU $738 $598 -$140

Base Operating Expense per AU $649 $562 -$87

Net Farm Income per AU $288 $272 -$16

Feed Cost per AU $109 $131 $22

Vet & Medicine Cost per AU $24 $18 -$6

Labor Cost per AU $58 $0 -$58

Taxes & Living per AU $79 $28 -$51

Net Non-Farm Income per AU $57 $0 -$57

Debt Service per AU $119 $158 $39

Term Debt per AU $828 $746 -$82

Working Capital per AU $543 $148 -$395

Sample Ranch

2011 2011 Variance

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The charts in the benchmark tool often give a better picture of the impact and trend, versus just looking at the numbers on paper. Charts show comparisons to the peer group in a number of areas. In this example, the information is divided into quartiles. The green bar represents the middle 50 percent of producers in the peer group. 25 percent of the operations are above or below the peer average. It’s important to note that each chart is independent of the others. So, ranches that comprise the upper 25 percent for animal units may not be the same ranches that comprise the top 25 percent for working capital or other measures. It is also important to understand that all of the operations in the peer group are successful and ongoing. So, being in the lower quartile, or lower 25 percent, is not necessarily a bad thing.

The benchmark study also shows customers how their key financial ratios compare to Northwest FCS underwriting guidelines. The charts in the cattle peer benchmark that correspond to our underwriting criteria have a different colored background. The red, yellow and green areas correlate to levels of high, medium and low risk. We think it’s important for customers to understand how we view the operation from a lending perspective compared to their peers in the industry. It’s important to recognize though, that an operation can be in the red or yellow zone for a particular metric and still be a “green light operation” overall.


Northwest FCSPeer Financial Benchmarks

• Cattle

• Dairy

• Forest Products

• Hay

• Nursery/Greenhouse

• Row Crops

• Small Grains (Wheat)

• Tree Fruit - Producer andVertically Integrated

• Oregon Winery

• Washington Wine Grape

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2007 2008 2009 2010 2011 2012

Base Operating Expense per AU

$0

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2007 2008 2009 2010 2011 2012

Net Farm Income per AU

Peer Benchmark Studies are a terrific tool to help our customers manage profitability and measure performance. The studies help to broaden perspectives beyond the scope of your operation. If you’re interested in learning more, please contact your local Northwest FCS representative.

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2007 2008 2009 2010 2011 2012

Debt Coverage Ratio

Middle 50 Percent Peer Average Sample Ranch

Middle 50 Percent Peer Average Sample Ranch Middle 50 Percent Peer Average Sample Ranch

Sample Charts


ManagingVolatility


How much is the consumer willing (and able) to pay for beef and other proteins? That may be the $62 billion

question facing U.S. cattle producers. With tight beef supplies, retail prices reached $4.70/lb. in 2012, a 16

percent increase in just two years. Prices are projected to increase another 5 percent in 2013. Consumer

incomes, on the other hand, remain flat in a sluggish economy. Everything boils down to supply and

demand and beef cow numbers in the United States are at a 50 year low. Normally, stronger cattle prices

would encourage cow/calf producers to expand their herds. But volatility prevails.

In 2012, crippling drought across the country scorched thousands of acres of pasture and sent feed prices

soaring. Imagine having a 500-year flood one year, followed by drought-fueled wild fires the next. Bill

and Jennifer Bergin in Melstone, Montana can tell you the stories. The Bergins run a 4,500-head feedlot,

900 cow/calf pairs, and farm more than 2,000 irrigated acres in Eastern Montana. It takes some 30,000

acres of rangeland to support the operation. Bill knows volatility is a given: with weather, feed costs,

export markets and the domestic economy. So he tracks his costs down to the cow and the acre. And uses

risk management tools to protect price and input costs as he manages the margins in the middle.


If everything comes down to supply

and demand, high beef and cattle

prices would normally signal produc-

ers to expand their herds. Yet surpris-

ingly, U.S. cattle numbers continue to

decline as prices reach record levels.

To understand the volatility in the

beef industry today, it’s important to

start with the cattle production cycle .

Bringing beef to the plates of consum-

ers is a multi-stage process. While

there is some vertical integration,

most cattle operations focus on just

one or two aspects of the food chain.

First, purebred cattle producers, or

‘seed-stock’ producers, improve the

genetic make-up of cattle that are

bred into U.S. herds. Larger animals

produce more beef. Thanks to im-

proved genetics, beef production in

the United States reflects levels con-

sistent with a much larger herd size.

Seed stock is sold to cow/calf

producers who maintain the herd

through the calving process. Calves

born in the spring are usually

weaned in the fall weighing 450 to

600 pounds. From there, the goal is

to add weight or ‘background’ calves

– on the range or in a feed lot – as

they grow into yearlings weighing

800 to 950 pounds. Generally, U.S.

consumers prefer the taste of grain-

fed beef, so most cattle are sold to

commercial feedlots where they’re

finished on a grain-rich ration.

Commercial feedlots and meat

packers are primarily centered in

the Midwest closer to the nation’s

corn belt which was devastated by

drought conditions last year.

Cow/calf producers are in the driver’s

seat of the beef industry today, with

limited supply and high calf prices.

But, making decisions to expand

Factors Limiting Cattle Herd Expansion• Historically, agricultural pro-

ducers have raised livestock to generate additional in-come, diversify, and manage income risk. Today, subsidized crop insurance programs may be providing a less expensive risk-management alternative to livestock production.

• The age profile of U.S. agricul-tural producers is increasing. As producers age, they tend to focus more on crop pro-duction which is less physi-cally demanding than raising livestock.

• Agricultural labor costs are increasing. Growers are able to improve efficiency and save money with new farm technology (i.e. machinery). Reducing labor costs for livestock production is more difficult.

• U.S. producers continue to face increasing restriction on land uses, particularly from non-agricultural sources. With larger animals that need more forage, the U.S. grazing base may not be able to sustain increased cow numbers.

• When cow/calf producers chose to expand their herd and raise replacement heif-ers, income is deferred for two years. The uncertainty surrounding future input costs and calf prices may be tempering producer appetite for risk.

U.S. Drought Conditions August 21, 2012

Data Sources: U.S. Drought Monitor, National Drought Mitigation Center,U.S. Department of Agriculture and the National Oceanic and Atmospheric Administration

Abnormally Dry Moderate Drought Severe Drought Extreme Drought Exceptional Drought


depends on profitability and land. Input costs for labor

and herd health continue to increase. More traditional

pasture lands are being converted to crops as prices

increase for wheat, corn and soybeans. Non-agricultural

interests are completing for land resources too. And

last year, drought in the Southwest moved north to

the Midwest and Great Plains. With limited grass and

soaring feed costs, many producers were forced to

reduce their herds even further in 2012.

Managing in the middleBill Bergin manages his

business in the middle. Like

most Montana ranchers, he

runs a cow/calf operation. But

instead of selling calves in the

fall, he feeds them through

the winter and spring to add

valuable pounds. Plus, he buys

more calves that will eventually

be sold as feeder cattle to larger finishing lots. The

Bergins will background some 4,500 cattle on their land

and in their feedlot. They also custom feed for other

Montana ranchers.

“We’re able to capture value from the cow to the calf

on rangeland in the summer,” explains Bill. “Then we’re

able to capture more value if we add pounds on them

over the winter and spring in the feedlot. If you have

irrigated ground you can grow your own feed. But

everything depends on conditions. Last year I was

selling hay early and then the drought hit. By the end, I

was buying hay to mix into our feed rations. Prices went

from $115/ton to around $250/ton delivered.”

Managing feed costsTo manage rising feed costs the Bergins now grow

almost all their own feed . While most ranchers in the

area use flood irrigation, the Bergins have invested

in pivot-irrigation systems to improve efficiency and

yields. Fertilizers and other inputs are applied through

the pivots,

reducing

tractor time

in the field.

And pivots

use about

half the water

of traditional

flood irriga-

tion. The

Bergins grow

corn, corn for

silage, alfalfa, sorghum, Sudan grass, barley and wheat

to use in their cattle rations.

Bill Bergin

In 2011 a state of emergency was declared in 51 Montana counties, cities, and Indian reservations. Flood waters on the Musselshell River blocked the Bergin’s bridge access to the feedlot so neighbors fed their cattle for two days.


“If you’re growing a feed base you need to have crop

insurance for risk protection,” says Bill. “You have to

understand your budgets and insure yourself with a floor

price to cover costs. With the flood in 2011, insurance

saved us on the corn crop. We were able to recoup the

cost of inputs and buy some of the feed we needed. In

a drought year, we’ve used rangeland protection. Our

coverage plans look a little different every year. But we

always have a safety net if something goes wrong.”

Adapting to technology The Bergins continue to find ways to reduce costs and

improve efficiency. They use the latest farm technology

– automatic steering and Global Positioning Systems –

to ultimately save money on seed and fuel. And, reduce

operator error. To adapt and progress, Bill upgrades

machinery while there’s still value left in the older

technology. He says you won’t believe how precise the

innovations get from one generation to the next.

Controlling the variablesWhen it comes to managing volatility, Bill turns to

the numbers. With an enterprise budget he estimates

gross income, costs, projected

net income, and break-even

points for every segment of

the operation. Details count.

Budgets are broken down by

the cow, calf, and by the acre

of corn or alfalfa. Next year Bill

plans to track costs back to

each piece of equipment to see

if the input is giving the output

they need for profits. If not,

they’ll make different decisions.

“Every aspect of the business needs a budget to

formulate the plan,” says Bill. “Markets go up and down.

There are a million variables. To manage risk we try to

protect the price of our inputs and protect the price

of our cattle. The more variables we can lock up, the

better off we are. I’ve already contracted the price for

our diesel this year so it’s a fixed cost in our budget. If

something happens in the Middle East we’re protected.

If the economy crashes I may have missed out on a

better price. But, if we stay within our budgets we’ll

come out ahead.”

“To manage risk we try to

protect the price of our inputs and protect the price of our cattle. The

more variables we lock up, the

better off we are.”-Bill Bergin

$90

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550# Steer Price Breakeven Top Range Bottom Range

The key to managing margins is to know your breakeven points. Then, you can clearly identify your overall appetite for risk. Set a bottom and top sales price range based on a certain percentage above or below your breakeven point. With the pricing targets identified, you can evaluate using risk management tools like forward contracts and hedges on both revenue and input costs.

Effective margin management may cap earnings potential, but when was the last time prices exceeded your top range target? Is it appropriate to lock in a price?

Discipline doesn't mean missing out on extraordinary prices. It does mean protecting from downside risk. When markets are trending higher, should you create a price floor?

Marketing Playing Field Sample

What do cattle futures tell you about the direction of the market? What do market fundamentals suggest? Where are input costs headed?

When do you sell in a down market? How long can/should you wait? Does your bottom range target reflect a loss level your operation can absorb?


Managing the margins The Bergins say the key to managing margins is to

know your cost of production and breakeven points.

From there, you can better match the cost of inputs

with commodity prices to capture the best possible

profit margin. Given today’s volatility, trouble can

happen when people market at a price they think is

good, only to end up paying much higher input costs.

On the other hand, if they lock in their input costs

without locking in a price for at least a portion of their

cattle, they are exposed to more risk.

Selling through the Internet Video auctions are changing the way producers buy

and sell cattle. A traditional cattle sale in Billings,

Montana, may feature 5,000 head. Conversely, a video

auction on the Internet may introduce 50,000 head of

cattle to hundreds of buyers across the country .

“I sat in my room, watched news on TV, and purchased

2,000 cattle this morning,” jokes Bill. “It’s definitely

interesting. You may be bidding against someone in

Kansas or Nebraska, or a local guy you know. In 2011,

I bought most of my cattle off the video auction. Last

year, video prices were higher so I purchased more

calves locally. When we

sell, we need to estimate

weight by a certain point

in time. So, I’m projecting

by the 20th of April the

cattle will be 900 pounds.

I’m going to do my

projections and market

some then. If they weigh

above or below 900

pounds the buyer gets

a little better deal. But,

if I’m still selling at a profit and hit my target weights 90

percent of the time we’ll maintain our profit margins.”

“Video-auction announcers will read

a background sheet on cattle if you provide

one. Buyers are willing to pay a little more if you’ve added value

through genetics, pre-conditioning, etc.”

– John Gates, Northwest FCS Relationship Manager


Using trusted advisorsThe Begins use trusted advisors to make wise risk-

management decisions. They work closely with an

agronomist to adjust fertilizer applications and budget

numbers. They keep in close contact with other buyers

and sellers. During the video sales season they rely on

Northwest FCS Relationship Manager John Gates for

summaries to track the market – number of cattle sold, at

a certain weight and price. John does this for all his cattle

customers in Eastern Montana.

“We use John as a sounding board for making decisions,”

says Bill. “He works with a large number of cattle

producers. And Northwest Farm Credit works with even

more. He’s a resource I use to make final decisions. When

we’re planning to buy more cows we ask John for his

honest input. He may say no, but then I would ask him

why. If we do decide to go ahead, then I know what to be

looking out for. He’s been behind us solidly over the years.”

“We’re here to be a resource for our customers,” says

John. “We use a number of tools to help them make

good financial decisions. Our information comes from

the field up with boots on the ground. In our Market

Snapshots, we talk about Northwest prices for pasture

leases or hay instead of just looking at the overall U.S.

market. We also use Peer Benchmark studies to help

customers see trends in their business relative to other

Northwest producers.”

Looking aheadIn 2013, beef production is expected to decline another 5 percent from 2012 levels. The calf crop will certainly be smaller and it’s too early to call the drought over yet. Overall though, cattle producers are counting the blessings of relatively-strong prices. Cattle backgrounders, like the Bergins, will continue to manage through volatile feed costs and higher-priced calves. Commercial feedlots are hopeful margins will improve with lower-priced corn and grains. And beef consumers? Well, it’s still unknown just how much they’re willing and able to pay for beef. One thing is more certain, consumers will continue to demand a premium product if they are paying premium prices.

Northwest FCS Relationship Manager John Gates and Bill Bergin overlook rangeland areas impacted by wildfires in 2012.


Knowledge TeamsKnowledge teams, focused on specific industries, gather and synthesize market information using a multitude of sources, including insight from industry experts and successful producers. These teams are comprised of experienced staff who’ve worked closely with customers through many business phases and industry cycles.

Knowledge teams have been formed for the

following industries:

• Cattle

• Dairy

• Forest products

• Hay

• Nursery/greenhouse

• Row crops

• Small grains

• Tree fruit

• Wine/vineyard

• Rural property investors

• Processors and manufacturers

Knowledge Center Tools• Industry Perspectives are published annually. These

perspectives focus on the market environment, drivers in the industry, best management practices, and market forecasts.

• Market Snapshots are distributed quarterly through an electronic newsletter. These snapshots provide an updated look at industry specific measures such as production and prices, along with recent events or trends in the market.

• Peer Financial Benchmarks show customers how they stack up to their peers. These annual peer assessments focus on key financial measurements and ratios.

• Industry Symposiums bring customers, staff, and industry experts together to share information and network with others in the business.

• Collective wisdom is one of the most valuable aspects of the Knowledge Center. Our knowledge teams work together beyond their own state or region, sharing information and experiences to help customers solve problems. If you have a question, or need input on management decisions, you have access to the collective wisdom shared by a team of our seasoned, industry experts.

Knowledge CenterThe mission of the Knowledge Center is to seek, interpret, and share knowledge about agriculture. We gather and share information from industry experts to help you position your business for long-term success. By gaining access to the latest market information and forecasts and best management practices, you can make more informed business decisions. In short, our goal is to share what we know, what we’ve experienced, and what we see ahead to help you manage your business more effectively.

For more information contact the Northwest FCS Knowledge Center

800.743.2125, ext. 5428or visit northwestfcs.com/resources

2013 Industry Symposiums

May Cattle Symposium – Billings, Mont. and Great Falls, Mont. June Row Crops Symposium – Pasco, Wash. June Forest Products Symposium – Portland, Ore. July Dairy Symposium – Twin Falls, Idaho July Wine/Vineyard Symposium – Kennewick, Wash.

Participation in the Industry Symposiums is limited and by invitation. If you are interested in participating,please contact your local Northwest FCS representative.

The Northwest FCS Knowledge Center provides the latest updates on industry-specific information, gathered and interpreted by our front-line Knowledge Team staff.

Sign up to receive the Knowledge Center e-newsletter with special articles on agricultural issues, the general economy and quarterly Market Snapshots. These Market Snapshots provide an updated look at industry-specific measures, such as production and prices, along with recent events or trends in the market.

Market Snapshots are available for key commodities including: cattle, dairy, forest products, hay, nursery/greenhouse, row crops, small grains, energy, tree fruit, wine/vineyard, feed grains, and processors/manufacturers.

Register to receive the Knowledge Center e-newsletter at northwestfcs.com and gain access to other Northwest FCS resources. Learn more about our Business Management Center workshops and seminars. Read up on Industry Perspectives, economic indicators and articles from leading agricultural sources across the country.

Market Snapshots


To receive the Knowledge Center e-newsletter and accessNorthwest FCS Resources, visit

northwestfcs.com/resourcesor call 800.743.2125 ext. 5428


Risk Management PlanningIn today’s global agricultural economy, risks to producers, processors, and marketers are expanding and surfacing in many ways – exposing all to more unfavorable circumstances and increasing uncertainty. Developing a risk management plan helps business owners anticipate and mitigate risks, thus reducing their negative impact. Strategic Business PlanningFarm and ranch managers generally spend most of their time making day-to-day operational decisions such as when to seed or harvest, when to sell cows, or whether to purchase new equipment, now or later. While short-term operational planning is important, it doesn’t substitute for long-term planning.

How Lending Decisions Are MadeEvery lending institution has a set of credit standards or guidelines that are used to analyze and approve loans. To help our customers better understand the decision-making process for approving and renewing loans, we commonly refer to these standards as the Five C’s of Credit: Character, Capital, Capacity, Collateral, and Conditions.

Preparing Agricultural Financial StatementsThoroughly understanding your business’ financial performance is critical for success in today’s increasingly competitive agricultural environment.

Financing Agriculture: The Business Borrower-Lender RelationshipOne of the most critical decisions a businessperson makes is choosing a lender.

Land Buying ChecklistBuying, selling, or financing rural properties is often different than properties within city limits. In this guide, you’ll find helpful planning tips and practical advice for buying rural land.

Understanding Key Financial Ratios and BenchmarksHow does my business stack up compared to my neighbors? This question is becoming more and more common as the agricultural industry enters the 21st century.

Business Management PublicationsNorthwest FCS recognizes the vital role of management decisions in the success of an agricultural business, and offers publications discussing various management topics for producers.

To access these Business Management Publications, visit

northwestfcs.com/resources


Northwest Competitive Advantage in the U.S. Cattle IndustryFlexibility and Risk Management

Dr. Gary Brester, ProfessorDept. of Agricultural EconomicsMontana State University

The prices of agricultural

commodities are ultimately

dictated by demand and

supply. Increased demand

for beef by consumers in

the United States and foreign countries places upward

pressure on cattle prices and vice versa. Hence, the

factors that influence consumer demand play a critical

role in cattle producer profitability.

From the supply side of the market, recent declines in

beef production in the United States and worldwide have

also placed upward pressure on cattle prices. Some of

this reduction may be caused by increases in the prices of

inputs used to produce cattle. However, other factors may

also be driving reductions in cattle supplies.

Understanding these factors is important for cattle

producers’ strategic planning. This may be especially

important for Northwest producers who often struggle

to compete with the scale of backgrounding and feeding

operations in other parts of the United States.

Demand DriversAfter declining for many years, U.S. beef demand

regained some ground between 1998 and 2008. However,

demand has flattened over the past several years

primarily due to the lingering effects of the U.S. recession.

Yet, the price of beef remains much higher than the price

of other animal protein substitutes. Consumers expect to

receive a premium product if they are paying premium

prices, so the beef industry will need to continue to offer

high-quality, consistent, convenient, safe, and healthy

products.

Demand appears to be increasing in many foreign

markets and U.S. beef exports are at record levels. As

per capita incomes in developing countries increase,

consumers substitute animal-sourced protein for plant

sources. Foreign demand for U.S. beef will continue to be

a strong driving force for U.S. cattle prices provided that

food safety, age and source verification, product quality,

and market access issues continue to be addressed by the

industry in a positive fashion.

Supply DriversBarring any major animal disease problems, the

overarching factor that will influence beef prices over

the next two-to-three years will be a continuing decline

in beef production. Beef supplies have declined in the

United States and worldwide over the past several years.

This trend will likely continue in the near future.

World cattle inventories declined between 1999 and

2012. However, the percentage declines were much

higher in traditional beef exporting countries. World

cattle numbers would be much lower if not for increases

in Brazil and India. But, productivity in both of these

countries continues to be quite low so that cattle

inventory increases did not provide substantial increases

in beef production. Although world beef production

increased substantially between 1980 and 2007,

production has declined about 4 percent over the past

five years.

The U.S. inventory of cattle and calves totaled only 89.3

million head on January 1, 2013 which is the lowest

level since 1952. This represents a 1.6 percent decline

from to a year ago. Once the data are available, the

2012 calf crop will likely be 800,000 head less than that

occurring in 2011. The 2013 calf crop will certainly be

even smaller and will likely reach levels not experienced

since the 1950s. Although cattle numbers have declined

substantially since their record level of 132 million head

in 1975, productivity increases have kept beef production

from declining at the same rate. However, cattle numbers

have now reached a level in which production declines

are expected to occur.

In 2012, U.S. commercial cattle slaughter numbers

declined 3.4 percent from a year earlier and reached their

lowest level since 2005. However, record average dressed

slaughter weights (859 pounds) offset some of this

decline such that overall production (25.9 billion pounds)

was only 1.2 percent lower than the previous year.

In 2013, beef production is expected to be at its lowest

level (24.6 billion pounds) since 2004. Cattle slaughter

in 2013 is forecast to decline across all categories (steers,

heifers, cows, and bulls). For the year, slaughter numbers

are expected to be 4 percent to 6 percent lower than that

occurring in 2012, and cattle slaughter weights will likely

return to trend levels. The combination will probably

cause 2013 U.S. beef production to decline 5 percent

from 2012 levels. Furthermore, declining cattle numbers

will likely generate lower beef production in 2014.

Forecasts indicate that production may decline to 23.5

billion pounds, which would be the lowest level since

1993. Finally, reductions in worldwide production have

also caused U.S. beef imports to decline even though

domestic U.S. beef prices are at record levels.

FlexibilityThe Northwest has strong advantages over other

regions in calf production. However, weather, scale,

distance to market, and feed availability are all factors

which place many producers of feeder and fed cattle at

a disadvantage relative to other U.S. regions. Yet, many

producers overcome these disadvantages by engaging in

activities that create value but are often not attractive to

larger production systems.

For example, it is relatively expensive for large

backgrounders/feedlots to alter their portfolio of feed

inputs given the volume of feed that must be fed

each day. However, smaller producers can often use

their entrepreneurial skills to find lower-priced feed

ingredients and alter their usage in feed mixes. Such

activities can help smaller producers compete with larger

operations. In addition, many larger operations do not

have the ability to tailor feeding programs to animals of

different weights or classes. Smaller operations are often

less committed to purchasing specific-sized animals. In

addition, many smaller operations have the flexibility

to feed cows or maintain the weights of bred heifers on

a custom basis. Such flexibilities offer opportunities for

producers in non-traditional backgrounding and feeding

areas to create value and compete with larger operations.

Risk ManagementBecause of weather, agricultural commodity prices

have always experienced a relatively large amount of

variability. Such risks can be reduced through the use of a

variety of tools including forward contracting, futures and

options markets, diversification, and insurance. Given that

Northwest cattle producers are often unable to compete

on a cost basis with other production regions, the

management of price and production risk is often highly

important for sustained profitability.

For farmer/feeders, the use of revenue-based crop

insurance can mitigate the effects of weather and price

variability. For backgrounders, forage insurance products

(e.g., rainfall insurance or the Non-insured Assistance

Program) can help offset some of the effects of drought.

In terms of cattle prices, Livestock Revenue Protection

products, futures markets, options, and forward

contracting are commonly being used to manage risk.



Since we can’t predict when hail will strike,apply for HAIL COVERAGE before it’s too late.

THE FORECAST CALLS FORUNCERTAINTY

Contact an experienced Northwest FCS Crop Insurance Agent Today.

New Loan Accounting System Coming Summer 2013 Northwest FCS is modernizing our loan accounting system to a more efficient platform that will allow us to improve our operations and service to customers.

What this means for you:• New account numbers

• New account titles to more easily identify individual accounts

• One combined billing statement that includes monthly activity of all individual accounts

Look for new monthly billing statements in August. Additional information about the system change will be mailed and available on northwestfcs.com in June.

IDAHORobert Ball HamerCody Bingham JeromeJeff Blanksma, Jr. HammettAdrian Boer JeromeRay Carlson BlackfootBill Clayton WilderCade Crapo St. AnthonyRon Elkin BuhlCarl Ellsworth LeadoreDavid Funk HansenLeRoy Funk BurleyBrent Griffin RupertJohn Hepton NampaJackie Hillman DuboisBrian Huettig HazeltonKen Koompin American FallsKaren Lustig CottonwoodMarty Luxa NezperceDan Mader GeneseeRay Matsuura BlackfootKyle Meyer RathdrumRon Mio FruitlandGreg Moss KetchumKirk Nickerson HoweJeff Pahl PocatelloLisa Patterson HeyburnErick Peterson MoscowDavid Rallison FranklinD. Brad Reed Idaho FallsNate Riggers Nez PerceDoug Ruff AberdeenRoyce Schwenkfelder CambridgeKirt Schwieder Idaho FallsScott Searle ShelleyTodd Simmons TerretonRobert Swainston PrestonRyan Telford RichfieldBernie Teunissen CaldwellDale Thomas GoodingCamellia Thurgood NampaJustin Tindall BruneauSteven Toone GraceJames Udy American FallsTodd Webb DecloShawn Webster RexburgBerkley Wray Blackfoot

73 Fort Hall Avenue, Suite AAmerican Falls, Idaho 83211(208) 226-1340

370 North Meridian Street, Suite ABlackfoot, Idaho 83221(208) 782-3800

1408 Pomerelle Avenue, Suite BBurley, Idaho 83318(208) 678-6650

501 King StreetCottonwood, Idaho 83522(208) 962-2280

2225 West Broadway, Suite AIdaho Falls, Idaho 83402(208) 552-2300

2631 Nez Perce Drive, Suite 201Lewiston, Idaho 83501(208) 799-4800

16034 Equine DriveNampa, Idaho 83687(208) 468-1600

102 North State, Suite 2Preston, Idaho 83263(208) 852-2145

1036 Erikson DriveRexburg, Idaho 83440(208) 656-2100

815 North College RoadTwin Falls, Idaho 83301(208) 732-1000

MONTANALes Arthun WilsallBill Bergin MelstoneAdam Billmayer HogelandBart Bitz Big SandyKeven Bradley Cut BankSandy Carey BoulderTom Cheetham RedstoneCalvin Danreuther LomaNels DeBruycker ChoteauVicki Eggebrecht MaltaWarren Flynn TownsendConni French MaltaJoe Fretheim ShelbyBeth Granger Great FallsGreg Grove MoccasinChad Hansen DillonCraig Henke ChesterCourtney Herzog RapeljeDale Hirsch KinseyCraig Iverson WinnettTim Johnson DuttonAlan Klempel BloomfieldPaul Kronebusch ConradTim Lake PolsonBill Lauckner, Jr. NashuaKirk Montgomery RosebudBryan Mussard DillonCorie Mydland JolietTraci Mytty FlorenceTracey Pearce SheridanShawn Rettig RudyardScott Ruff CusterDave Sattoriva HinghamNancy Schlepp RinglingDennis Schmierer SavageKim Skinner HallCarmie Steffes PlevnaSteve Swank ChinookKurt Swanson ValierDuane Talcott HammondDale Tarum RichlandBob Taylor DentonMiles Torske HardinCarl Traeholt Wolf PointBrian Tutvedt KalispellLarry Tveit, Jr. FairviewBruce Udelhoven WinifredJeff Volf Judith GapMike Wallewein ConradSteve Wood Sheridan

Tech Plaza, Building 1, Suite 3003490 Gabel RoadBillings, Montana 59108(406) 651-1670

1001 West OakFarm Credit Building, Suite 200Bozeman, Montana 59772(406) 556-7300

519 South MainConrad, Montana 59425(406) 278-4600

134 East Reeder StreetDillon, Montana 59725(406) 683-1200

501 First Avenue SouthGlasgow, Montana 59230(406) 228-3900

700 River Drive SouthGreat Falls, Montana 59405(406) 268-2200

1705 Highway 2 Northwest, Suite AHavre, Montana 59501(406) 265-7878

120 Wunderlin Street, Suite 6Lewistown, Montana 59457(406) 538-7737

502 South HaynesMiles City, Montana 59301(406) 233-3100

3021 Palmer Street, Suite BMissoula, Montana 59808(406) 532-4900

123 North Central AvenueSidney, Montana 59270(406) 433-3920

OREGONMonet Allen Montague, CARoben Arnoldus CoveEd Bair Klamath FallsLori Baley MalinTim Bare RoseburgGlenn Barrett BonanzaJohn Boyer HainesGreg Brink JosephRon Brown Milton-FreewaterGeorge Bussman SixesWarren Chamberlain ValeTim Dahle The DallesDan Dawson RoseburgMike DeWall HarrisburgSusan Doverspike BurnsRod Fessler MadrasJoe Finegan CorneliusBruce Ford HermistonSkip Gray AlbanyDennis Harmon Grants PassRon Hjort OaklandGary Hull LebanonMatt Insko LaGrandeKenneth Jensen ValeAlan Keudell AumsvilleMark Krautmann SalemDavid Kunkel PortlandLeland Lage Hood RiverDan C. Lewis GastonSharon Livingston Mt. VernonBill Martin RufusScott McClaran JosephRon Meyer TalentGreg Myers TillamookDavid Neal TangentMary Olson MonmouthLarry Parker HelixAlan Parks Silver LakeAmy Doerfler Phelan AumsvilleVikki Price NyssaJohn Reerslev Junction CityStephen Roth BrothersShannon Rust EchoAnna Sullivan HerefordSteve Walker Stanfield

3370 10th Street, Suite BBaker City, Oregon 97814(541) 524-2920

2345 N.W. Amberbrook Drive, Suite 100Beaverton, Oregon 97006(503) 844-7920

650 E. Pine, Suite 106ACentral Point, Oregon 97502(541) 665-6100

2911 Tennyson Avenue, Suite 301Eugene, Oregon 97408(541) 685-6140

300 Klamath Avenue, Suite 200Klamath Falls, Oregon 97601(541) 850-7500

378 West Idaho AvenueOntario, Oregon 97914(541) 823-2660

12 Southwest NyePendleton, Oregon 97801(541) 278-3300

3113 S. Highway 97, Suite 100Redmond, Oregon 97756(541) 504-3500

2222 Northwest Kline StreetRoseburg, Oregon 97471(541) 464-6700

650 Hawthorne Ave. S.E., Suite 210Salem, Oregon 97301(503) 373-3000

3591 Klindt Drive, Suite 110The Dalles, Oregon 97058(541) 298-3400

WASHINGTONDave Allan WapatoMelissa Bedlington-Kleindel LyndenJeff Bosma OutlookRuss Byerley TouchetRoger Canfield OlympiaMike Cobb EphrataBill denHoed GrandviewRichard DeRuwe DaytonFrank DeVries LyndenScott Eschbach YakimaPatrick Escure QuincyKevin Filbrun PascoStacy Gilmore PascoAlan Groff WenatcheeLori Hayles PascoJim Kile St. JohnCris Kincaid PullmanJim Klaustermeyer OthelloDave Klaveano PomeroyTristan Klesick StanwoodChris Kontos Walla WallaSteve Krupke ReardanDavid Lange ColfaxJosh Lawrence Royal CityPoppie Mantone BingenDan McKay AlmiraAlan Mesman Mt. VernonJohn Miller ToledoPat Murphy ChehalisChuck Podlich OrondoJeff Raap EllensburgSara Rolfs WenatcheeDerek Schafer RitzvilleJeff Schilter OlympiaDanielle Scrupps RitzvilleBen Smith SequimJerry Smith Benton CityLori Stonecipher Walla WallaMark Tudor GrandviewJake Wardenaar Royal CityAndy Werkhoven Monroe

265 East George Hopper RoadBurlington, Washington 98233(360) 707-2353

629 South Market BoulevardChehalis, Washington 98532(360) 767-1100

224 North MainColfax, Washington 99111(509) 397-2840

1501 East Yonezawa BoulevardMoses Lake, Washington 98837(509) 764-2700

455 East Hemlock Street, Suite DOthello, Washington 99344(509) 488-2396

9530 Bedford StreetPasco, Washington 99301(509) 542-3720

1223 Sheridan Avenue, Suite AProsser, Washington 99350(509) 786-6400

1900 W. Nickerson Street, Suite 215Seattle, Washington 98119(206) 691-2000

1515 S. Technology Blvd., Suite BSpokane, Washington 99224(509) 340-5600

2735 Allen RoadSunnyside, Washington 98944(509) 836-3080

1 West PineWalla Walla, Washington 99362(509) 525-2400

667 Grant Road, Suite 1East Wenatchee, Washington 98802(509) 665-2160

1360 North 16th AvenueYakima, Washington 98902(509) 225-3200

advisors and locations HeadquartersP.O. Box 2515, 1700 S. Assembly St.Spokane, Washington 99220-2515509.340.5300 | farm-credit.com

local


P.O. Box 2515Spokane, Washington 99220-2515

New address?Please notify your local Northwest FCS office.

But that comes with the territory when you’re a farmer or a rancher. You work hard all day with crops and animals. Equipment and machines. You’re on the ground, in the thick of things.

At customer-owned Northwest Farm Credit Services, actual farmers and ranchers make up the board and advisory committees that govern the cooperative. These leaders understand ag because they work in it every day.

northwestfcs.com | 800.743.2125

Kevin Riel - Board Chair

Documents

Northwest FCS Yields - Managing Volatility - Spring 2013