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Farm’s Annual Report: 2012

Background:

It has been three years since I published the 2009 Annual Report for our farm.  I guess I have recovered enough to give it another go.  The intervening years have not been profitable, but that isn’t exactly true.  We seem to have accomplished an equilibrium (for three years running) whereby we essentially break even.  If we purchase more animals than we slaughter, we lose money and gain herd size (this was the story of 2010 and 2011).  This year—2012—is slightly profitable, but only because we have achieved peak herd (as many head, for now, as our land can accommodate) and slaughtered one more animal than we purchased.  So while we in past years have been extremely profitless, we are now not exactly profitable (like Eskimos with many words for snow, we farmers know numerous subtle variations of economic distress).

Introductory Rant:

This 2012 Annual Report of Up the Lane Grass Fed Beef Farm (located in Johnstown Ohio) comes towards you, dear reader, like a homemade drone launched from the roof of our barn; armed with Truth; guided by a Spirit of Transparency.  Or like some lone straggling goose; hungry and cold, yet unwavering; honking and flapping its weary way across a troubled sky.

Is farming a vice?  Is it stupid to farm?  If so, what is this Annual Report?  A cry for help?  A confession?  A warning to others?  These are rhetorical questions.  Please do not answer.

Oh farming!  If loving you is wrong—I don’t want to be right!

Part One: Income Plateau

This year’s income of about $30,000 is essentially the same as our income in 2011.  We have topped out—limited by the number of cattle we can support on our pasture.  If we overstock our farm we will rely too much on hay, undermining the benefits of expansion.  We need to respect the limits of our ground.  We need to keep the number of days we hay the herd down to 100 or less per year.  We must watch patiently as our soil improves (conservation through production…), stocking additional cattle to match its increased strength.  Happily, this is happening already, but slowly.  This is not right on time manufacturing or supply-chain logistics.  This is farming.

Certainly our income is not constrained by demand in Central Ohio for grass fed beef.  In fact, the public is so ravenous for such meat, it is more accurate to say that we are disappointing demand rather than meeting it.  Our income comes from retailing at the Worthington Farmers Market.  This is how we get paid.  The support of our customers is always invigorating and on any given Saturday can put a thousand dollars or more in our cash box.  We are absolutely rationing how much meat we bring to market—presently about half an animal’s worth each week.  We typically sell out about halfway through each market morning.  We could sell double the meat if we had it.  And that’s just Worthington.  If we had enough product to participate in other Central Ohio Farmers Markets (Granville, Clintonville, North Market…), we could sell five or six times as much meat as we sell now: incomes of $150,000-180,000 per year.

Doing multiple Saturday markets would be expensive.  We would need to hire folks to run additional booths.  And it would compromise one of the best things we offer the public—direct access to the farmer, a personal connection—, the kind of holistic assurance and intimacy we could not provide customers shopping a booth of ours staffed by a hired worker.  Diminishing returns for us, diminished experience for the public—this makes such ambitious scaling up unlikely in our future.  But to double production in order to meet demand in Worthington; perhaps triple production to also accommodate a weekday market such as Westerville—we have every incentive to strive to get this done.

Our primary strategy for increasing production is to rent ground from other farmers nearby.  We are getting the word out but so far we have not found the right situation.  It is proving to be another thing we will need to innovate—crafting lease agreements that suit both parties while addressing the awkwardness of placing livestock on another person’s property (including the animals’ need for water, the multiple-year return needed to repay initial pasture seed cost if needed, fencing maintenance, insuring liabilities from possible animal escape, and the list goes on).  We will keep working this possibility, as we have decided that purchasing additional ground ourselves is not a good option.  Since buying our home with 12 acres in 1998, we have bought four adjoining parcels, one at a time, for a total of 80 acres.  But that’s enough.  Purchasing an acre of ground for $7000 in order to potentially make $100 a year profit farming it is not a bright idea.  Better to rent such ground.  Better for us to invest that $7000 elsewhere, diversifying our assets beyond land values here in NE Licking County!

Incidentally, we have decided we are not interested in direct marketing beef produced by other farms.  We are good direct marketers, and there are a number of quality grass farmers who have no interest in coming to town and retailing their beef; however, this would put us in the business of talking about farming rather than actually farming.  At some point we could end up struggling to remain more genuine than pastoral drawings on milk cartons containing milk from confinement dairies!  (Hello, California!)  It might be more lucrative, yes, that’s likely true; but it’s farming we love—not money.

So that’s where we are at:  scaled up enough to cover basic operating costs, but not enough to start securing substantial profit.  We can amend our income by getting into sidelines.  Last year we grew and sold about a thousand dollars of garlic.  In years past we have done well selling John’s Portuguese Sweet Bread and Marie’s Jams.  If we can develop the right situation, we will take the opportunity to at least double beef production.  And we will continue (though it does not serve our farm’s finances directly) to encourage and bring along any other farmers interested in producing and retailing grass fed beef in Central Ohio.  We worry that current clamoring demand, so profoundly frustrated, could start to fall apart.

Cost of Animals: Going Up

We are at the point where 75% of our income selling beef goes into what I call our Cost of Animals.  This year for example, a year of $30,000 income, we spent about $10,000 buying calves (32%).  We spent about $9,000 buying hay (28%).  And we spent about $5,000 on processing (15%).  There is little wiggle room in any of these categories of expenses.  Taken together, they are unlikely to ever come down below say 65%.  Even that figure would require some harmonic convergence of favorable circumstances.  And we cannot afford to have them go at all above 75%.

We are raising our prices in 2013, on average 15%.  This is quite a big increase.  But I just heard from the processor that his prices have to go up this year, about 8%.  Meanwhile calf prices are at all-time record highs, up over 30% in the past two years, and now I’m learning that hay will cost about 12% more this summer.  We’ll see if the price of calves subsides.  It is possible we will need to raise our prices even more, as early as November 2013, just to keep our Cost of Animals at 75%.

Expenses: The Art of Doing Nothing

Expenses were 17% of income.  There were no major purchases.  Other than Supplies (5.4%), the list is mainly stuff like Insurance (1.6%), Licenses (1.0%), Market Booth (1.0%), Fuel (1.1%), and Fencing (1.7%).  I would like to keep expenses down to 15% but that’s not easy when it comes to needing another freezer ($700) or a generator ($1,000).  This January, to start off the new year with a bang, we spent $1,900 repairing our Polaris Ranger.  That’s going to be over 5% of our annual farm income.  Ouch.

Anyone consulting the viability of a farm such as ours needs to understand two hard truths.  First, farm income might cover operating expenses and provide a bit of salary, but it can never pay for infrastructure.  If you are lucky enough to grow up on a farm, your family can set you in play as a farmer with free land, a tractor or two, an old truck, a livestock wagon, fenced pasture, some old barns.  If you are like us, you need to buy the land and the truck and tractor and livestock wagon.  You need to build the barns and put in the fence.  And then you can start farming—but without the possibility of recovering any of that initial investment.

If land prices go up over time, then getting reduced agricultural use taxes on the land is a way that farmers can profit long-term—by being able to hold the land and then having a big capital gain when selling much later.  Of course these days land values have been stagnant, for nearly a decade, which is seriously disappointing.

The second hard truth about farming is that you may cover operating expenses and provide yourself a little salary, but you will certainly not be buying a new pickup truck with farm income.  You will not be buying a new tractor with that money either.  Additional acreage?  Another barn?  That’s all going to have to come from somewhere else.  Don’t even think about it.  (I didn’t even mention health insurance!)  Another successful season at Farmers Market is over!  What are you going to do?  I don’t know, but you’re sure as hell not going to Disney Land!

Profit:

So this year we show a profit of about 8%, about $2,500.  This would be our first profit ever.  And I am using that term loosely.  For one thing, this does not account for our labor.  Counting my labor at 1,000 hours plus Marie’s at 300 (mainly at market), that’s about $2.00 an hour.  Considering ourselves volunteers, which of course we really are, then this year’s margin reflects more than anything else the fact that we butchered one more animal than we purchased this year.  In years past, when we were growing the herd, we might lose $6,000 but end the year with 8 more animals in the herd.  This year, if we had butchered one less animal, we would have broken even and had one more calf in the herd this spring.

Conclusion:

Barring major purchases, we are breaking even as farmers, not counting our labor.  This doesn’t sound very good, I know, and it’s not what prospective farmers or loyal customers want to hear.

But I do not count this a discouragement.  From here we move forward to establishing whether a livelihood can be made producing and selling grass fed beef.  (And we do so confident that in order to explore this possibility one need not risk or lose a fortune.)

There are several things we must do:

First, expand production considerably—to about double—through leasing more ground.  This will drive fixed expenses down considerably.

Second, shorten the hay season.  Haying is costing us about $75 each day, so even trimming the need to hay by only ten days saves us $750.  This is probably where our biggest possibility to improve our margin lies.

Third, raise prices.  I regret this.  I am a discounter by inclination after thirty-plus years working at Half Price Books.  I want folks who are making a purchase to have the double pleasure of getting what they want and having a terrific bargain at the same time.  But as I near retirement, when my fancy salary will not be there to back up the farming, and when—as Marie and I get older—we will need some hired help with the physical farm work, we are going to have to bring in more money, plain and simple.

Incrementally, as gently as we can, we need to bring the public along toward paying what it really costs to produce grass fed beef.  Who knows what those prices will need to be?  $8.00 for ground?  $30 for Filet?  I don’t know.  Perhaps instead of selling out in a flash each week to incredibly enthusiastic and grateful customers, we will lose some of that excitement but sell out just the same, more slowly.  Ultimately the public will decide whether it is willing to pay prices high enough to establish a solid incentive for farmers to bring meat such as we are producing to town.  It may be that they will decline and find that grass fed beef—proving unsustainable financially—puttered out and disappeared.

I guess I am coming to appreciate that, because I have somewhat deep pockets and love farming, I have not been entirely honest with our Farmers Market customers.  I have been conspiring, along with some other farmers at market, to shield them from the hard truth—that the cost of production of much of what they love to buy at market is often well above retail prices at a store like Kroger’s.  I am not sure customers will like this truth, or will be ready to accept it.  I am always touched when a customer seems shocked I have a fulltime job in town; bless their hearts, they want to think of me as earning a solid middle class living, replete with health insurance and vacations and going out to restaurants and shopping at the mall, on nothing more than farm income.  (The same thing happens to me when a fellow farmer, for example Ed Snavely, a superb hog man and a farmer I look up to, mentions in passing something about his factory job.  Curly Tail Organic Farm, BTW—best pork chops ever.)  This cannot go on forever.  We farmers need to force the issue of whether our participation in Farmers Markets is genuinely sustainable economically.  If it turns out the public has been effectively “bought off” by the cheap prices of an industrial food system supported by government subsidies, we cannot compete against that system by subsidizing our offerings by working for next to nothing, even if we love what we are doing.  We need to trust the public enough to offer them the chance to step up and do the right thing.  That’s the partnership I believe they are capable of.  And anyway, it’s not like there is any real comparison between our beef and what you can buy in the grocery—not even in Whole Foods.

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