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Drought dilemma

By Greg Wolf

The ongoing drought is becoming historic in its scope and impact. Even though in south-central Kansas we are not nearly as far behind our annual rainfall as we were a year ago, the effect of the drought seems to be as severe or more so, perhaps due to the cumulative impact and the accompanying heat this summer. My family and I don't have a large agricultural operation, but the drought has been impacting us too and while the scope is smaller, the dilemma is similar to that faced by other ag producers, especially ranchers. We have a small herd of cattle on the property where we live, and a small flock of sheep. One year ago at about this time during the summer, we reduced both by about half, taking us down to a bare minimum of breeding stock. Just this morning we made a decision to cut even deeper and liquidate the sheep flock entirely. I have been surprised by how difficult this decision actually has been, and so some of my musing about why are going to flow into this column.

The dynamics of a decision to liquidate something like our sheep flock is similar to liquidating any other aspect of a portfolio, whether a company stock, or a piece of farmland, or a fancy set of cows. In the first place, there the purely objective consideration--can the asset be maintained profitably? In our case, even though lamb prices have been incredibly high, the answer a year ago shifted from yes to no. We simply weren't growing enough grass to keep the flock producing well, and had eaten up our hay reserves the prior winter. So last winter, even after liquidating half the flock, we bought in quite a bit of alfalfa hay to make it through winter. Given the enormity of hay costs, our lambs from this spring are easily the most expensive (and unprofitable) we have ever produced.

That leads us to the second reason we hung on another year--the seedstock reason. We kept the best of our ewe lambs as a base for future rebuilding. I am not sure it was necessarily a bad choice, but it involved an educated guess about the future, and now one year later we are once again looking at an expensive winter ahead. I did think our flock genetics were pretty special, but those feelings aren't all that uncommon and likely inflate reality somewhat. Early this spring we were receiving some good rains and it appeared we would have more than enough forage for our current flock size and then some. But the summer has taken its toll, and now without some substantial rains in the very near future we won't see enough regrowth of our cool-season pastures to make it even to the end of the year. What little hay we have taken off this summer will go quickly before, and it will be a long, expensive wait for spring.

This leads me to the third reason we hung on another year. I'll just call it the emotional reason, and it actually contains a variety of influences, all of which conspired to keep me hanging on to our sheep flock longer than we should have, at least economically. We have had our current flock for a little over a decade, and had some history with it and our genetics. It was appealing to think we had even made some progress with genetic selection--although admittedly, it is highly doubtful that the majority of livestock producers have genetics worthy of accumulating any operating losses over. But there has been a degree of emotional nostalgia that has just been hard to let go of with this sheep flock. We had them before our children could remember, and the memory banks of our children are quite full of sheep memories, something we had intended and sought, but also something that is a little more difficult letting go of than I had expected, especially as it symbolizes the reality that our children have grown more quickly than we could have ever fathomed through that stage of life.

Even though this is a relatively small example, it is a good illustration of how businesses, and business decisions, are made within a complex web of subjective influences. It is fine to lecture and to labor to make good business decisions irrespective of emotional factors, but reality intrudes and requires that we at least acknowledge their presence in business decision-making. And so we have acknowledged them, and even savored them, but still have moved ahead with the decision to let our remaining sheep flock go. I've read before that it is a much more difficult decision deciding when to sell than when to buy. I believe we have found that to be true.

However, I think this illustration also exemplifies the importance of considering the big picture. In the big picture one decision seldom determines any certain final outcome--in other words, we could reacquire some sheep in the future about as easily as we let this particular flock go, and that helps put the right decision today in its proper perspective. Good strategy is still about acting in the present while looking into the future, and since none of us know what tomorrow's circumstances will be, we have to be satisfied making the best decisions we can for today.

Editor's note: Greg Wolf is a consultant with Kennedy and Coe, LLC (www.kcoe.com) and works to help clients of the firm navigate toward better returns in all areas of their businesses. He is based in the firm's Pratt, Kan., office and can be reached at 620-672-7476.

Date: 8/27/2012



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