Lee Borck is Chairman of Innovative Livestock Services, Inc. and Chairman of the Beef Marketing Group Cooperative. He's a past president of Cattle-Fax and the Kansas Livestock Association and has served on the Cattlemen's Beef Board and the National Cattlemen's Association.
A graduate of Ag Econ at Kansas State University, Lee is a huge supporter of his alma mater and has served in various volunteer capacities within KSU.
Raised in Marshall County, Kansas, he spent much of his adult life in the Great Bend area and now calls Manhattan, KS, home.
www.ilsbeef.com
Lee Borck is Chairman of Innovative Livestock Services, Inc. and Chairman of the Beef Marketing Group Cooperative. He's a past president of Cattle-Fax and the Kansas Livestock Association and has served on the Cattlemen's Beef Board and the National Cattlemen's Association.
A graduate of Ag Econ at Kansas State University, Lee is a huge supporter of his alma mater and has served in various volunteer capacities within KSU.
Raised in Marshall County, Kansas, he spent much of his adult life in the Great Bend area and now calls Manhattan, KS, home.
www.ilsbeef.com
Hello there and welcome to episode 37 of Practically Ranching. I'm your host, Matt Perrier. As always, this podcast is brought to you by Dale Banks Angus, your home for practical profitable genetics for the industry focused Cal calf producer. Today's guest is a guy that I have respected for decades really. Lee Borck is Chairman of Innovative Livestock Services. ILS is a cattle feeding company that ranks among some of the largest feeding entities in the nation. Lee has served in a number of leadership positions within the beef industry and in various business entities across the region. And while a lot of us in this region know of Lee. From all the organizations that he's built or touched, I've gotta admit, I've never taken the time to learn about Lee and just what makes him tick in this podcast. And I probably knew it before if I would've just studied it. But I found out that that Lee is not only an astute businessman. He's a risk taker. He's a risk manager, he's a collaborator, he's an innovator. And in some areas of tradition laden rural America, quite possibly right here in my home area of Greenwood County, Kansas. These are traits that, um, they sometimes give a few of us a little heartburn. And admittedly, there are some of the topics that we're gonna talk about in the next hour that might give a few of you a lot of heartburn. But terms like consolidation, corporate farm laws, packer partnerships, these don't have to necessarily be the end of a discussion. In fact, They may just be the catalyst to find ways that we can improve our own entity, whether it's a family farm or ranch, a member association, a local institution, or large agribusiness when someone grows a business from scratch, to what innovative livestock services has become today. Uh, they're going to likely be looked upon a lot of different ways. It may be admiration, it may be envy. Um, unfortunately, it, it may be even anger. And Lee runs a corporation, a sizable corporation that employs hundreds of folks in Kansas and Nebraska. And as we touch on in the podcast, while ILS is big, It also gives his individual employees and partners opportunities for ownership and growth within the company. You know, through the years, Lee has broken a lot of paradigms. The coalitions that he built through Beef Marketing Group and I ls, and with lending institutions and marketing arrangements and farming entities and others. They've changed the way many do business today and and often for the better. Lee mentions his determination to help young people find opportunities in ag, and I've seen this firsthand. He might have a little more business minded perspective than some of us in a more traditional family farmer ranch scenario, but he truly wants to see young people come into agriculture and into rural communities and grow the pie. And as Lee puts it, we might have to recognize that sometimes it's okay to have a smaller piece of this bigger pie. so enjoy the next, uh, hour or so discussion with Lee Bork of Innovative Livestock Services.
Track 1:Well Lee, I appreciate you joining us today here on Practically Ranching and, I believe you said you're in Manhattan today,
lee-borck_5_04-19-2023_081548:that's right. That's correct.
Track 1:where, where I'm sure you're catching all kinds of rain and thunderstorms and everything's greened up. Right.
lee-borck_5_04-19-2023_081548:Well, We did have a good rain over the weekend. picked up an inch, so end's supposed to have more tonight. super. Well, we've got a little chance as well and we've got actually some clouds this morning that almost trick into thinking we maybe could get some, uh, but time will tell. It's, it's been a challenge here through the, through the Flint Hills and so many areas west and south of us. I know, but, uh, we're always one day closer.
Track 1:Right?
lee-borck_5_04-19-2023_081548:One day closer.
Track 1:Yeah. Well, Lee, I know I, and probably a lot of the folks listening know some of your story from maybe Ward feed Yard fourth and through Innovative Livestock Services and, and what have you. Um, I think it'd be interesting to hear a little of your history prior to that, and then we can go on forward with, uh, your involvement in the beef industry in, in more recent times. But tell us a little bit about Young Leor.
lee-borck_5_04-19-2023_081548:Well, I, uh, I grew up in, in Marshall County at, uh, blue Rapids, uh, farm that my great grandparents at Homesteaded and, and I still, have that operation today, uh, graduated outta Blue Rapids High School, which, you know, they closed the year after I graduated. I, I just thought they figured they couldn't ever do any better than, than what our class was. So they, uh, closed the high school and merged with, uh, with Waterville, but went to K State, spent, uh, four years here in ag economics, had an interruption. Uh, I, I joined, uh, the Army Reserve and, and had an interruption for active duty and, then came back and finished. when I, uh, when I got outta K State, I went to, I, I moved to LAR and was an ag loan officer at, uh, what was called the production credit at that time. uh, worked for Farm Credit for about seven or eight years. and it was at a time that the, the commercial feed lots were, were really starting to take hold and, and grow. And, we were financing cattle feeders and, and feed yards. And I also found an interest in the, commodities futures markets at, at that point, uh, and went from on my own, uh, a little to learn how it worked and, and tie it in with the financing side to, uh, I left Farm Credit in 1978 and spent about a year and a half, two years in, uh, in the commodity business. Got my broker's license and, and was, uh, the, the trading and, uh, and putting the positions on for cattle feeders. I think those two, those two positions prepared me for, eventually when I had an opportunity to purchase, uh, a, a piece of ward feed yard from Wayne and, and Brian Ward. And, uh, just went from signing one corner of the note with Farm Credit to signing the other corner of the note with, uh, with Ward Feed yard. So we, uh, we moved ahead from that point, that would've been about 1980. Uh, of course that was just before, uh, Paul Voer decided to take interest rates to 20%, and it was a great time to get started. So but, but we made it through it and, uh, uh, you kind of know the rest of the history from, from ward feed yard on into i l s and, and where we are today. that, probably the big, big part of that, uh, of that part of my work history was that, uh, we, we brought ward feed yard and, uh, it's associated companies that went with it and Great Ben feeding together. Roger Murphy was, was a great partner. He was just a great man. learned an awful lot from him. And we, uh, we started owning things together, but we didn't bring our operations together after that until, oh, it's, it's been about 12 years ago, I guess. That, that, uh, we officially merged all of our operations together, all of, of the Murphy, enterprises. And the same thing for, for W F Y Holding company. And, we set up our administrative offices in, in Great Bend, and that's where they're located today to where the majority of our office people are at. And it was about 10 years ago that we. set up ILS risk management in Manhattan. Uh, these people are, are, are pretty bright and, and, uh, kind of well compensated. And if, uh, if you do get the employee to want to live in western Kansas, well their spouse doesn't. So that was the reason for locating the risk management. Here we have about 12 people that work in our office in Manhattan, and that kind of brings us up to today. Well, it's a pretty, interesting story to me and somebody that's willing to, to take the risks that you have taken and, and figure out how to manage that risk, whether it be through, you know, cooperative agreements with others and finding what you do well and what maybe you don't do well, and finding and outsourcing that or, or finding places.
Track 1:To fit those before we get too much deeper into some of the minutiae and details of that business model, I hear quite often today, uh, with inflation rates and with increasing interest rates and, and maybe even some other things within agriculture that remind folks of that time period in the late seventies, early eighties, as somebody who not only cut their teeth during those formative or during those tumultuous years in the seventies and eighties, but somebody that grew a business during that time. Um, how much does 2023 remind you of? 19 78, 70?
lee-borck_5_04-19-2023_081548:You know, I've asked myself that in the last, in the last few months, Matt, and, and, uh, there are some similarities that are there. But, at, at that point, we, we really didn't know what was, what was causing the, the inflation. We we had wage inflation at that point that, that we didn't see initially. With, with this one, I think it's, it's, at least to me, it's obvious. So maybe it's an opinion, but, the government puts so much money into the economy. when with the, with the Covid pandemic, uh, you knew when it was happening that we were gonna have some effect in the, in the market afterwards. You can't, you can't put that kind of dollars into, into the economy and not have an, an impact on the other side. That demand is outrunning supply so yes, there are some similarities, but I, I think that the Fed has, has remembered back into the early eighties and that, that they didn't go far enough. And, and they, they stepped back for a while and inflation took off and got away from them again. And they had had to really come into where Volker took the, the interest rates up to 20%. And that, that sounds almost ludicrous, uh, in, in today's market. but I remember when it came back down to 10 or 12, we thought it might not ever get that low again. So we were gonna, we were gonna lock in some of that money. Uh, well, it's been just the opposite this time. That, that, I'd say the last 10 years for a cattle feeder have, have almost been a dream with interest, not costing anything as heavily leveraged as, uh, the lenders will allow you to be in, in this market. especially if you are, uh, if, if you have positions on that, that cover your risk. but we're seeing so much more movement in, uh, in the, the pricing of, of our product, uh, the volatility in the markets, uh, even though we thought that it was great back in the early eighties. Uh, it isn't anything compared to what, just like what we're experiencing for the last two or three weeks to, to see the market go from the, the low one 50 s up to the middle one 70 ties that, that were at and even higher. There were, there were some cattle up north yesterday. Uh, uh, I got a picture of the screen when they, they went through a fat auction, bring a dollar 92. They weighed 1,466 pounds, if I figured right. That's$2,783 a hit. That's, uh, uh, you know, we can, we've never seen any, anything like that. I think the inflation and, and the fact that, uh, we're also creating lower numbers with the drought that we had, uh, Last year, this year that, uh, the, the cow kill is, is up and the calf numbers are down. So it's a perfect storm. Again, interest rates are, are going up, inflation is, is moving our commodities. Uh, and I think the difference this time is that, that the retailers had never dropped their beef prices from the last rally that, that we had. so they haven't had to raise their prices in the meat case. Uh, we've, we've just hit that point at, at this time. And, and so it remains to be seen how the, how the consumer is going to adjust to prices going up higher now.
Track 1:Yeah, you know, in more recent history we reached way back to the seventies and eighties. you know, nearly anybody listening to this remembers 2014, and that was the first time in my life that we ever saw prices. Like we saw, obviously. And I think most of us that thought we were asking the right questions and looking at the right charts and, and talking to the right people thought 14 was gonna at least last for a year or two, and then 15 and 16 and everything kind of came crashing around us without, you know, without asking you to share any, uh, proprietary information as you all see it. And the folks in that office in Manhattan see it. Uh, do you still feel like this one ought to because of the supply and demand fundamentals and things that we see ought to last a little longer than that? Flash in the pan did in 14.
lee-borck_5_04-19-2023_081548:Well, uh, you know, anytime you give an opinion on a, on a show like this, it comes back to haunt you.
Track 1:I, I understand.
lee-borck_5_04-19-2023_081548:but, but, uh, it would appear that we have not started to, uh, replace the cow herd that, it, it hadn't started, but with the, with the moisture that we have had, I would think that there would be a conscious effort to start replacing heifers this year, that, that would calve next year. So, you know, we're still another, we're still another two years away from, from, uh, being able to see any results of, of the decision to make, uh, to make more calves. but we had to get the moisture first. And certainly in the northern part of the country, where the big cow herds are at. they. they had more than abo an abundance of moisture this, winter. And, uh, the rivers are gonna flow and, and, uh, the grass is, is gonna grow up there. So they'll have their opportunity to, to hold back. Heifer replacements.
Track 1:Yep. Yeah, and I think, you know, it's always what we don't see coming, whether it be weather or geopolitical moves and, and things like that, um, that, that seems to get us. Uh, but yeah, I, I, I would say you're right, you know, by 14. When we saw those high prices, it had already started raining in Texas and across some areas that had really been hit hard by that 2011 12 drought. this time, you know, there's still, well at least in, in our backyard here in, in south central southwest Kansas through a lot of parts of, of northwest Oklahoma and the panhandles and things like that, that, that still have yet to see that rain coming. And so it's cow hert expansion regionally is, is much different here than what it would be in the northern plains. So that may, that may add to the length of ti time just because of the tighter supplies of cattle.
lee-borck_5_04-19-2023_081548:Certainly in, in, in Kansas. I mean, we're the, we're the dark spot of the nation and, and the area that you described on down into the panhandle, uh, that about the only area that has not seen moisture, but as, uh, as we look at most long-term forecasters predictions, they're, they're expecting the La Nina to turn into an El Nino this summer. And, and, I, I just, uh, received, information yesterday that, that indicated that they've raised the probability of an El Nino, changing in July, August from 56% to 80% this summer. Uh, you know, that means there's only 20% it won't. So that, those are pretty good odds.
Track 1:yep, Well, I. that's always hard to, to look for that far forward. When you look forward to 10 day forecast that keeps on saying, yeah, we should be having a 30 or 40% chance of rain. And then every day you get closer, they move it another day out. But, uh, yeah, it'll, it'll come, it'll come. It always has. So you mentioned something and, this may, be uh, an issue that we've talked about most here on this podcast. but we haven't in the last few episodes, but, uh, within the beef industry. Um, price discovery, especially of fed cattle, has been a pretty hot topic through the years, and it got really hot, uh, back a couple of years ago and, and all of a sudden today when prices are getting better, those types of, of discussions are talked about less because we like the, the way that we're discovering a price. Um, from your standpoint and, and, and obviously with some of the, um, know, alliances and things that you've built through the years, It's probably no secret to you that there would be some in our industry that would say that has taken away from the price discovery process. My personal opinion is it has just changed the price discovery process and looked further into the future to do that. But you know, you, you talk about an auction up north that, that discovers, quote unquote discovers a price on, on 1400 pound fed cattle of a, you know, a good 10 cents over what anybody else has. Um, is that a better way of doing it? Is there a better mouse trap as we'd like to say? Sometimes. Or, or what's the best way to, throughout the cattle cycles, um, to discover that price on fed cattle and, and are we there today? And we just need to let the market work?
lee-borck_5_04-19-2023_081548:Well, as, as you might expect, I, I, I have pretty strong opinions on this because of, of the way that we do market cattle. And, and I would tell you, I, I don't, I don't see much difference today with a, with a one. 78 market, uh, practical market. I don't see much difference in the way we're marketing to date than when we were back at, at a lot lower numbers. It's just that people make less noise when the, when the market's higher. But, you know, for years and years, the fat cattle market was made up with people that, that would, uh, would buy something of lesser quality and cover it up with fat and, and try and sell it for something that it wasn't, that it was, that it was better quality. Uh, the, the drought that we had back in, in, uh, 20 12, 20 13, that that created those, uh, that liquidation when we came back the. uh, the quality of cattle, uh, they came back with, with mostly black, uh, mostly black replacement. And the, the percentage of, of choice cattle increased dramatically after that. one other thing that happened was when, when Walmart went to, uh, a choice grade, our cattle have gone from 45 to 50% choice 15 years ago to where a today, uh, last, last week, our cattle averaged 89% choice in prime in, in Kansas. we were, we were out grading Nebraska last week. Of course, they had a, they had a rough winter this winter, but I, I have a. I have a hard time seeing how people can cannot agree with selling cattle based on their value. Uh, when, when you say, I'm willing to take the, the risk that I know what my cattle are gonna grade, I know what they're gonna yield and, and how they're gonna perform. And the guy that really doesn't understand that, yes, we have, we have cash sellers that out are out there and, and you need some of that. But you can do the same thing with, with negotiated grids. Uh, we're, we're negotiating all the time on, on our grid to, to tweak it and, and to fit the market that we're in at that point. And, as if, if, if people don't know, Tyson's been our partner since 1993. in that, we sell them 98% of the cattle that, that go to them. Do we need something for price discovery that's out there? certainly we do, but the pork industry does it on, I think the numbers around 5% plus or minus that, uh, of, and the chicken industry, it's even less than that. but I guess our, our industry was built on doing what you think is right and you either, our rewarded or you suffer the, the detriment of, of trying to do it the way that you want to. But I think an awful lot of it is the way that the numbers are reported. you know, the government does, does not, uh, they have specific categories that it has to fit in and, and there's a lot of cattle that are not reported that, that there's negotiation on. I don't think we do too bad a job of, of, of marketing our cattle. And I don't mean me, I mean, as an industry we don't do too bad a job of marketing our cattle and it when we have too many cattle, which is where we've been for, for what they can kill. Uh, we have the, the packers downsized their harvest capacity to where it was, it was almost perfectly in line with what the industry was producing. And then they could control the weekly flow by these people that are giving them, uh, two and three weeks out to pick them up. There's your culprit. It isn't. it isn't, whether it's cash or whether it's uh, uh, whether they're on a grid. It's, it's people giving the packer inventory two to three weeks out front to where then he can play what he does every week in, in paying in the cash market. Um, we've got some things that we could improve, but we don't do too bad a job, uh, until we don't have leverage anymore. And that's where we've been the last three years, is we've had absolutely no leverage between Covid and, and the, the Tyson fire at, at Holcomb. Uh, we've had a a, a backed up front end supply of cattle that we couldn't get over, and now we've finally gotten through that and we have the ability to do the back and forth.
Track 1:Yeah, it's interesting as you look back in history and, and read some of the articles from, you know, a hundred plus years ago, There are different reasons, but generally the same result, and that is cattleman. stating the fact that, uh, there are certain times in our business and the cyclical nature of this type of commodity business, as much as I hate to admit it, we still are, at least at some level, a commodity business. Uh, but the cyclical nature of any commodity business. And there are times when we're complaining about too, Packer controlled. Too much leverage by, by a few individuals. It's just the names changed throughout the years and, and sometimes the reasons that they have that. Uh, but it still gets back to supply and demand fundamentals. Um, I wanna drill down on the negotiated grid, if you don't mind, and, and you don't, I don't want you to share anything that would be specific to ils, but there's probably a lot of folks out here listening that may not completely grasp that concept of a negotiated grid and how that is different from a set value-based grid that may, you know, be revisited once a year or however the case may be. In tweaked a little bit, how, how does that negotiated grid work in general?
lee-borck_5_04-19-2023_081548:Well, I may be in the same boat as you are because, uh, uh, ours doesn't work that way. It works off of in, in Nebraska, we work off of, uh, off of the meat price, which is the way that most of the cattle up there are sold. They sell some, some live, but uh, uh, the large majority are sold in the meat and in Kansas, we trade off of the live price. But the guys that are on, on the negotiated grid are, uh, as I understand it, they're, they're trading on what their, what their basis, is going to be, they, they trade on, on the, the difference in, uh, uh, the choice select spread. you know, there's a, there's a whole lot of difference of the$16 spread that we have today versus, the$40 spread that, that we, uh, that we have seen in, in the past year at at times. It's going to mean that, that you're negotiating any of a number of things that are, that are in that grid or the base that, that, that you start from. But, you know, as a, as a whole, most of the grids are going to be somewhere between 30 and$75 to whatever the cash market is. if, if you don't want to, if you don't want to take the risk of hanging the cattle up and getting paid on on that value, then there's going to be a discount because that risk goes over to the packer then that he has to take the risk and, uh, risk and price are, are totally interrelated. The more risk you, you take, the, the higher the potential price you're gonna be wrong. Sometimes, uh, we don't win on, on every pin of cattle that we send in that are, that are on the grid, but, We will go to Tyson two, three times a year and talk about it. If, Just like the yield grade fours, yield grade fours have, have, uh, changed tremendously from what they, from what they were 10 years ago, used to be if we had more than seven or 8% fours, well, that was, pretty unusual. But the packers like the bigger cattle because they kill number of head and they process pounds that, that, come through it. So the more pounds you can get outta one head of cattle, it, it lowers the cost per pound in, in the harvesting cost of that. but I'm, I'm not gonna try to tell you that, that our grid is, Is, uh, what would be called a truly negotiated grid. and there's been the argument in the past that, that if you sell off of a, off of a Kansas top, that you're using everybody else to make, make the market. Well, that's, that's probably a legitimate complaint that that goes with it. But there's a lot of other things that we're doing with the, not us, but the industry is doing with the grids that are helping the cash people, to, to pull that price up as, as well. I, I just think it's in the industry. It's more of an education than it is anything else that, that would help us to understand? Uh, you look at the, at the library that was developed, And we had to turn in all of our grids and put'em into the library. Everything that was involved in it. Uh, the Packers, did the same thing for every, everyone that they were involved with. And to the layman, you can look out there and you can see individually. Well, uh, there is, uh, there is one that's getting a, a, a, a bigger premium for the choice select than what another one is. But you don't know who it is. You don't know what it is. you have to take the whole library to try to build your own grid. And that was the idea of it. Not to, not to disclose individual grids that individual groups had with the packers, but, uh, let them see just what is being done in the different areas on it.
Track 1:And I think as we have these industry discussions, as passionate as they get, sometimes I'm not sure anybody can look at what value-based marketing and and grid marketing of cattle has done in terms of consumer demand and the overall price of retail beef that then does trickle down even though we don't always like how much gets pulled out on everybody's margins along the way. But what it's done for our ability to move a lot of beef through the consumer market is undeniable. And, and um, that's always been my. fallback is, let's not throw the baby out with the bathwater. Can, can we tweak things? Is there something out there as we can use technology or video auction or whatever the case may be? Is there something out there that does a better job at establishing that base from which grids, negotiated grids, set grids, value-based marketing, whatever the case may be, can be based? Um, maybe there is, but let's not go back and require us to go back to 1980 something and the way we sold cattle then, cuz there were no incentives to do a better job and, and meet consumer demands with, with that model.
lee-borck_5_04-19-2023_081548:We were, we were selling 800 pound fat heifers and 1100 pound fat steers at that point. And, and, uh, uh, the, the grade was, was horrible compared to today. Uh, I, I agree with you and, and, the worst thing that we can do is to ask the government to help us price our cattle. Uh, and, and I'm opinionated on this, but the, but the government, uh, as hard as they try, they usually end up screwing things up rather than helping them before you get to the end.
Track 1:Yep. I think, I think nearly anybody in the cattle industry has always prided ourselves on our independence and, and. the fact that sometimes we would go to the government and a ask them to tell us how to do a better job of marking is, is, um, my personal opinion, and I think you would share is, is pretty hard to, uh, hard to even imagine. So, changing gears here, um, you have made a lot of what I would say are pretty non-traditional business moves as you've, uh, grown from, you know, your early days and then into feed yard ownership and, and going forth, you know, you talked about risk and reward how do you assess that risk as you look at a potential, whether it be an investment and, and, uh, diversification or just a growth, uh, in the same segment you already are? How do you assess that properly and know when to pull the trigger and when to say, Yeah, that's not in our best interest.
lee-borck_5_04-19-2023_081548:Well, we have, we have probably used risk management. to a greater degree than what most in, in the industry do. But whether it's, whether it's cattle feeding or whether it's interest rates or land purchases, uh, it really doesn't make any difference. Our philosophy at ILS has, has been that we are margin operators. We want to make a profit on everything that we do, but we're willing to accept a narrower profit, uh, if we can move some of that risk to, to someone else. And, uh, particularly on, on the cattle side, we hedge most everything that, not most everything, we hedge, everything that we have, we're, we're very strict about it. Uh, it takes a lot of data. To be able to, to do that, to, to know what the expected performance is and, and, uh, we've got, we've got data that goes back 20 years, 25 years that, that we pull on to, to be able to predict performance that comes out. but sustainability has, has become a popular word. But as, as we look at our operation, the reason we got into a, to an ethanol plant was so that we would have access to the distiller grain. And the reason that we own the farm ground is so that we would be able to have access to acres to put the waste out of the feed yards on that we turn right around and grow the feed for the animals that comes right back into the. Into the feed yard, along with the distiller's grain and get control of as many parts of the process that are coming into where you don't have to depend on, on, uh, other areas that, that you're letting people, you're letting people set the prices for you that, that, uh, that you need. It's, it's just like the interest rates. you know, for 10 years they, they practically gave us money. It was, uh, a cattle feeder's dream and, we knew when interest rates were down at 3% that we can make money that way. Uh, and for seven or eight of those years, we had money locked in that was a percent percent and a half higher than, than where it was on the bottom. but we, we stepped out in front and, and we would, we would price our interest in, in tranches and, and ladder it out to where we're able to, we're able now to be still working with, with a lot of the money at, at lower interest rates. Uh, farm credit's been an extremely good partner to us in, in, uh, in helping us to be able to price things that anything we can lock in and know that we can make it work we do, rather than, than betting that it's going to get higher or it's gonna get cheaper. And, and I think the, the difference that I see in, in the way ILS does a lot of things and in what a lot of the rest of the industry does is that we just try and tighten it down on, on more items. that, that others are willing to, to let it flow and, and take the good with the bad. cuz we're not any smarter than anybody else. We can't buy cattle better than anybody else. We just, we just have to be satisfied with a, uh, smaller margin, but not taking the losses when they, when they typically.
Track 1:And in, in sharing some of those risks, um, you've collaborated with a lot of different folks through the years, whether it be through joint ownership or just partnerships and agreements. Um, you know, everything from the, feed and, and byproducts coming into agreements with Tyson on the, on the cattle going out. Um, you've talked about some of the benefits and the reasons that you've forged those, those alliances. What are some challenges that you've seen that you go, you know, this is. This is almost not worth doing this, um, of collaborating with folks in other sectors and segments and even other partners or competitors in the feeding business.
lee-borck_5_04-19-2023_081548:Well, it just happens that I visited with the, uh, risk management. class program here in at K State yesterday afternoon. And, and they asked basically the same question and the worst deals that we have got into the ones that that didn't work. And, and we have, we have a number of'em that don't work, and usually it's because of, of ethics and, you misjudged the individual that you're, that you're partnering with or the entity that you're partnering with that, uh, it, it didn't work the way it was supposed to. Uh, know, being, being ethical is a lot like being pregnant. Either you are or you aren't. Uh, they're in, they're in much in the middle and, and, uh, uh, for the most part, I partnered with, in most everything that I've done through, through my career. And a lot of people don't like that. They want to do it themselves, but I didn't, I didn't have a lot of equity to start and it was a way for me of using other people's equity and, and giving them a share of the return that come out of it. And, it's, it's worked pretty well. Uh, the, the ones that, the ones that didn't work, I'm gonna say it again. It comes back to, it comes back to you chose the wrong partner, uh, whether it be businesses that we buy and, and partner with them. but one thing that having the partners has, has done for me, and it, it lets us, it lets us use our equity in our company, our stock, uh, almost as a form of, of cash to buy another feed yard. If we want to, we can, we can trade with them to where they'll take our stock, we get their feed yard. We don't have to take on debt in, in order to do it. They become a partner. Uh, then using myself, for example, I'll have a smaller piece of a bigger pie and, and I sure want to get this in because I, I believe strongly here, one of the best things that we've ever done at I ILS is to let our employees own stock in the company. And 25% of, of ILS is owned by people that draw a paycheck. And, uh, you just get more buy-in. From your employee? Uh, I can truthfully tell you that we have never lost an employee to another entity, because they would pay them more money, they would do this or do that. We've never had an employee that has left that own stock, uh, unless there was, some cause for, for that. Leaving between that person and, and I l s uh, our, our employees are, are happy that way and it's, it's a way of putting back into the communities that, that we're in because that, that money as we distribute out the earnings that stays right in the community, even though a lot of the owners are outside the community, it, it, it stays right there. but I. Uh, I also believe that it's important that we look at our corporate farming laws in Kansas. We're a sub s corporation as I l s and that, that lets us bring people back that want to be farmers. But when they get out of school, they can't afford to buy a quarter of a grand. They can't afford to buy a tractor or a combine, but they can darn sure buy a share of stock and they can be in the area that they want as, as the companies get bigger. Uh, when we hire an agronomist, that's what he does. He's an agronomist. He doesn't have to be a jack of all trades, like, like, uh, most independent farmers are. And, uh, people ask how, how are we gonna save the. save the family farm. Well, uh, uh, you know, corporate farming is, is just a, an entity. That's all it is. And, and it's a way of, of dividing up something that's larger that, that the people that can't afford a to own it themselves can own a piece of it and, and still be doing what they're wanting to do. And, uh, I I still hope that, before my days are over that, that we can come to that realization. In Kansas, we did the same thing in Nebraska and it was, it's been very successful in bringing new money, not not to buy the ground, but new money to invest in, in supporting agriculture in, in Nebraska. So I may have got off track a little bit not at all. Not at all. That's, that's a discussion that, that I have you know, as I, as I ask myself, how do we maintain rural economies and rural main streets and, and rural towns and schools and all these things, as we, and I've said it before on this podcast, and it's something I say nearly every time I talk to a group, but our most valuable export from most of our farms and ranches across Kansas and really across America.
Track 1:Is the youth that we send to Wall Street or to Kansas City or to Denver or San Diego or wherever the case may be. And quite often it's because even if they want to do something in farming and ranching, there may not be an opportunity within that family's outfit. And, um, even if it's a brief time working for ILS or someone else that they gain the knowledge and the industry understanding and, and everything else that they can then maybe even start their own or come back into a family operation. I, I think, you know, so often we hear the word corporate and immediately whether we're in ag or whether we are in suburban Kansas City, Chicago, wherever a red flag goes off, well that's gotta be bad. Uh, big is bad. And, and we gotta be honest that quite often it actually probably raising tide lifts all boats.
lee-borck_5_04-19-2023_081548:Well, we talked about inflation and, and what it's doing and, and, and for a young person to be able to go out and get a foothold if, if they don't have family money behind them, it's almost impossible now for a young person to. To, to start into a farming operation. They've, they've got to have a different way of, of going into it. And, a corporation is no different than a partnership, an llc, a sub s corporation. Uh, it's, it's just another form of legal entity for ownership. And, uh, uh, the, you're right, the, the corporate, the word corporation, it, it, it scares a lot of people because they think the the bad things. But there's some wonderful things that come out of it too. But, an awful lot of, awful lot of kids that, in western Kansas, uh, that, that come from the farm and go to school, and 10 years later they, they can't find their way home with a roadmap because they're just not interested in, in being back out there and working as hard as they have seen their parents work. All their life, for what it takes to, to, to be an Ag operator.
Track 1:So do you see that trend increasing, in terms of more larger operations within farming, the beef industry, whether it be cow, Stock or feed yard, whatever the case may be. a as we go forth, or what other changes, I guess just a broad question, what, what major fundamental changes do you see in store at the production level throughout the beef industry?
lee-borck_5_04-19-2023_081548:Well, and all you're gis an opinion but I, I see consolidation continuing in all phases of agriculture. you, you can look at what happened to the, to the chickens and, uh, and, and the pork producers and, and it's, it's consolidated to where they're larger and larger. It's, it's happening in the, in the cattle side. Uh, we can't do it quite as well with the, with the cal calf sector of, of the industry because it takes so many resources to, to run those cows. but I, I believe over the, over the time we're, we're going to see these, we're gonna do what everybody else has done. Uh, the banks have consolidated. You know, that's gonna be another problem that, that, that the small operator has. Where do you get, where do you get adequate credit to be able to support the operation? Because when you look at banks that are, under 150, 200 million, which a lot of those, uh, communities that, that we're talking about, those banks are smaller than that, but they don't have the ability to loan the, the amount of, uh, money regulatory wise. They can't loan enough money out of that bank to, in order to take care of it. So you're, you're having to go to the larger metropolitan areas to find a bank, and those banks are not, uh, are not as well educated in ag lending. I, I just don't see it any other way than, than that the big get bigger. But that doesn't mean that it's all going to be under one ownership. Uh, I think there'll be differences in, in the ways that these are put together. It's, it's happened already as you, as you look up in the corn belt that. uh, land bringing 2020 5,000 an acre. Well, we all know that you can't support that with, with the price of corn, the price of soybeans. But, there are instances to where the corporations have been put together and four or five farmers will go together and rather d than duplicating all of their equipment. They'll, they'll work it together in a, in a corporate structure and, uh, be able to be successful with it. I'm not smart enough to know how it's, it's going to look exactly, but I just know, I believe that we're going to be, uh, we're going to be bigger units and more efficient, more technology than, uh, than what we have been in the past.
Track 1:It's been happening. over 200 years in the us and, whether we like it or not, it's probably going to continue on that trend. And, and you're not, obviously, you're not the only person who, uh, who believes that. And I think the challenge is, is we look again, just not to take the whole ag lifestyle and, and kumbaya approach, but the question then becomes not just the consolidation of, of farms and of operations and of operat tours, but what that does to those other, entities that depend on independent, you know, relatively small, the local banks, the local farm and ranch, supply, feed supplier, um, livestock markets, all these things that depend on an industry that, that is broken up and pretty segmented. that changes those models too. Doesn't necessarily put'em all out of business, but it does send signals that they have to either figure out how they play in that type of, uh, of environment and or, or how they, you know, sell out to a bigger entity who does. And that, that, that's a challenge as we look at, at rural economies. And, know, the alternative is for us to all try to make it on less margin and probably be less efficient and risk going outta business completely and, and having. A completely dead town, and then we don't like that one either.
lee-borck_5_04-19-2023_081548:Well, there are, there are a lot of people that would enjoy having the lifestyle that, that we have as, uh, as ag producers and, and what a great way to, to raise a family. But in order to have that lifestyle, there are, there are sacrifices that, that have to be made and, a lot of those sacrifices turn into, turn into less revenue that we're able to produce. And, and you've got to have enough revenue to support that lifestyle that, that it can do that. And, uh, it just takes more acres. More head, uh, more people to, to, to make that work today. I think we're gonna continue to do it just as long as we can, as long as we can afford it and, and, see things move forward. But at, at, at some point, if, uh, you have to, you have to say no matter how bad you hate it, that, uh, well I'm just gonna have to sell out. And that's when, uh, that's when the bigger operations come in and, and absorb.
Track 1:Or you figure out how with collaboration, like you said, with neighbors and with other entities that you build a, a build another ils. I mean, you know that, that. there's, there's room for, um, for growth. As long as you kind of study your lesson and, and do a lot of the things that, you know, the decisions you had to make there as you went through the, the eighties and nineties. And, and, um, I think that's one thing that I like to, to drive home in this podcast and any discussion I have. If, if you don't like the environment around you, um, figure out how you can change it yourself through business moves, through cooperative arrangements, through whatever you need to do to, to, you know, continue on. It doesn't just have to be a, I'm the little guy and I'm always gonna be the little guy. Um, you may be able to be a bunch of little guys banded together that can still maintain some autonomy, give up enough that you can have a, a easier way to market and purchase and things like that.
lee-borck_5_04-19-2023_081548:Yep. You're exactly right, Matt.
Track 1:So we've talked a lot about threats and challenges that you've seen and that we see going forth. What would be the, the biggest opportunity that you see for the beef industry, um, in the next 5, 10, 15 years?
lee-borck_5_04-19-2023_081548:Well, I think that our, our consumer is, is demanding it. we saw when, when Walmart went to the Choice product, uh, what what it did for our industry as a whole. I, I never thought that they could be successful at, at, at getting that many high quality carcasses that, that they would, would be able to sell. But, uh, I think the opportunity is, is there in doing more branding, doing more of the story that goes with, with the product. And that almost means that you have to, that you have to participate with someone else in, in order to get that done. And, and that may be a packer, it may be a, a, a distributor, a, a food processor, but it may be. neighbors that go together, just like the Beef Northwest, out in Idaho and Oregon, uh, their, their natural program that they've been doing for years. And they, they're taking individual producers that, that are coming in and, and, and they're selling under a brand. know, the, the Braveheart brand that, that i l s developed that we're working with Performance Food Group outta Richmond, Virginia and, and Tyson, uh, to, to where we're, we're killing several thousand head a week now that are, that are going into that brand. It, it doesn't have to be something that's in every, in every grocery store in America. you can, you can pick an area that, that you want to go, but in order to, to get value added for our product, you've got to differentiate your product that, that, that you're selling. and be able to promote that and, and tell the reasons why it's, it's better. Uh, to me that looks like that. It's, it's the direction that, that agriculture is, is going to have to move towards. And it's one that a lot of people are uncomfortable with. They don't know how to, they don't know how to start it. Uh, uh, we didn't either. Uh, you know, we, we've been working on this for 20 years and it's, and it's only been the last six years that we finally got to that point that, that we were able to brand a product and, and, and sell it. And, uh, and to be able to keep some of the revenue that comes from that, uh, that's the important part because everybody's got their hand out all the way down the line. And, and by the time it gets back to the producers, a lot of times there isn't any money left. Yeah. And I think that's the challenge that a lot of producers have we are geared to raising a crop, raising a calf, taking care of the land. And quite often maybe we're better at that than we are at telling the story and explaining what it is we do and why it is we do it. And so, um, when, when we're uncomfortable doing that, um, it makes it all that much more frustrating when, when he or she who does tell that story gets all the gravy.
Track 1:And, um, we're kind of still standing there with what's left. And, and I, again, we've said it multiple times throughout here, that's probably where it makes sense to lock arms with somebody that's probably better at that part and say, you know, but you're not gonna get all the story because I'm the one that wrote the book. you're, you may be telling the story, but I wrote the book
lee-borck_5_04-19-2023_081548:that's, that, that, that's right. And, you know, we, we talk about the young people that not, not coming back, but I think that's where the real opportunity is at. For those young people that have, that have been to school, they understand the benefits of, of telling the story of, of, of having a product that, that meets the desires of our end user. And, and to be able to, to do that. And, uh, old guys like me aren't the ones that are gonna figure out how, how you, uh, how you tell that story. It's gonna be folks that are like, like you and your kids that are, that are, uh, you're much more comfortable with the technology. You're much more comfortable with the concept. And, uh, I, I think it's gonna happen that, that. That we'll see a lot more branding that's that's done in our business.
Track 1:Yeah, it's, it's an exciting time. I think it's a scary time, but, uh, but one that I think, uh, if we just are able to, to put into. the narrative that the consumer wants to hear and in a way that they wanna read it. Uh, I think there's, we've got a lot of still a, a lot of stories to tell about beef and, and farming and ranching and, and why we do what we do and have for centuries. So hopefully we can do that so that we can continue to do it for more.
lee-borck_5_04-19-2023_081548:Absolutely.
Track 1:Well, Lee, I really appreciate you being on here. I know your time is, is invaluable, but, uh, these stories and some of the history of, ILS and of, of your work in the beef industry, I think are, are great for, for me to hear and I think others will appreciate'em as well. And we thank you for your, your time and your leadership and your progressive way of thinking to, to hopefully improve the beef industry for all of us.
lee-borck_5_04-19-2023_081548:Well, Matt, you're, uh, you're, you're one of the people ever since you were in college that you've, you've been active in, in our industry, active in, in the KLA and, and serving as its, as its president. But, but you're setting an example for that next generation, and I think that's what we're all obligated to do is, is to set the example and, and show them maybe we don't know where. how to get there, where we're going, but, but we know what we need to do and, and that's, that's where their opportunity is gonna come.
Track 1:Yep. I would agree so. Well, thanks a bunch Lee. I appreciate you being on here.
lee-borck_5_04-19-2023_081548:Have a good day, Matt.
Track 1:bet. You too.