Practically Ranching
Join Matt Perrier as he visits weekly with interesting, thoughtful, entertaining individuals within the beef community. Conversations will inspire curiosity and creativity while maintaining the independent spirit and practical nature for which ranchers are known.
Practically Ranching
#77 - Jason Kraft; Faith, Freedom, Family, and Agriculture
Jason Kraft is the Founder and CEO of Compass Ag Solutions, a Risk Management firm based in his hometown of Ft. Collins, CO. In addition, his family owns and operates Hilltop Hay and Livestock, a diversified family operation that offers high quality hay, cattle and beef to customers in Colorado’s Front Range.
We talk market risk, leverage, fed cattle price discovery and asset protection. Throughout his career, Jason has found ways to find solutions to market challenges. Whether it’s his work in commodity markets and risk management, hay and livestock production or their farm to fork beef business, the Kraft family knows how to turn challenges into opportunities.
Disclaimer - Positioning Agribusiness for Success
Agricultural Risk Management & Trading | Cattle Feeding
Home - Hilltop Hay and Livestock
LRP episode with Joe Kovanda: https://www.buzzsprout.com/1995747/episodes/13495752
Thanks for joining us for episode 77 of Practically Ranching. I'm Matt Perrier, and we're here thanks to Dalebanks Angus, your home for practical profitable genetics since 1904. My guest this week is Jason Kraft. Jason is the CEO of Compass Ag Solutions, a risk management firm based in Jason's hometown of Fort Collins, Colorado. In addition, his family owns and operates Hilltop Hay and Livestock, a diversified family operation that offers high quality hay, cattle, and beef to their customers in the front range throughout Colorado. Amy and I met Jason and his wife Cheri, thanks to our kids friendships. I say kids plural because. Their four kids are similar in age to our four eldest, and they've all gotten to be pretty good friends thanks to their involvement through the National Junior Angus Association programs. And all of us were in Tulsa last week for the Junior Nationals, and Jason and I took a break from our dad duties in the stalls and show ring to visit for just a bit. We got to talk market risk and leverage, fed cattle price discovery, and asset protection, and it became clear that throughout his career, Jason has gotten pretty good at finding solutions to market challenges, whether it's his work in commodity markets and risk management, or hay in livestock production, or their farm to fork retail business. The Kraft family knows how to turn these challenges into opportunities. We've recorded this episode on Independence Day, so Jason's family mantra became a perfect title for this one. Faith, freedom, family and agriculture. Now, if you know Jason or Cheri or any of their family, you know that this is more than just another slogan. I think you'll appreciate Jason's perspective. I think you'll appreciate his intelligence and his dedication to helping producers find ways to best protect their investments. As always, we thank you for listening to another great episode with Jason Kraft.
Matt:your kids are showing cattle. My kids are showing cattle. You've got a kid on the leadership Junior Angus board. I have got one running for it. And so, um, I hadn't envisioned talking beef industry issues here, but. We gotta visit the other day and I thought it'd be perfect. So
Jason:welcome aboard. Well, thank you very much. Appreciate you having me, Matt. It's been a great week so far. And, uh, looking forward to, uh, the rest of the week that lies ahead. It's been a great opportunity for us to get to know one another through this venue. So I treasure the relationships that we've been able to make through the last number of years being involved in the, the Angus Association and the, showing Cattle here.
Matt:Yeah, it's been fun. I think regardless of where we are in the beef industry and where we're working or where we're living or ranch and whatever else, it's a. Pretty small world. And, um, the overlap of course, you know, I'd met some folks that work with you there at Compass and didn't know you hadn't met your family until my kids introduced me to your kids. Mm-hmm. And all of a sudden, there it is. So, uh, yeah. It, it's, it's a pretty cool tangled web, but, uh, it's pretty cool and, and I get an opportunity to sit down and talk about maybe something else besides rinsing cattle and keeping'em cool in the northeast Oklahoma summer here, uh, this week in Tulsa. But it's, it's a good, good spot for the kids to be in a good spot to, to catch up with other like-minded folks. So if you would, and of course, I'm gonna reference a lot of times I already had Joe Kovanda on. What, a year and a half or two years ago, I think talking about LRP, livestock Risk Protection, and Joe works closely with your all group and, and everything, so we won't get too deep into LRP, but give us a little idea of your history and how you got into this whole space of risk management and why, and kind of what you've grown there. And then we'll kind of pick up on some more details from there. Sure.
Jason:Well, I had the, uh, unique privilege of being raised in production agriculture. I was raised on a fourth generation family owned, farm and feed yard. And, and growing up, you see, the likes of things happen that are fortunate and unfortunate and a lot of'em, which we don't understand. You see hail take out crops just minutes before harvest and you see, some really good cattle that don't end up making it, and you just see a lot of misfortune and you, I started asking a lot of the questions at a very early in age as to why. Why things happen and, and, uh, I don't always get, uh, the answers to those questions. I still have a lot of why questions that linger in life today, but it started to me down a path of just trying to focus on. On purpose on Meaning, and I was one of those weird kids that read a lot of self-help books growing up and a lot of leadership books. I didn't read a lot of fiction and through that phase I really wanted to see what really moved the needle in life. And as I grew up through production agriculture, I went to Colorado State and played some football there and, and had an opportunity to meet a lot of great folks through agriculture, I started to understand what really makes a difference in this cattle business. And that's what I kept asking myself is what, what is the thing that moves the needle in the beef industry? And, and we heard a lot in our research about maybe different feed additives or maybe different technologies or sciences that would add a, a 10th of a pound of gain or would add a, a little bit higher pregnancy rate. And so there's lots of tremendous science out there that does help us feed this nation and feed the globe. But at the end of the day, what it comes back down to is, is are we gonna make any money doing it right? And uh, really what got me focused on risk management was it's how we buy cattle and how we sell cattle is really what makes a sustainable. And I, I know that's a way overused word, the sustainability word today, but I referenced Dr. Tom Fields, one of my mentors in life, and I remember him saying, there's nothing more sustainable than. Than a profitable operation. Yep. And when it comes to profitability, it feels like one of the things that really drives profitability, or at least protects profitability, is a sound risk management and marketing plan. And so that's what really drove me into this field is like, I think this is the thing that could move. The needle more than anything else. I mean, you can feed the cattle, right? You can do all the nutrition, right? You can do the reproductive right, and the market can take it all away. And it just seemed, it seemed like a crime to me to have all those things go right, and at the end you'd do it for practice or for a loss. So that, that was the thing that really drove me to, to the field of, of risk management.
Matt:Yeah. And that's, that's something that I, we've talked about it on this podcast time and again, and, and, um, the two things that cattlemen. Farmers, any ag producers really talk about most the weather and the markets. Right. And the two things that are probably in and of themselves as much out of our control as anything around the weather and the markets.
Jason:Exactly.
Matt:And, and so often, I mean, you mentioned a couple just broad areas of management that we can part or participate in risk management and technology. Yep. And. I think that at least in the cow calf segment, I think the feed yard segment has adopted specifically well, both risk management and technology way quicker. Mm-hmm. The dairy end of things way quicker. That's cow calf guys, and we're pretty leery about some of these in we have to turn something over or pay someone in Chicago or at the Mercantile, or a broker or a, some company that owns the patent for whatever technology. A, I guess why is that, and B, how can we do a better job of trusting those folks that are outside of our ranch borders, outside of our county line, our state, we may not know them, but sometimes we have to trust them because they're gonna be able to help us out. We may have to pay'em a little to do it, but. How, how do we break that fear, I guess, of technology and of risk management and things like that? Uh, and, and put that to use.
Jason:Yeah, that's a great question. I think about how many years have, has it been pounded into our head that we need to be a low cost operator? Right. And I'm definitely not against a low cost operation or operators, but, uh, there needs to be a time where we need to protect the equity or the asset that we, uh, that we're raising. And because I think a lot of us don't realize how these cattle. Really represent themselves. Our cattle or crops for that matter, uh, represent themselves in our balance sheet and how every day as markets move up and down, our balance sheets are changing. But because we don't think of that, we've got more urgent, uh, issues. We've got more pressing issues on the ranch or the feed yard that are attending our, thoughts and our, our attention. We don't spend a lot of time thinking about that. And so we, we tend to just deal with the urgent more than the important. And so I, I think the, the answer to that lies in, in a couple of things. I think building a great network of people and finding, you know, these trade associations are a great way to get involved and meet people, whether at the county level, the state level, or even the national level. Building that great network has been something that I've really benefited from even back into my college days, I've been working on just trying to get to know more, more and more people in this industry. And so as you build that network, those relationships oftentimes get referred to as like, Hey, I've really found value in this organization or in this service provider that can provide service for me. And so those trusted referrals are worth a lot in our business. I think that's a great big thing of it. The other thing I would add is there's never been a better time at these price levels to invest some time and some energy to learn risk management because, uh, the last thing you wanna do is learn risk management after the, the barn, the horses escape the barn door. Right, right, right. This is a great time to spend some, some extra effort to see what you can do to protect some of this swell in our balance sheet, if you will. That's happened within our, uh, beef industry. So, great timing. You couldn't ask for a better time to invest right now, as opposed to what tends to be the case is, we a crisis happen and then we start looking for people to blame and the things that are broke instead of investing in things that we can do to today when everything's going our way. To protect the equity growth that we've experienced. So
Matt:Anybody who is, well, almost anybody who's listening to this today has 2015 and 2020 21 and all those over the last 10 years or so that left such an indelible mark on our brains that if we didn't participate in risk management then, I would hope that this would be a time that we would use those lessons.'cause they were hard ones on a lot of us. Indeed. And we, prior to that, again, we've talked about this, but prior to that, we'd probably gone a couple decades without a true, clear cattle cycle, and a lot of folks, even me included, said, you know what? We may never see one again because of value-based marketing, because of, of all of these forward contracting, all of these different things that we, we had implemented in the marketing of, of all classes of cattle. And yet here we are, we've seen a classic 10 year cycle once again. And, um, from a price standpoint, what we didn't have in 2014 and 15, or at least at the level of subsidy that it is today, is this livestock risk protection program. And, that's a way that all of us that remember thinking, oh, 14, those prices are gonna last another year to two years, nearly every economist, nearly every, anybody that had any notion of supply and demand fundamentals said, yeah, we've, we've got a good 12 to 18 months at least of these levels of prices. And there it went. And, and so yeah, that's a way that we can lock in some things. And again, we can go back and, um, listen to that podcast with Joe and get how you do those things. But yeah, I think, I think the tough part is not just going through the forms and. Paying the premiums on some kind of an option or some kind of a hedge or, or, um, risk management. But it's breaking that paradigm and for the first time saying, yes, I'm gonna do this. I never have before Dad and grandpa never used the board or the Merck or anybody else to, to cover their risk. But now I've got an opportunity that they didn't have. So that brings in something that I have always sensed from the time I was a kid. A lot of times it was around my own family dinner table, but this, this distrust with, if it's on the farming side, Chicago Board of Trade, if it's on the cattle side, the Chicago Mercantile Exchange. How do we get past that? Because, you know, especially, and everybody can point to the reason, well, it's just whatever traders feel like that morning when they walk out the door in Chicago or whatever the last weather report they saw, or now that we've pulled the floor traders out, it's all just a bunch of computer, BS that's, that's driving this market. How do we make sense and build enough trust that we believe that these things that are based off of those prices can work?
Jason:Yeah, I appreciate that question. You know, it's, it's been a narrative for decades. Oh yeah. Because, because mainly because I think markets don't make sense. Markets oftentimes don't make sense. And so if you think about it, with all due respect, all the people that try to forecast and predict markets, I truly believe that nobody really knows Oh, no. Where the market's going.
Matt:Most of them will
Jason:admit that for sure. For sure. It's just we
Matt:want an answer and we hold them to one little thing they said, sure.
Jason:And so what happens is, is people assign a narrative in the rear view mirror, a market that something's happened that nobody understands. They try to explain it with a narrative looking backwards, and oftentimes they make up a narrative that creates distrust in a, in a crowd of people that they don't understand or they don't know, but truthfully. The market needs a, a speculative community to accept the risk of that US cattlemen need to shift the risk to somebody. There's, there's ev, there's always a seller for every buyer and a buyer for every seller. That's the way the system works. And so when, when US cattlemen need to offset our risk, we need to transfer that risk to somebody, right? Somebody needs to absorb that risk, and so we desperately need a speculative community that's looking to take on or absorb our risk. And so it has to function in a way with somebody that wants to add risk and somebody that wants to reduce risk. And oftentimes we don't understand why they want to add risk, but they're, they're looking for a return on their capital. And it's, it's an integral part of our system. As is the clearing house and the, the systems that are put in place. So that performance happens with these contracts, uh, whether it's a CME contract or, or the LRP that you've got the, you got the United States government sitting behind an LRP, policy, so you know that they're gonna make good on, on those policies. And so I think the trust is that you've got, you've got a clearing house, you've got you've got counterparty risk of the US government and behind our LRP, those are, those are solid counterparts, probably the sawest one in the world, hopefully. And so, hopefully, so I would probably go with that one. Yeah. And, Again, it, the, the, if you start, if you have a starting point of that you really truly don't know where the market's going, then I think that really helps that concept of risk management of saying, I need to take on, take less risk. And, and I think if I may just, uh, sidetrack for a little bit here. When we talk risk management at our firm, we oftentimes don't talk whether you're somebody's long or short or, um, what their position is, but typically as cattlemen, we're always long in the market. We always have inventory. Sure. So as we apply risk management, whether it be a LRP contract or a CME contract, we're just less long. We're not really short, we're just less long. We're less exposed. So that's all we're doing is we're becoming less exposed to the market move, and even somebody that's a hundred percent hedged or a hundred percent protected with LRP, we look at that person as they're neutral because they have a physical asset. Yep. That goes up and down with the market. And a derivative that goes up and down the market. And those two, if they completely offset each other, the worst you can be is neutral. And, and that's the, that's the spot where you're not impacted by market flows up or down.
Matt:Yeah. And that's, I, I think that's when we get to looking at things, you know, like basis or whatever the case may be. I mean, we just feed a few cattle with a group of folks and you know, some of these cattle have come out and. Would've made three, four,$500 a head, and yet we hedged them way back when. Mm-hmm. And on that hedge, you're given back three,$400. And so they're barely profitable because of that. Now, hopefully we had those hedged three, four years ago and it worked in our favor. But yeah, that's, that's when that neutrality it's tough to go down to the coffee shop mm-hmm. And brag about the fact that. You broke even because you used risk management, right? Uh, it's a lot more fun to go down there and say you hit a home run, but you don't talk about the times when you lost your right, lost your rear because you weren't taking care of business. So to drill down a little bit more on the Merc, you've seen a lot of change in the commodity markets. So you would've started in what? Around 2000. Yep. Right around there. Early two thousands. How have things like you know, electronic trading as a, as opposed to floor traders the hedge funds that have taken such a speculative position and, uh, added to the open interest? I mean, I remember there were discussions early in my career that. You know, these, these commodity markets may go away, not because producers didn't like how volatile they were, but because there wasn't anybody to take the other side and then all of a sudden Wall Street and a lot of these hedge funds found out that they could use commodities and, and diversify their portfolio. How have those two things and, and if there's anything else that you've seen that would be a pretty major shift in how commodity markets are funded and open interest and all the, the money that comes through those, how, how have those changed things from a production standpoint? A hedging standpoint? Mm-hmm.
Jason:Well, I think it was just November of a year, this last fall where the live cattle contract turned 60 years old. So we've had the live cattle contract now for 60 years. Wow. And we do work closely with the CME and, and it's that contract keeping, that contract specs, uh, reflective of, our everyday production is, is something that's incredibly important, right? Because if, if they start to deviate, uh, the job of the contract is not to direct the industry, but it's to reflect the industry. I always say our contracts should mirror what production is. It shouldn't try to lead shouldn't try to guide our, our production practices, but, but economics should drive production practices and then the, the CME Live cattle contract, or the feeder cattle contract, any of the contracts should be just a mere reflection of what really occurs in production agriculture. And so the CME had just finished recently, just finished a live cattle contract review, and they went through the contract and said, Hey, where in what areas should we adapt our contract to make it more reflective of what goes on in, in live cattle production. Because think about how, how the live cattle production has changed just since COVID. Yeah. We've added way more days on feed, right? Yeah.
Matt:Big
Jason:time beef on dairy, a whole entire different, beast that we're feeding today compared to what we were 10, 15 years ago. So as our production systems change, we need to make sure our, our contracts, our risk management tools change in, in reflection of that. And I, I think we're about to undergo a feeder cattle contract review too. So the, the CME is very dedicated in making sure our contracts remain updated and they're dynamic because our production system's dynamic. And so that's, uh, that's been an investment that our industry con continues to do. And I think it's serves our risk management tool as well.
Matt:Yeah, and I mean, we're, we're in such a a higher trading range, and, uh, from a percentage standpoint, I mean, I, I saw that, I think it was CME that expanded their limits on both live and feeder cattle contracts. And I thought, my goodness, how, and I don't even remember now what it was, but we're in the double digits for sure. And, and I'm like, how could they do that? And then I get to thinking as a percentage, that's no different than it was when it was a buck and a half on a 60 cent market or whatever it was, you know, 30 years ago. But. I mean, you look at a chart and see how long the beef industry sat in there and traded in a range of, you know, 60 to$80 for fed cattle for decades and decades and decades. Maybe it was 50 to 70, honestly. But then when we hit that low in beef demand and prices in 96, 97 time period. And started, in my opinion, focusing on the consumer and trying to make better beef and trying to deliver what it was they said they wanted instead of just making'em eat what we were gonna make. It's just been a rocket ship. I mean, it's absolutely phenomenal from a business standpoint to see what has happened to these prices. The downside of that is there's going to be more volatility, especially just from a dollars standpoint. I mean, you know, we. It took$5 off the cash market last week and you went, eh, doggone it. I kind of hate to see that, but Nah, big deal. I mean, a$5 move in a week, right? Would be crazy. 10, 20 years ago. And now as a percentage of$2 and 20 or 30 cents, it's, it's not near that big. And so I think sometimes the, the raw moves in terms of dollars and especially when you multiply it across the board, that makes folks a little bit anxious as well as they, as they look at using some of these futures and, and stuffed price cattle.
Jason:Yeah, they, they sure do. These are, these are, uh, unnerving times with this increasing volatility. But I will tell you one of the things that's important is, is the, for the speculative community and these hedge funds, index funds to continue to participate, in our markets, they need to be able to have markets that trade
Matt:right
Jason:and markets that get lock limit really discourages our counterparties from being able to participate and willing to participate in our markets. And so one of the, the reasons we have these dynamic limits that are set on a percentage, like you say and then expanded limits that once a market lock limits one day it expands the following day. The reason we we allow them to trade like that is the index funds and some of these, uh, speculative funds need to have the ability to move in and out of our markets Right. On a regular basis. And if they feel like they're locked out or they, they have an inability to trade, their willingness to participate goes right out the window. Yeah. They're gone. They're going. And so we, we need to have these limits. Unfortunately, they are, um, they're challenging for some of the producers with margin calls and, and, uh, the line of credits that are required to substantiate these margin calls. They are, are substantial for sure. But, largely it's, it's not the, the disciplined hedger that runs into challenges with these margin calls. And no doubt they are challenging. But, uh, most of these guys have, have an incredible agriculture finance institutes that, that stand behind them and back them as long as it's, it's true disciplined hedging. Right? And it's not, uh, games or, or, uh, other, other trading that they do on the marketplace that causes that need for, uh, for a margin call.
Matt:Yeah, I, I didn't, I didn't spend a lot of time in commodities future and trading classes when I was at Kansas State, but I think that that's where I first heard the term speculative hedging and, and not actually taking that offsetting position when you put the cattle on feed or when you purchase the calves or whatever the case may be. But waiting for a, you know, a dip in the market or a high in the market or whatever, depending on whether you're going long or short. And yeah, that's, that's not. That's not necessarily as a hedge, right? But, uh, yeah, that, that's what probably gets us into trouble sometimes too. So from a pricing standpoint, and, and you mentioned, you know, at times that the, let's take the live cattle fed cattle complex that futures will lead cash and other times cash are gonna lead futures. And I think that's just probably in different times of that cattle cycle and how demand or supply or whatever the case is, is leading those. That brings up another conversation that we haven't had in a while, and that is how do we or are we today in your opinion able to do a decent job of pricing fed cattle from a base standpoint so that we can move these grids up and down and, and, and have a place to establish that base typically and con. And traditionally we've used the quote unquote cash cattle price, Western Kansas, Eastern Nebraska where Texan or wherever the case may be, to base a lot of these grids. Is that still. A good enough trade to establish that for all those other cattle. Is there a better way in your opinion, and, and you know this, this may not be right in your wheelhouse, but I think it is good, especially when prices are as good as they are right now, and as many cattle as are trading cash. To have these discussions because usually when they come out is when everybody's cattle are on a formula and there's less than 20, maybe less than 10 in some regions, percent cattle that are traded in the cash and we don't like the price that they're being traded at. Any thoughts there or do we need to do a better job as an industry? What? What are some things from your standpoint as a trader that may help or hurt that?
Jason:Right. I really appreciate your timing on this subject because it, uh, it always feels like we have to wait for a crisis to happen. Oh, yeah. Yeah. Before we try to solve some problems instead of being proactive. So why not use these record high prices to, to talk a little bit about price discovery.
Matt:Yep.
Jason:You know, a couple of thoughts on that. I mean, the futures market is the most, um, transparent price, discovery, um, vehicle we have it, it trades second by second. Everybody can see it, and it's very widely. Broadcasted on, on where supply and demand is for. For live cattle futures, feeder cattle futures or, or any other market for that matter. And so it's, it's often referred to as the most transparent price discovery mechanism. The challenge you get into is, is it starts to separate itself from the cash market during certain regions. Yeah. And during certain times of the year, and most recently we've seen a, uh, a cash market on the fed cattle side, particularly between like the, the South or Texas and Kansas, and what we call the North and be Colorado, Nebraska, and Iowa. And we've seen, uh, a spread as much as 10,$12 difference per a hundred weight on any given week here recently. And we've gotten a lot of questions. Well, well, how come we're seeing such a big price differential between North and South because the, the freight spreads shouldn't allow that to happen. We should be able to truck those cattle from that distance, for that price spread. Economically, you, you'd think that that wheels or freight would solve for that problem, right. So there's a, there's a couple of, I mean, it's a complex issue like you said, and, and I'm, I'm sure not gonna be able to solve this with, uh, with a new rocket ship or anything like that. But I would tell you that there's a, there's definitely a quality difference between the cattle in both of those regions. I mean, you can see that through the data, but there's also a big difference on how many cattle are negotiated in, in the north versus how many cattle are turned on a formula in the south. And by all means, I fully understand why feed yards, turn cattle on a formula from a scheduling standpoint, from an efficiency, from a pen utilization standpoint, from a collaborative, uh, work with a packer, there's a lot of benefits and frankly, negotiating for cash cattle is very time intensive. Yeah, it is very hard work. And it takes the right personality to sign up for that week in and week out. Yeah. But largely, we'll have more negotiated cattle in the North than we do the south. And so we've got a, we've got a 10,$12 spread between those two markets recently. And partly a lot of that is because the Packers have a smaller inventory to start the week with. Right. And so that's a, that's a big piece of it. So you're seeing some price discovery rewarding going on through the marketplace. There's actually a rewarding of those people who are willing to take on the basis risk, I mean this very strong basis in the north. Yep. And be rewarded for the hard work of price discovery of, of negotiation. So I think the, I think what we wanna do is, is continue to maintain some negotiation in, in how we market our fed cattle. But we also want to bring along with it the value-based marketing of the, of the grid. So in my view, a negotiated grid is still one of the highest and best places to do do some price discovery through our fed cattle.'cause you get the best of both worlds. You get some negotiation, you eliminate the captive supply and then you, still get to bring together the value based carcass merchandising of these high quality cattle.
Matt:Yeah. And that, that's something that my bias, my perspective, my opinion says whatever the answer is to this price discovery, status quo, new mouse trap, whatever the case may be, we can't not use the ability to have some type of value-based marketing in concert with it. Right. Um, and, and, and that's the thing. Sometimes people that are arguing this that we don't have enough price discovery. Say we just gotta get away from the grid. Absolutely not. And maybe it's, maybe it's not the classic old conventional grid that we've used for the last 30 years, but we've gotta have something that rewards the carcasses, the cattle that are making what the consumer wants. You. You mentioned the bid the grid, negotiated grid selling. For folks that maybe haven't seen that done, can you give us a. 1 0 1 fed cattle marketing on what bid, what negotiated grid selling looks like. Sure. So,
Jason:and this is very high level, and, and I'll give you kind of my view on it. Sure, sure. But basically it's a, a, a formula or a grid merchandising of our cattle are rewarded for, for carcass quality. Mm-hmm. But the, the specs of it are negotiated, so you might negotiate a. A certain, uh, discount for choice, uh, or a certain discount for select or the choice. You might, you might negotiate a different, uh, freight agreement. You might negotiate a different discount for fours and fives or an allowance or something like that. Um, and then the base price itself is actually negotiated, right? And typically these cattle aren't, contract to clear out in advance so you have the ability to pass. That's, as a cattle owner, you can say, well, I don't think I wanna take that price. And so you can say no. And so those cattle aren't known to be in the Packer Supply House until the negotiation is completed and they agreed upon. And then typically they're merchandise within seven days. They don't have to be within seven days, seven to 10 days. But they're, they're typically not, uh, negotiated, clear out in front, therefore more of a short term delivery period.
Matt:So it's probably of all those different pieces that are being negotiated. It's probably the negotiation of the base price that is as critical as any of the other premiums and discounts. It might. Absolutely. Absolutely. And do you have any idea today what that percentage breakdown is? Of what we'd call traditional cash cattle. To, I guess all formula and grid cattle. And then within that formula and grid cattle, how many, I mean, I have no idea what, what the negotiated grid type percentage, if it was five or if it was 25% of those cattle.
Jason:Yeah, that's a great question. I do think it's, uh, I have not looked recently, but it is a, uh. One of the growing, growing categories. Okay. It, it's not growing as fast as we would hoped or would like to see it, but I would say it's, it's trending higher.
Matt:And is that done more in the north still or is that something that the Kansas and Texas Yards are using to try and give a little bit more opportunity or to themselves to try to negotiate instead of just. Selling more cash cattle like they would in Iowa or something. Right? I, I would
Jason:say it's done more in the north just because that's where more of the negotiated right cattle trade are, but it's definitely available to anybody north or south for that
Matt:matter. So here's a hard one. You mentioned that it's very labor intensive. It takes a lot of time. I mean, I remember. In my early days coming outta school, a feed yard manager spent, I don't know, I'm gonna say a third of his time. Mm-hmm. Maybe half of his time. Sure. Selling cattle and as we saw value-based marketing come into practice, I don't think that was the intent. I think the intent was, was very noble and that was let's reward the good cattle and let's give financial incentives for people to produce'em. But a byproduct of that was these feed yard managers found out that every Friday they didn't have to be sitting there hammering on the packer. They could be, you know, doing some strategic planning. They could be working with employees, they could be, you know. Going to a meeting, they'd be going golfing, whatever, whatever the case may be. And, and I think that at least in the region that you're talking about, with a few exceptions, the art of marketing fed cattle is almost a lost one. I can we relearn that if that truly is the best way we can go forward. Can they ride around in the truck with somebody at an Iowa yard and, and learn it again Or is that gone and, and. Never to be brought back.
Jason:That is a very good question and a great concern of ours. We, we talk about that a lot. Who is gonna be the next generation right of negotiators in this industry? Like how do you, how do you learn that? How do you get brought up into that space? That's a, that's a very valid concern and I, I wish I had an answer to that, but I, I don't know, uh, how we're going to develop that next generation, but I definitely think that's something that needs done and, and we need to think about and invest in now again, at these high levels, at these high prices and not try to fix it in the valley of the cattle cycle. We don't need to wait till nobody can sell any cattle to solve that problem.
Matt:Yeah. The, the last couple of months, maybe not the last couple of weeks, but the last couple of months would've been a fun time to learn, quote unquote, how to do that because it probably looks. Like, I, I don't wanna say it was easy, but, uh, yeah, you just be patient and, and you're gonna make more money. That's not always been the way it was. And, and, you know, I. Again, I didn't spend any time in, in a commercial feed yard growing up. My great uncle had fed some cattle out in Dodge City and, and, um, so I heard stories and you go to meetings and you hear some things and, but my first brush, and I've probably told this story for podcast listeners, I my kids say, I tell the same stories over and over and over. So I probably told this one 15 times, but my first brush with live cattle market. Was with a guy that knew what he was doing. Mm-hmm. And I mean, he was good at it. I won't say who it was, but it was in Texas Panhandle and sizable corporate feed yard. And I didn't know beans about feeding cattle in Texas and I was working down there for the Angus Association and I was trying to get these guys to start thinking about buying some black hide Angus cattle in an area where they never paid premiums for Angus side cattle. So it was, I was going down there as an Angus rep, but I also personally wanted to learn more about the feeding industry and cold called this guy's office and secretary put me in touch with him. I told him what I was up to. I wanted to just visit with him for an hour or so if he had it, and he said, yeah, come Friday afternoon. We're not gonna trade any cattle this week, so I'll have, I'll have some time. This was like on a Wednesday afternoon or Thursday and um, so we're bouncing around. I mean, this guy's in the greatest mood around and he's showing me all these cattle and I'm asking him questions and he's just as jovial as could be and as big mobile phone back when we had the great big three watt phones and pickup rings and he said, you gotta be kidding me. And he goes to cussing, I can't believe it. And he. Hangs it up and makes about three calls and sold, I don't know how many thousands of cattle at, and of course, we're in a 60 cent market. It was a huge discount to what everybody said they were gonna do that week and hold out. And one guy sold one pen 30 miles down the road and tens of thousands traded just like that. Um, because somebody got weak need. and, and man, he, his, his attitude changed. He couldn't get me outta that truck fast enough'cause he was so mad that they'd had to do it, but he felt like he had to do it or he wasn't gonna get cattle sold for two, three weeks. And so when I hear people harken back to, we need to get back to trading cattle like we used to, when, you know, when we could make some money when we were trading cattle and hammering on this packer, I, I remember that day in 1997 and go. It didn't look very profitable to me when we were having to do it that way.'cause and or transparent, I mean, you talk about, I don't see how that could be considered price discovery because one group of junk cattle sold 30 miles down the road and everybody felt like, well. They had to sell or they may not get'em traded in the next couple weeks. And so it wasn't perfect either. Hindsight always is 2020. But, uh, yeah, it's, I I think we can do better. And that's, that's an area that Texas, panhandle and Kansas, um, that yeah, when you look at the data, it's, that's where we probably are barely trading enough, in my opinion or in a lot of folks' opinion to establish that market. Now, if we can find some comparison and maybe. Do you remember, what was it? Steven Coons, was that the guy at Colorado State? Mm-hmm. That said we need to, we need to pay feed yards for the public good. We need to pay feed yards who are still willing to trade cattle. And the first time I heard that, I thought that's the dumbest idea in the world. I thought, you know. It may make some sense. Uh, but yeah, that was one of the many ideas thrown, thrown about
Jason:we Yeah. When you consider the time and, and expertise. Yeah. Yeah. That's involved there. It's, it's, uh, not cheap by any means. Yeah. But the, the thing that's different too, think about the, since 1997, how much information flow and how the speed at which information flow has changed into today's world. And, and I think that that has to weigh into our price discovery mechanism is'cause cattle are, get more, uh. Value differentiated or, or more, uh, identified. Uh, that information flow that travels with the cattle, I think is really what helps this price discovery process as we move away from just commodity marketing into these different areas of value based price discovery.
Matt:I think I know your answer to this'cause I've asked it of a lot of people, but is talking about that in that information flow. If technology is able today, and I think it is through barcode scanning and everything else to link a pound of beef at retail or all of the seven or 800 pounds of carcass that end up going through, can we back up from what the cash register says that consumers are paying for beef to a live price and what risks are there in terms of volatility and everything else in trying to do that?
Jason:Yeah, that's a, that's a way more complex question than it sounds like on the surface, because you've got a number of profit centers in between those two points. Yeah. From live cattle to consumer and, and who's to say at what profit margin each of those profit centers should be allowed to run at. And so I, I think as you start to break that down and think about, uh, the details in that, it, it becomes a little bit more challenging to understand. Because the job of any market is, is to clear supply and demand. It's to balance supply and demand. And so as we think about these high prices that we're experiencing now in the cattle business, its job is, twofold, attract more supply...we need to encourage more beef production, or we need to destroy some demand. We have too much demand for the supply that we have, so we need to limit some of our demand that we have for beef and attract some additional supply. And if it does that well enough, long enough. We'll fix these high prices. Yeah. And the same things can be said for low prices.
Matt:Yeah. And it's just, we talk about it more when we are taking that price that's less than, I mean, I, I the talk about a retail price index that prices fed cattle or usually it's, it's: we want to get more of our share, quote unquote, of the retail dollar. But that always happens when live cattle and calves are low. Mm-hmm. And retail beef prices are a little bit higher. You know, you talk about market leverage and where that demand is trying to ration its supply... Right now it is square in the cow calf segment. Right. And I haven't heard us being accused of price gouging yet, but if, if it was the retailer, like what we were, when the retailer was making as much money, or the packer was making as much money per head, it would probably be fair if they didn't understand markets, i. For them to say those cow calf guys are price gouging, they're charging me or feed yards, are charging us way too much for these calves. In fact, I had a feed yard just this week. I sent information to a, to a, a sizable yard about groups, cattle of customers of ours that are selling superior next week, and, and he said, sorry, I'm out. I'm not buying any cattle. I don't care how good they are. I'm not buying cattle right now. So I guess he kind of is accusing that calf market of price gouging, but it's a market that they say I can't make it pencil. And it won't take long for very many people to say that before all of a sudden prices, you know, get back to where their equilibrium are and they ration that supply and demand accordingly. Right.
Jason:I never hear a lot of talk about the retail price demand in periods where packers are losing$200 a head, 150,$200 a head. What happens in, in that mix? I mean, that makes that, uh, whole model a whole lot more challenging. Yeah. Because of that, those, those profit centers that are involved in, in our distribution of our product.
Matt:Yep. So in the beef industry, we're pretty independent minded, all segments, but probably especially the cow guys. One of the things that we are fearful of is becoming vertically integrated and going the way that the hogs and the chickens and everything else are. But the irony of it is without these big volatility and these, you know, big changes in leverage and things like that, I mean. The opposite of the ad is a fully integrated, contracted one price, you know, maybe contracted for a year in advance. And it would take some of those hills and peaks and valleys and, and, margins in between each segment of the industry. But, uh, yeah, the, the alternative is not one that I think that very many beef industry folks want to, uh, want to embrace. Yeah, that's right. Yeah. That, and that's. I guess we wouldn't have anything to talk about. We'd just be talking about the weather at the coffee shop if we couldn't talk about these crazy markets. So, it is, I think, easier to talk about now and figuring out ways if we do need to improve or subtly change or whatever else. Because as a friend of mine says emotions have a. IQ of zero. And so when we can talk about something like price discovery, when times are good, I think we come to a more rational approach. And again, maybe that is, Hey, if it ain't broke, don't fix it. But when we're getting our head handed to us, we'll be looking again at that, uh, better mousetrap.
Jason:Yeah. I had a friend of mine, uh, a cattleman, said The worst time to develop a a drought. A disaster plan is in the middle of a drought for sure. And so I think these are some very critical times, some important times for us to look at our industry and say, where, what are some things that we can prevent? What are some things that we could do today while we have some margin to make this next downturn be less painful?
Matt:Yeah. Yeah. And that's, that's just it. And, and sometimes some of those answers may require a pretty significant shift in how we manage or scale or size or whatever the case may be. I mean, I think, and I guess you could probably shed some light on this from the clients with whom you work, but I think we're seeing a huge consolidation in the commercial cow calf segment right before our eyes and don't even realize it. I think a lot of folks are moving out. Had been now this year, last 16, 18 months, maybe not, but the last five years because of drought, because of prices, because of labor, or not having a next generation come back or whatever the case may be, are moving outta cows and maybe in stocker cattle yearlings or out altogether and selling that ranch to another cow calf operation or even moving it into farming or real estate development, or whatever the case may be. And, and I, I think that's a dynamic that none of us realize is just how much, how powerful that's going to be is. We see probably that middle area and that's, that bothers me a lot. Mm. And there are a lot of folks that are working on that, but, but those folks that historically have run 150 to 350 commercial cows that I would say are the bread and butter of a lot of folks. Seed stock producers, livestock market, feed store on Main Street, all these things'cause they're not necessarily big enough to contract, you know, 50,000 pound loads of whatever feed, animal health products, whatever the case may be. And yet they're not the small hobbyists that's running 25 cows in a job in town. I think both extremes are gonna stay, but it's that middle one. And I, I don't know. Um, I think things like LRP, I think there's a lot of things that have, can help alleviate that, but, um, that's a shift that I see coming and I don't know your thoughts on that or if, if you've seen the same or not.
Jason:Yeah, I, I agree. The, uh. The sad part is we can't do a lot about the weather or the, uh, the labor situation. But the reason our company exists is to create financial stability mm-hmm. For families namely that segment that you're talking about right there. Right. Cattle owning families in North America so that their legacies can be passed from one generation to the next and without some sort of price risk management tool that creates financial stability, that, that chore gets a whole lot harder. So, uh, the good Lord Aboves, uh, the one that takes care of the rain. Mm-hmm. And, uh, to, to a extent, a lot of the other challenges we have, the labor challenges, the generational challenges, those are all still, still be there. But if we could help create some financial stability, I think those next generations would take a little closer look at this opportunity that lies before them and says, wow, this, this really could be a great way to raise our family. Because at the end of the day. These, that segment is some of the, the best people in our industry, some of the best families, some of the best high school basketball teams. Some of the best communities are made up of these people. And those are the people that we're trying to create financial stability for.'cause they're such amazing people.
Matt:Yeah. And it, I think that's mostly who is listening to this. And I think everybody would nod their heads in agreement. It's, it's the people that are in these aisles at, at. Junior show or the county fair, or like you said, ball game or everything else. And so, yeah, I think we have to do everything we can to make sure that we give them the opportunity, and then I think the we, those same people need to do everything they can and we can to take that opportunity. So one thing, totally different than what we've been talking about in terms of prices and, and, um, risk management. You're in an area, Fort Collins, Colorado. Mm-hmm. That has changed quite a little bit, uh, since you have been there. What does development and urban sprawl and, and everything that's associated with that? Cultural shifts, political shifts. What has that done because you're kind of a bellwether of, I think, the rest of the nation in that corridor from Denver North, what does, how has that changed life in production ag and what can we do? What can learn maybe from what you all have seen the last few decades, um, to make sure that we do still have these communities and these people to work the ground and, and what do we need to do there?
Jason:there are a variety of ways to, uh, solve for that, so to speak. Okay. Uh, I could just tell you a little bit about our family's path and the path that we've gone down and Sure. And how we've cho chosen to solve for that. A couple fold. Uh, the, a number of years ago we entered into some, uh, conservation easements that helped maintain some of the, um. The ground and our family's name. And so we've been able to, so to speak, retire the development rights from the ground, but still maintain the agriculture value of the ground so we can keep it in production agriculture. Right? That's one methodology that we've used. Some people like'em, some people don't. There's, uh, plenty of controversy around conservation easements and, and their use. Um, but that is one tool that our family has, has utilized. Another thing that comes to mind is, more recently our family has. utilized the population to our benefit. Mm-hmm. We've, uh, our family is, since we had young boys and, and young gals too, raising up in our family, we started a hay company and we put up small bales of hay and used a bale barren that put'em into bundles. And then we started selling horse hay to the horse community along the front range. And so that was a way that we could utilize the population to our advantage and, and leverage it, so to speak. And more recently, uh, along the IGAs, breed and and association. We become certified to sell certified Angus beef through the program through CAB. And so we're one of the few people that can, from pasture to plate, can sell certified Angus beef. And so we've, we've started selling beef quarters wholes and halves to consumers along, along the front range, through, uh, through hilltop hay and livestock. So that's been a, a, a way that we've been able to. Utilize a, uh, this growing population to our benefit rather than to our detriment. So, times always seem to change and, and we just try to find ways to change with them and, and leverage what we can. For our, for our, our family's wellbeing.
Matt:Yeah. And that's, that's something that it's easy for us to sit back here and say, well, we've just gotta keep these urban and suburbanites out of our business and we gotta keep'em out of our county and we've gotta keep them from driving up our land prices. And again, it's kind like the weather in the markets. It's, I guess it's a lot easier to gripe, but you've kind of staked your claim, whether it be on using futures and options for risk management or. Selling hay. That's probably way overpriced for any cow guy. Don't feed that. The cows. Yeah. Um, or selling beef or whatever the case may be. You've seen an opportunity right there in your backyard. And I would guess that when you have taken that initiative, taking that risk, put yourself out there, front and center to those people I would guess that not only have you improved, hopefully your family's livelihood and. Marketability and demand for your products and the things that you raise, but I would guess you've also made a believer out of those people that you worked with, those consumers that may have been the first ones on Pearl Street in Boulder to be protesting against, you know, beef production. But when they meet you and when they get to sit down and talk with you and see why it is that you act and do and think like you do, it's. It's usually pretty beneficial. And I think anytime we get that opportunity, whether we're doing business with them or just talking with them at the local rotary club or the school festival or whatever else, it's, it's beneficial.
Jason:It is. I, I'm incredibly blessed to have a, a great wife that helps in that area and four great kids that, that take a lead role in that. And, and I just really been blessed to, uh, have the, the opportunity to be a part of a multiple generation operation. And our hope and our dream is that we can do a couple things: we can pass on the love of agriculture to our kids and, uh, support them in what they're doing. And you're exactly right. When, when we have an opportunity, either myself or my wife or kids to interact with the, the people that understand how and why production happens the way it does. It really makes a lot of sense to'em and they really value it. And we, we don't even have to sell'em on it. We just have to educate'em. Yeah. There's, there's really nothing to sell. Yeah. It's just teach.
Matt:Yeah. And, and when you do that, it, it helps us all. I mean, it honestly does. I, I think any time that any of us can put a face and a contact and a personal experience to a product or to a program, or to whatever the case may be, a political issue, it's easier to believe that we can. Get along with that person or that industry or, or whomever it is. And, and, um, I think it's the same way. I mean, I, I was prior to getting to go on a tour with with a group through the Chicago Mercantile Exchange, I was one of these guys that sat in the Flint Hills of Kansas and went, ah, those guys. They're, they're just having fun with somebody else's money that, that doesn't benefit me. And once you go through that and see how it is and why it is, and how complex it is, and yes, it can be ugly and yes, it, it's different than anything I had ever seen in terms of actually trading a product or a service or whatever the case may be. But when you, you hear those folks talk, you realize, okay. Yeah, it seems like it's outta my control, but there is an opportunity to use this for good, and I think the same way. I mean, we as a farming and ranching production segment, we are as foreign or more foreign to that suburban housewife that's going to the grocery store as what some floor trader or broker or whatever else in Chicago is to us, and they don't they don't hate us because of what we do. They just have some questions and distrust'cause they've never seen it happen. And, and I think that we need, that's a double-edged sword I think here in agriculture. We, we, we gripe when somebody doesn't trust us, but then we're pretty distrustful of folks that we don't know either. And so anytime we can make that relationship and that bond, I think it's, it's healthy for all of us.
So what else? Anything we've missed?
Jason:Well, I think it's just a fitting today just to, to talk about, I mean, 4th of July, the freedoms of this country and what an amazing country we live in. Sure it's not perfect, but, uh. Man, I, it would be a disservice for us not to recognize the, the people that have gone before us. Yeah. And, uh, all that we're, due them. I mean, uh, our values and our family are faith, freedom, family, and then agriculture. And that's, that's really the, uh, the why behind much of what we do. So,
Matt:yeah. Yeah. What a, what a perfect day to be having that discussion and all of these things, I mean, we're, if it weren't for those founding fathers in 1776, we wouldn't be doing any of the stuff that we're talking about doing today. And, and yeah, what a fitting tribute to them. And, and I applaud you and Cheri and all your kids and family, um, the great things that you do for ag. So appreciate you being here. And, um, I'll, I'll have some information for everybody listening, if they wanna reach out and. Either visit further or you know, talk about any other services that you all provide there at Compass. We'll have that info in the notes too. So thanks a bunch for being here, Jason. No, thanks again for having me, Matt. It's been very enjoyable. Thank you. You bet.
Thanks for tuning in to Practically Ranching, brought to you by Dalebanks Angus. If you like this show, share it with someone else. Give us a five star review and a comment so we can keep cranking'em out. We'll be offering a nice set of fall calving registered Dalebanks bred cows at private treaty this summer. So call, text or email me for information on these cows. Have a great summer. Be sure to get our annual bull sale on your calendar. November 22nd, 2025. God bless you all, and we'll talk again soon.
