Hello, I'm Ken Kelly, a regional farmer and agribusiness agent with the Alabama Cooperative Extension System. This video will cover strategies two and three for reducing cost of production in your cattle operation. The second cost of production, reduction strategy we want to talk about is reducing or minimizing mid or long term debt. Long term debt would be land and buildings. Producers should be aware that many times, farming and ranching will not provide the means necessary to pay for the purchase of land and pay for cash expenses. This applies to producers of all sizes. While there are years when there is enough profit to make land payments and pay your current bills, other times other sources of cash will be needed to cash flow your operation. Buildings are another example of long term debt that might make it difficult to cash flow for some producers. Buildings and other long term investments should be carefully evaluated. There are times when they will pay for themselves, hay barns for example, and times when they will be difficult to justify such as an office building for a small producer. Producers should also be aware that there is an economy of scale involved with cattle production and any other business for that matter. As a business gets larger, certain equipment and practices may become profitable that are not profitable for smaller operations. This doesn't mean that smaller operations are less sustainable or desirable. However, it does mean that operations of different sizes will have a different tolerance for certain types of debt. A good example of that would be the purchase of equipment. It's very difficult to justify the purchase of some equipment for small and mid-sized producers. Tractors, hay balers, hay rakes, other farm equipment can be very expensive. This type of equipment often has to be put on an extended note of some type and will therefore affect profitability and cash flow for several years. Producers should carefully evaluate purchases that would constitute mid- or long-range debt items and consider how they will affect their ability to grow their equity. Many producers may find it is more economically feasible to rent land and use custom hired machinery as opposed to purchasing these items. The third cost of production and reduction strategy we want to discuss is reducing feeding costs. Feeding costs are typically the most expensive component of a cattle operation. The easiest way for most Alabama producers to reduce their feeding costs is to reduce the amount of harvested or purchased feed that they use in their operation. Hay is a component of many Alabama livestock feeding scenarios, but it's often an overused and relatively expensive feed source. If producers bill their own hay, they have to take into consideration all the cost involved in the making of that hay. For example, most producers only want to think about the fertilizers they apply to the hay, but they also need to consider the value of the land they are using for a hay field, the cost of replacing the fertility removed with each cut of hay, the cost of the tractor and the implements, the fuel, the equipment to haul the hay, and their time in bailing the hay as well as any other labor costs. Most producers will find if they calculate all the cost, hay is expensive to produce. Likewise, good quality hay can be expensive to purchase. However, many producers will find that they will keep good records of their hay production and analyze all the costs associated with the process. It may indeed be less expensive to buy hay than to produce it. It's also important to remember that we can have a significant loss of both hay quantity and quality when storing round bells of hay outside of a barn, which is common practice in Alabama. The publication Southern Forges by Don Ball shows that hay losses can vary from roughly 3% to 66% for hay that is stored outside on the ground. That means that many Alabama producers not only have more invested in their hay than they realize, they also have to feed nearly twice as much as they would if they would use some type of ground and air protection for their hay. Hay isn't the only consideration when thinking about reducing feed costs. Complete feeds can be costly to feed and certain cheaper feeds may obtain at least part of their protein sources from your rear or non-protein nitrogen. The problem is that while many of these feeds may be cheaper than feeds that contain natural sources of protein, they won't actually deliver the protein or energy that a producer needs or expects. There's a Texas A&M publication called Factors and Feeds for Supplement and Beef Cows by Hammett and Gill that sums up the use of these non-protein nitrogens in two statements they made. Number one, these products are not intended to directly supply much supplemental protein or energy. Number two, they generally will not support high performance. So if hay and perch is feed or expensive and maybe not as productive as we need, what is the best answer for reducing their use and increase in profitability? The simple answer is to improve the quality and duration of grazing. There are many things that you can do to positively increase your grazing, including planting winter annuals, planting legumes, using control grazing techniques and using rotational grazing techniques. Just remember a bargain is not always a bargain and cheap hay and feeds are often expensive to feed. It's also a good idea to have your hay tested so that you aren't guessing the nutrient content and guessing at the supplements you need to feed. Let's go on to part three of this series for strategies four through six.