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Protection: USDA-backed insurance locks in feeder margins

HAVANA, N.D. -- Boyd and Teresa Brummond don't lose as much sleep over market swings as they once did. Even on April 1, the day after the March 31 planting intentions report, the Brummonds were thinking about calving details instead of implicatio...

HAVANA, N.D. -- Boyd and Teresa Brummond don't lose as much sleep over market swings as they once did.

Even on April 1, the day after the March 31 planting intentions report, the Brummonds were thinking about calving details instead of implications of corn prices on what they might get for feeder cattle.

While both livestock and grain offer some offsetting "hedge," they've also looked for more protection. In the past few years they've taken advantage of a relatively new insurance policy called the Livestock Revenue Protection or LRP.

The Brummonds' 160-cow beef operation is in Sargent County -- right on the state line, about 20 miles northeast of Britton, S.D.

On Sept. 6, 2007, for example, they used the LRP to buy a January feeder contract price at $1.16 per hundredweight. The per-animal premium ensured they'd receive a price of no less than that as of Jan. 31.

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Brummond says they found out about the policy four years ago from Mike Schaefer, a loan officer with Ag Country Farm Credit Services in Lisbon, N.D.

"I'd looked at the possibility of getting into 'options,' but he told me about this," Brummond says. "Basically, you figure out how many calves you're going to have on such and such a weight and on such and such a date. You pay a premium, and you're protected."

Teresa says this kind of revenue insurance suits her. "We're not into high-risk," Teresa says. "We're into having this as our life's career. This is a good, safe way to have a good safe price when you're selling your calves. This is the easiest and safest way."

A heritage to protect

As much as anyone in North Dakota, the Brummonds have a long view.

The family has lived in Sargent County since 1882. Boyd's great-grandfather was a legislator in the then-Dakota Territory.

Boyd was born in 1962. He was youngest of three children in the John "Jack" and Bev Brummond family. The Brummonds farmed the "flats," just below the picturesque "Sisseton Hills" where he lives today.

All three Brummonds have made their homes in North Dakota and all in different phases of agriculture. Kim Brummond is a veterinarian and owns West Dakota Veterinary Clinic in Dickinson, N.D. Brad Brummond, is a North Dakota State University Extension Service agent in Walsh County and a regionally known authority on organic and sustainable agriculture.

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Jack, who had taught vocational agriculture before coming back to farm, insisted his kids all go on to college -- even if they wanted to come back home.

After Sargent Central High School, Boyd went on to NDSU for his degree in vocational agriculture. After graduating in 1984, he started his career with the South Dakota State University Cooperative Extension Service at Chamberlain, S.D., but he soon returned to North Dakota to take extension posts -- first in Dickinson and then in McClusky.

In McClusky, north of Bismarck, he met Teresa, a Minot State University graduate. A social worker, Teresa was the eighth of nine children on a farm in nearby Turtle Lake, N.D. She was hoping to meet and marry a farmer.

"It's not the easiest thing in the world, but it's a good life," she says.

Back at the home place, Jack Brummond announced in 1990 that he wanted to retire -- if someone wanted to come back to the farm.

Boyd and Teresa were married May 19, 1990, and packed up the next day to head back to Havana.

"No honeymoon or anything; we went right to work," Boyd says. "I kind of regret that."

Life in the flats

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At first, Boyd and Teresa lived in town and worked on the "flats" on the farm where Jack and Bev continued to live. Eventually, the two couples switched positions.

In those days, the Brummond family had about 85 beef cows and ran about 2,000 acres of farmland in the heavy soil, out on the flats.

"It's medium to moderately fine," Boyd says, of the flats. "You go 10 to 15 miles west, and you know it all blows away. They do irrigate out there, but we'd have a salt issue if we'd do that."

These bottomlands have problems with overland flooding, as water comes out of the Coteau hills. "You can't get it through the creeks and streams fast enough," he says.

The year the Brummonds came home, a two-year drought broke. Except for 1993 and a "scab" infestation in wheat, the crops were good. The family grew, too. Turner was born in 1992, Hannah in 1994 and Jon Carl in 1996.

Also in 1996, the Brummonds had an opportunity to purchase a farm-ranch from a now-retired neighbor. The place came with a house that they've since been remodeling.

On this site, generally overlooking the home place, a mile and half away, the terrain is entirely different than what he'd grown up.

"There's lots of ranching here," Brummond says. "There's not a lot of ground you can't drive a tractor on -- ravines, hills and coulees. It's pretty rough."

The new farmstead has two dams totaling 25-acres built by the government in the 1960s for flood control. Culverts carry water from the dam into Sprague Lake and into the larger Tewaukon National Wildlife Refuge.

An ideal cattle set-up

Boyd and Teresa went to work and built a corral system with a half-mile of continuous fence, and manhandled about 300 railroad ties for fence posts.

"We doubled the size of our cattle herd," he says, noting that about half of the six-quarter addition was grassland.

The Brummonds raise calves to about 900 pounds. They usually sell steers in early January, but the heifers will be 800- range. Boyd says he's "aggressive" on bull selection and then tries to save back heifers to improve the herd. They bought 20 bred heifers this year, which was unusual.

Their commercial cattle operation is based on Simmental and Angus genetics. They own four Simmental bulls and three Angus bulls, as well as two composite bulls from the two breeds.

"We've been culling so hard, trying to get the herd where I'd like it to be," Boyd says. "I'm trying to get rid of my 'average' cows," he says, referring to the ones that are more work or produce calves that don't gain weight as well.

The Brummonds use electronic identification with all of their animals, using an Electronic Identification Device "button" in the ear and reading them with a wand. They have a Gallagher scale, and the wand puts weight and animal number data into a laptop that goes onto a cow herd management disk. They analyze their cost of production using CHAPS (Cow Herd Appraisal Program).

But all of the technology doesn't work if you don't make money.

The big market hiccup

In 2005, the Brummonds started seeing more market volatility than they were comfortable with.

The Brummonds had been using Ag Country programs for protecting crop revenue -- protection from shifts in fertilizer, chemical and fuel prices. Now, Schaefer described the LRP as a similar program for livestock.

"Once we saw there was a possibility we could be without protection, and the cash prices could just go to heck-in-a-hand basket kind of deal, I figured we needed to get into the options or something like what Mike was explaining," Brummond says.

Options would have required larger volumes of cattle than what the Brummonds wanted to market. With this program, the program can insure smaller lots.

This is the third year the Brummonds have been in the LRP.

They tried the program in 2005 for January 2006 marketings. That year, they paid $600 in premiums to cover 45 animals but the market actually went up a dollar, so there was no indemnity payment.

In 2006, they decided to go without the LRP. "It hadn't really paid us anything the previous year," he says. "We wondered if we'd stuck money down a gopher hole."

Then in December 2006, the price of feeders plummeted $20 per hundredweight, because of a "mad cow" incidence. The market recovered some by late January, but the Brummonds still were hurt.

"I think we lost $15,000 to $20,000 because of that," Brad says.

In 2007, they decided to try the LRP again. On Sept. 6, 2007, they made their price selection, based on a January feeders contract. Their policy specified a $116 per hundredweight. futures price on the steers, which they expected would back off by $5 or $10 at the local sale barn level.

They paid a $3.35 per hundredweight premium for 50 steers, and $2.93 per hundredweight for 40 heifers -- an average of $24.50 per animal -- to "insure" them. The steers were insured -- the steers at $1.16 per hundredweight and the heifers at $1.04 per hundredweight.

"You're taking a lot of the risk out of the market," Brummond says. "The thing you have to realize is that you don't get into this to make money -- it's to protect the money you're going to make in the future. It's not to get rich, it's for protection."

"We did scratch their heads on this one for a little bit, but we thought we had to do something pretty quick to get in on a favorable price," Brummond says. It wasn't an easy decision though, noting that calf prices were getting $1.25 to $1.45 per pound for calves coming off in the fall.

One of the stipulations of the policy is that the cattle can't be sold prior to the month of the contract.

In 2008, they'll probably use the LRP again.

"We'll use it if we feel that calf prices are where we want them," Brummond says. "My experience with it, is that the biggest thing you get out of it is peace of mind. No matter what the market does, I'm going to get a price."

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