McCarty Dairy Opens Up About Their Big-Ticket Concerns
May 12, 2022
Daily conversations about how to best care for their cattle and land is ongoing for McCarty Family Farms, LLC, but with inflation increases, their biggest conversation in 2022 has been centered around finding a balance and avoiding any catastrophic mistakes.
“For example, I can handle $3.50 diesel, but I can’t get stuck with $6 diesel,” Ken McCarty, one of the family owners, says. “We talk about this all the time, our farming business can stay productive by hitting singles and doubles, we don’t need to hit it out of the park—we just need to get on base and lock in a price we can handle before we get stuck with something we can’t.”
This philosophy is easier said than done. The McCarty’s flagship farm is located near Rexford, Kan., next to their condensing plant. They also have a farm in Bird City, Kan., Scott City, Kan., Beaver City, Neb., and a partnership farm with the VanTilburg family, MVP Dairy, in Celina, Ohio.
Budgeting for the Future
A general rule of thumb for McCarty Family Farms is to attempt to secure pricing as far out as possible.
“In our particular model we're really trying to create predictability a year in advance,” McCarty says.
For example, the McCarty’s have both gasoline and diesel fuel booked for nearly two years in advance, and natural gas secured for the next four and half years. McCarty says they take a more balanced approach with budgeting for feed.
“We're trying to do some technical hedges,” he says. “We grow some of our own forages, too. And then we are also trying to create longer-term relationships and long-term contracts with guys where we're going out and agreeing on a price three years in advance or sign a three-year contract with a feed producer.”
McCarty shares that the farm is in expansion mode. Building prices are high, but he questions if they don’t build now, when should they?
“It’s getting pretty scary,” he says “Aluminum is up 30% and stainless steel is up 300% from two years ago. It's just a little bit ridiculous right now.”
Uncertainty has them questioning if it will be any different a year or two from now, so they are moving forward with building.
“We feel better just dealing with the blows right now and push forward,” McCarty says.
Putting their focus on what they can control, McCarty says like most producers, they work with their nutritionist to improve feed efficiency and hone in on production so their cows can be as productive as possible.
Another thing that is scary for McCarty is the lack of availability of goods and services.
“As the labor markets tightened, getting service is harder,” he says. “We are six months overdue on some stuff, just because the availability of technicians is not there.”
Another goal for McCarty Family Farms is to have three-five-year contracts secured and in place. This especially holds true with corn silage and with grain corn growers. He says that alfalfa pricing doesn’t ever seem to change.
“We typically go out and buy our alfalfa somewhere around $1 to $1.15 per point of RFP,” McCarty shares. “Those growers always have the ability to earn more by growing better quality hay, so the relationship we have with them is pretty stable.”
Inventory conversations have changed over the years and this year McCarty says they whittled down and plan to build back up when prices are a little more favorable.
“That's really never been the strategy for us,” he shares. “We try to be pretty consistent about volumes that we buy. It's better for our growers. But beyond that, you know, it's the fear of the unknown.”
Ideally, they like to have a six-month carryover for corn silage inventories, but McCarty notes that it’s closer to a four-month carryover. And, with grain corn, they typically don’t carry as much carryover inventory.
At their main dairy, they produce about 80-85% of their corn silage needs, but McCarty says they still must purchase a fair amount. All the other dairies have different set-ups, with different purchased forage need amounts.
With growth on their mind, the McCarty’s plans as of now is to increase their processing capacity in the milk processing plant and build a 10,000-cow dairy in western Kansas.
“We will probably start out at 8,500 head,” McCarty shares. “And we will consolidate some of the cows back into that and reconfigure some of the existing farms to be of different use. Where do we go from there? Your guess is as good as mine.”
With their relationship with Danone, McCarty says they are secure with the risk management scenario on the milk side of things
“So that piece of the stress of risk management is alleviated to some extent,” he says.
They are also working with risk management in energy, as they are working with their fuel providers and natural gas to secure contracts for years in advance.
McCarty shares that from a feed perspective, it’s a balanced equation.
“We are not doing any sort of paper hedging, we don't speculate on anything that we grow,” he says. “But we are taking some positions on other products on corn grain, for example, and on our protein sources.”
Their goal regarding feed price is more about predictability.
“It isn’t about being the cheapest guy in the room,” he says. “However, it’s absolutely crucial that we avoid surprises.”
The last few years during the COVID-19 pandemic has created a boatload of stressors around labor. McCarty says that keeping people healthy was the primary focus, but managing through this was a major ordeal.
“Trying to manage a litany of different federal, state and local guidelines. We have farms in three different states. So, we're trying to manage three different state guidelines and five different county health ordinances,” he says. “We give our HR team all the credit in the world.”
All of this created challenges, but McCarty says it also pushed a lot of conversation toward adopting technology.
“We really need to focus on adopting smart technology that also drives the appropriate amount of value and has the appropriate support structure behind it,” McCarty says. “In particular to western Kansas, we're pretty desolate out here, and having access to the right types of support teams to make sure that the technology adopted is functional and effective every day is a really big part of that thought process. And it's slowed the pace of adoption for us a little bit because that's a real issue in our part of the country out here.”
McCarty shares that they have actively pushed into technologies that can ease some of the pressures they’re feeling on finding labor. The focus is to increase retention rates, but they understand that the inflation equation comes into this conversation as well.
“We budget for raises, but when the reality is that standard cost of living increases didn't keep pace with inflation,” he says. “When Walmart agrees to pay starting truck drivers $100,000 a year, we’ve got to figure out how to be competitive.”
The labor challenge isn’t only felt at the farm level. McCarty says that the pain is felt with freight drivers and accessing service technicians to work on equipment or tools on the farm, and more.
“Laborers are nipping at our heels on every front of the business, and we are trying to adopt technology that can alleviate some of that pressure first,” he says. “The easiest place to focus obviously is in the parlors.”
McCarty says that every challenge that comes up generates more conversation. This forces the farm to have different conversations than they have had before.
“But then beyond that, it goes back to how do we just continue to drive value out of our business and create cost efficiencies,” he says.
With only 24 hours in each day, McCarty says they are also looking at ways to generate different revenue streams with beef on dairy and nutrient recovery systems or to simply sharpen nutrient management plans.
“We try to cover all our basis,” McCarty says.