“Sometimes, progress simply isn’t possible without change,” says Ken Lewis, general manager of Lewis Farms in Spruce Grove, just west of Edmonton, Alta.
Which means that ignoring opportunities to change, or actively resisting change when it arrives can actually be the paths of greatest risk.
Because change will happen. In fact, like other farmers, Lewis has seen continuous change during his over 40 years in the business, including volatile markets, BSE, new consumers, new industry players and, of course, the weather, and he has tried to be smart about meeting those changes and opening the farm up to them.
But of course, that doesn’t mean luck has nothing to do with it. Lewis in fact thinks it has been part of his story, either because his timing seemed somehow to be just right, or because he happened to be the right person with the right experience at the right place and time.
But, too, he’s the first to agree that luck isn’t what you want to hang your business on, because luck can and will run out.
In Lewis’s opinion, the keys for succeeding through adverse conditions include attention to risk management and diversification, plus determination and a keen passion for what you do.
For 85 years, Lewis Farms has embraced change, managed challenges and somehow turned them into opportunities. Today the farm has a purebred Simmental and Angus cow herd of 900 and two co-operator herds with Lenard Mark and Kyle Martin, consisting of mother cows contributing to their bull program. They also grow about 400 acres of seed potatoes and 5,000 acres of wheat, canola, barley, and silage (corn and barley). Their 3,000 to 4,000 acres of hay and pasture are on a combination of deeded and rented land.
In the beginning, the Lewis Farms risk management and diversification strategy was more influenced by natural evolution or need, rather than a formal plan. Lewis’s grandparents grew just over 400 acres of seed potatoes, half of which were under contract with Frito Lay. Cattle didn’t become part of their operation until the 1950s, as a way to use the cull potatoes and to feed the other crops in their rotation. (Potatoes require a wide crop rotation, so other crops like barley and wheat are grown.)
“The cattle were an evolution of the crop business,” says Lewis. “What drove the diversification of our business further from there was a keen interest specifically in purebred cattle.”
From potatoes to grain to their globally recognized and respected cattle business, for Lewis, diversification is a layered effect strategy, with each enterprise building and enhancing the others.
This risk management and growth strategy didn’t end with the simple diversification from crops to cattle. In the late ’70s and early ’80s, Lewis Farms entered the purebred cattle sector, where they established more than one market for their purebred bulls, as well as embryo and export markets.
Finding their niche in the cattle business took some experimentation. They started by using artificial insemination of Simmental, Charolais and Murray Grey on commercial cows in the ’70s, which helped to define their specific interest in Simmental cattle in the early ’80s and now their growing expansion into Black and Red Angus.
The purebred business was a good fit since they were already running cattle and were quite involved in showing cattle.
The next shift in diversification was from female production to supplying bulls, not only for the purebred industry but also for commercial herds. That commercial diversification pushed further expansion, so they could meet cow-calf producers’ growing demand for stronger genetic influences for their calf crop and breeding replacements.
Having several enterprises helped spread the risk and any potential impact on their bottom line, and it allowed them to withstand market challenges, like BSE and major fluctuations in prices market volatility. With different breeds of purebred cattle and different markets that they cater to, their commercial bull business has more stability than feeder and fat markets. Progressive cow-calf producers invest in bulls for the long-term benefit of their herd. Their diversification also helped when the semen and embryo business and embryo export market was hit hard by border closures from BSE.
“But sometimes what is a benefit to the business can also be a challenge,” says Lewis. “Being diversified, our risk management is spread, but that also means we aren’t as efficient as we could be when you compare to other operations really specialized in one commodity like grain and oilseed or strictly cattle.”
The ability to adapt and diversify, and then to grow and to take advantage of opportunities as they arise relies on financial backing and ability. For Lewis Farms, this financial foundation has been and continues to be land equity. “Fortunately for us, we have a large enough land base, allowing our business to grow,” he says.
Lewis says this is the case for many farmers and it’s what makes agriculture an opportunistic enterprise compared to other businesses. “The farm is a great equity builder in North America, not just Canada,” he says. “On the flipside, though, is the challenge of cash flow. It is always pretty limited relative to that equity.”
Lewis believes that one of the great pillars supporting the survival of the family farm throughout time has been land equity, combined with the fact that as a whole the farming industry is fairly conservative. “Our debt-to-equity ratio is usually relatively low compared to other businesses, and we tend to be pretty conservative in our industry,” says Lewis. “I think that is a differentiating factor in the business of agriculture versus other businesses.”
In addition to land equity, when it comes to supporting their continued growth, Lewis Farms is now reliant on the next generation’s knowledge and energy. What keeps Lewis up at night is also his biggest source of pride in the operation — the enthusiasm, passion and involvement of the next generation.
Since its inception Lewis Farms was built on a foundation of family working together. Ken farms with his father, Jack, wife Corrie and their children, Kyle and Kirbie, and his sister Sandy and her children, Jordan, Jamie, and Tyler. They’re all involved to some degree with Lewis Farms, and that brings many complexities to managing succession for Lewis Farms. This generational change demands a succession plan and a strategy that fits the large, multi-faceted operation and family.
Succession has been an eight-year project for the Lewises and they’re still working through it. “You try and build a format that the next generation will have a template for, and one that will support their growth and success and keep the family together,” says Ken. “Family business can be tough on the family, its emotions, livelihoods and business. A succession plan is more complex in today’s family farm than it ever used to be.”
Lewis Farms’ annual bull sale sees over 340 bulls through the ring and caters to an audience of 1,000 in-ring and online viewers and buyers, many of whom have been attending and supporting their growth since their first on-farm bull production sale in 1985 where 37 bulls were sold along with five females.
When it comes to surviving change, a solid reputation is what has kept his auction ring full at their bull sale, despite the ups and downs in the marketplace. Often it’s hard to find a seat, many of which are taken by customers who attended their first bull sale and are now close friends.
It’s something Lewis and his family have worked hard for and are very proud of, and what he believes is the backbone for the success of their business. “Reputation helps manage risk. You need to stand behind and in front of your product,” he says.
Lewis says sticking with one thing and doing it well helped with their credibility and reputation. “Don’t flip-flop; adjust and change what you need to, of course, but stay focused. It sounds simple and it probably is, but just trying to stick to that zone and building from there and being quality-oriented rather than numbers driven. Numbers can be short-term. The vision of your business is long-term.”
And when it comes to longevity, Lewis agrees that the Canadian cattle industry has and will continue to endure times of change and adversity, but he feels it is set to survive risk and change perhaps better than other businesses. “The one thing that doesn’t change for our industry is that people need to eat and hopefully they continue to choose beef,” he says. “We are a legitimate industry providing safe, reliable food and the reality is that somebody still has to produce the cattle.”
Lewis says losing Western Feedlots is definitely a loss for the industry, not only in Alberta but for Canada. But, he says, this is another example of how we need to adapt to change to make progress. For cow-calf producers there’s more opportunity to diversify and think about backgrounding. “This is what always creates a margin in a market like this when nothing is working. It requires a change, and with that change, brings opportunity,” says Lewis.
This article was originally entitled ‘Game changer’ in the February 1, 2017 issue of Country Guide
Managing change with risk
Risk management has always been a need in the cattle industry, and it’s growing rapidly in response to the extreme volatility in the industry over the past few years. New companies, like Agra Risk in Strathmore, Alta., are emerging in the industry to meet this growing realization and need for risk management.
The company helps both crop and cattle producers by educating and taking the fear out of unknowns in the markets. “People forget that there are tools that protect all commodity participants from disaster and extreme loss. When it comes to risk management, one of the major issues is lack of education and fear of the unknown,” says Greg Appleyard, Agra Risk president and founding partner. He’s also participated in large-scale crop and cattle production for over 20 years.
“For years I believed following the industry gave us a road map to what the cattle are worth. I was wrong. Our success has come from running our own returns on a daily basis — fully understanding that if you don’t buy them right, you may never have a chance to get out of them,” he says.
When it comes to surviving and succeeding through change, a risk management strategy must support prediction and profitability in the business. Not easy in the cattle industry, but one that in Appleyard’s opinion is possible. “The day you buy cattle they are not losers,” says Appleyard. “There’s 100 per cent gain or loss.”
With a hedge strategy, it will not get worse unless there is a major event like a border closure, he says. As a direct participant in the industry, he hedges 100 per cent of the cattle. “This has allowed profitability for us even in a year like last year,” says Appleyard. “As a cattle investor, it just becomes common sense to me to hedge every animal under a consistent program that makes returns not only predictable, but profitable.”
The farm is a great equity builder in North America, not just Canada,” Lewis says. “On the flipside though, is the challenge of cash flow. It is always pretty limited relative to that equity.”
Changes devastate feedlots
Recent market volatility and new government programs have been blamed for the shutting down of Canada’s biggest cattle feeder, Western Feedlots. The company, which has been in the cattle business since 1958, claims the strong “headwinds” facing their operation like the high markets in 2014 and 2015 and recent policies introduced by Alberta’s NDP government, including Bill 6 and the looming carbon tax, forced them to close the pens on their operation in September.
Western Feedlots wasn’t the first feedlot to close recently, just the largest. Five family-run feedlots have closed over the past two to three years, according to a group called Stop the Head Tax in Lethbridge (Alberta) County.
“Our industry is under attack on all fronts,” said Rick Paskal, president of Van Raay Paskal Farms Ltd., an Alberta cattle feeding operation and a major backer of the Stop the Head Tax group. “We are going to see more cattle feeders go under in the next six months in Lethbridge County,” he warned, “and see more cattle fed in the United States, which will mean job losses, further price reductions for ranchers and another blow to Alberta’s already faltering economy.”