(Sam Capoun) Welcome to AGam in Kansas. I’m your guest host Sam Capoun, and today we’re at the annual BIF convention in Manhattan, Kansas, and we’re here with Dr. Clay Mathis. It’s my understanding that you’re going to be talking tomorrow, so give us a little breakdown on what you’re going to be talking about. (Clay Mathis) Sure. I’ve been asked to talk about the cowherd of 2036 and what will make our cattle production systems more efficient and profitable at that time. In particularly to address where do we focus our efforts to make these operations profitable. I’m going to take a look backwards in time to look at some of the things that have happened, in terms of the commodity prices and the input costs in particular and how they’ve changed. I also want to look at some of the things we know about our current business, and some of the trends that exist. It’s really difficult to predict the future, but if we look at some of these trends and we extrapolate that forward, I think we can identify some things. One is labor is probably going to be a lot more expensive then. We can expect energy costs are probably going to be higher than they are now. Even when we make adjustments for inflation, I think these dictate to us some of the things we need to think about from a production system level. I think it’s really important that we recognize we’ve made great strides in genetic improvement, but in the future it’s not just the genetics that are going to matter. It’s going to be great management that makes the difference in the profitable and unprofitable operations. (Sam) Now why is it important to look at the whole ranch management industry, or everything as a whole, instead of just little sections? (Clay) Sure. Well if we look at the profit equation, we’ve got calf prices, so we’ve got the revenue side; we’ve got the expense side of things. That’s where we get the function of net profit. If we look at a cow/calf operation, even on a particular ranch, it’s not just that operation. There’s also farming often, there’s often wildlife. Those different operations can spread some of the cost of the cow/calf production system. We also have labor use, or we’re using that labor for one enterprise or multiples, but anything that we can do in the future that lowers those costs and spreads some of the fixed costs of the operation, it’s going to help us in terms of making more money in the future. (Sam) I think you’re totally right. I think that people are going to need to focus more on everything as a whole rather than one part. Then finally, how did you come up with the categories such as the labor, the energy, and all that stuff so people understand where that information came from. (Clay) When we break down the expenditures of a cow/calf operation we know that there’s the big three — feed, labor, and appreciation. They make up over 50% of a cow/calf operation’s expenses. I try to find indicators of those: corn as an indicator of feed; oil as an indicator of energy costs, which actually spreads all aspects of the expense side; also looking at labor, so we can look at minimum wage as an indicator of that. It’s not perfect, but if we look at our current political environment, we can expect that labor is probably going to be more difficult to come by, and it’s going to cost more to get those people. We’ve got to build production systems then that requires us to have fewer people and still operate cost effectively. (Sam) That’s the importance of technology. (Clay) That’s right. (Sam) Well thanks for joining us today. (Clay) Thank you.