ALL BUSINESS, with a banker's background, Bill Haw's unsentimental approach to the livestock industry chills some of his more traditional counterparts and drives a few of them to near raving distraction. It's an approach that has worked for National Farms, however, where he has been CEO for a quarter of a century. Haw's management outlook hasn't changed much in all that time; among his earliest decisions was to become more "businesslike" by selling off virtually all the assets on which the company was founded.

Bill Haw Has Been Through Many
Disasters But Few At Same Time

By Colleen Schreiber

The First of Two Parts

KANSAS CITY — Bill Haw has been at the helm of National Farms for the last 25 years. He's steered the company through one of the worst cattle cycles of his time and at the same time one of the worst, if not the worst, economic disasters for the hog industry. Somehow, they've managed to survive.

"We've survived because we had our balance sheet in the best position it's ever been in," Haw says. "But don’t be fooled for a minute; we have really been beat up in the last couple of years."

National Farms tends not to be a hedger, so they've been particularly exposed to the marketplace.

"Hedging almost never offers you the opportunity for a respectable return," Haw remarks. "I’d be glad to hedge if I could legitimately hedge a $20 profit, but that seldom occurs. I don’t want to take the tops off the good markets by hedging too soon. Our hedge, really, in the cattle business is not to buy feeder cattle when prices are at the high end of the range."

National's CEO isn't oblivious to the rumor mill or the fact that they're not well liked by many in the industry.

"I hear incredible stories about National Farms driving the market up, and it's usually about markets that we aren’t even in," Haw insists.

"Everyone is looking for someone to blame. The fact is that we are some of the most cautious buyers of cattle in that we never lead markets up. We are aggressive buyers when feeders are at the low end of the range. That's the only way I know to effectively hedge, to keep my costs down.

"Generally," he continues, "70 percent, on average, of what you get for fat cattle is tied up in what you paid for the feeder. You’ll never find us in the market when prices are high. You’ll always find us in the market when prices are low."

Haw describes himself as one "who as an insatiable appetite for risk."

"Bad mistakes? I make them all the time. I generally tend to make a lot of short-term mistakes but tend to do a lot of things right in the long-run," Haw remarks. "I’m a lot better at knowing what I ought to be doing over the next 10 years than am I over what I need to be doing over the next two weeks."

Haw was born in a lead mining town about 70 miles south of St. Louis. He obtained a degree in English literature from the University of Missouri at Columbia and then spent two years in the military as an officer. Following his military service, Haw decided to go to graduate school to learn the banking commerce lingo.

From there it was on to the Commerce Bank in Kansas City, one of the largest in the region. He held a variety of positions before becoming executive vice president, his wheels on the fast track to becoming president of the bank.

But by 1974 the young banker had decided that the banking business was not his career destiny, and he began searching out other opportunities.

"I really wanted to get closer to the land," Haw recalls. "I wanted to do something that was more intrinsically important. Plus, I really wanted to run my own show."

National Farms, then known as National Alfalfa Dehydrating and Milling Company, an American Stock Exchange listed company, was on the verge of entering bankruptcy.

Haw heard about the company's problems, so he approached them with suggestions of ways to fix what was broken. For a modest salary and a piece of the action, Haw left the bank to join the failing agriculture company.

Because of his strong ties to the financial community, he was almost immediately able to refinance the company and put it back on strong financial footing. That was more than 25 years ago and he's been the company's CEO ever since.

When Haw took over the reins, Alfalfa Dehyrdating was a large farming company, owning in excess of 70,000 acres of farmland, as well as alfalfa dehydrators and cattle feedlots. One of the first things the new CEO did was to get out of the alfalfa dehydrating business.

"It was energy-intensive and labor-intensive, and we were at an environmentally sensitive time in history, so from that standpoint it was not a good business to be in," Haw explains.

Another major change Haw instigated was selling off all the company's farmland.

"The country was in a radically inflationary economy in which people really hated money but loved tangible assets," Haw recalls.

National Farms was no different. They had a tremendous asset base in land in 1974. By 1982, land prices had peaked and Haw decided to sell the land.

"It turned out to be the perfect time because it was 15 years before we got to those levels again."

That move, Haw says, was as much an agriculture play as it was a financial play.

"In 1974 we were the largest corn farmers in the world. We did all our own farming with our own equipment and our own people. I quickly realized, however, that no one of any large size can be in the farming business because farm programs make up a huge portion of the total revenue for farmers, and they’re not available to large producers," Haw remarks.

"The farm program is clearly a failed system," he continues. "Farmers continue to go out of business on a wholesale level. It’s a demonstrably failed system because it refuses to let agriculture exist as a marketplace phenomenon instead of a ward of the state. Farmers are kept in sort of a bonded servitude to the government by their passion to get that next government check, and it prevents them from behaving as rational business people."

The livestock industry, Haw noted, has generally kept itself removed from government intervention.

"We'd be better off without subsidized corn, too. No one ever made any money feeding cheap corn. Cheap corn simply results in overproduction, and it's pretty easy to document that cheap corn is not the cattle feeder's friend," he insists.

Haw says the most money National Farms ever made in the cattle business was when corn got to $5.50 a bushel and feeder cattle were really cheap.

"We had a terrific play of buying those feeder cattle when no one else wanted them because corn was high," he remarks. "Obviously, what really matters in the long run is what did you pay for them and what did you sell them for. When we have cheap corn, we pay too much for the replacements."

A few years after Haw joined the company, the Bass family, which has had a long abiding interest in the cattle and ranching businesses, became interested in how Haw had turned the company around. The family bought it and took it private.

Today National Farms owns and operates seven feedlots in Kansas and Colorado with a one-time capacity of 257,000 head. That capacity has grown significantly over time.

When Haw joined the company, the cattle industry was suffering through a catastrophic period, and because of that he shut down their Nebraska feedyards. A few years later National Farms bought a third interest in a yard in Kansas and slowly progressed from there.

The company started seriously buying feedlots 15 years ago, generally acquiring them one at a time. For six of the last seven years, they've grown their feedyards as opposed to buying additional yards. Last year National expanded two of their western Kansas yards and increased their capacity by 40,000 head.

National Farms does little custom feeding. Either the company owns the cattle or members of the Bass Family or Haw own the cattle.

In addition to the feedlots, National Farms has two farrow-to-finish hog facilities with a capacity of a little more than 30,000 sows. One is located in Colorado, the other in Nebraska.

At one time, National Farms was one of the largest owner/operators in the hog industry. In 1982, Haw says, the hog industry seemed to be an emerging industry that would become like the poultry industry. The company wanted to be on the leading edge of that change, and soon they became the first to build so-called "mega" hog operations in this part of the world.

It was a much-needed change, Haw contends.

"The hog industry needed to become a rational business with uniform genetics and rational business practices. The change was a good thing, and especially good for the consumer, because the quality of the product has improved and the cost of production has gotten better."

The company currently employs about 500 individuals, the majority of whom work in the hog operation. They've stuck to their no-farming policy but they do contract out to have wheat or rye planted around the feedlots for grazing.

The company, Haw says, has survived and done well up until about the last year and half because they've been willing to change.

"What success we’ve had has come from being able to identify opportunities early on and get into and out of businesses in a reasonably good time," Haw says.

Selling the farmland, he notes, is one such example. Haw also sold the Dalhart division of the hog operation five years ago for a tremendous profit and had intended to sell the entire hog operation at the time but didn't manage to get it done. In hindsight, he says, that was a mistake, given the economic disaster the hog industry has been suffering through the last couple of years.

Part of agriculture's problems, Haw believes, stem from the fact that people involved in production love what they do and they do it more for enjoyment than for the money.

"What we do is intrinsically important, it’s an act of creation, and as a result we’re our own worst enemy."

Haw and the Bass family also individually own substantial holdings in the Kansas Flinthills as well as some city real estate development including the old Kansas City Livestock Exchange building and part of the origin 48 acres around it, 17 of which sold to Gateway when they came to Kansas City.

For Haw, personal interest in the Flinthills began about 16 years ago when he purchased his first ranch, about 7000 acres at the time. Part of his interest stemmed from work being done at Kansas State University dealing with early intensive stocking.

"The principles of the concept simply say that because of nutritional levels of the grass at various seasons, the historical practice of stocking four acres per steer for 180 days doesn't work nearly as well as if you put on twice as many cattle for half as much time," he explains. "That concept, as I grew to understand it, struck me as such a good idea that I went out and borrowed more money than I could have ever imagined to buy my first ranch so that I could try to apply these principles.

"I had to be economically driven because I had no money when I started the process," he continues. "I couldn’t afford to be driven by tradition or fun or the cowboy image. I really was driven by an enormous debt that I had to service, and I had no other way to service it other than to be successful in the cattle business."

Haw is of the opinion that a highly intensive stocker operation is the only kind of operation that will work in the Flinthills.

"It won’t work with traditional stocking and it won’t work with year-round hired employees," he opines. "When I say it won’t work, I mean it will not provide a reasonable return on the current value of the land.

Haw believes in sticking with the natural order of things.

"The Flinthills, that environment, evolved over hundreds of thousands of years. It was a grazing destination for vast migratory herds of bison; they arrived just in time for spring to have their calves and then moved north as the protein levels peaked.

"A prairie environment evolved which accommodated a tremendous number of animals for a very short period of time, followed by long periods of rest," he explains. "Obviously, a year-round cow operation doesn’t replicate that nor does a year-long grazing operation."

Haw has refined his grazing practices several times over. In some instances he applies triple stocking, but overall the same basic principles apply.

"It’s not for everyone. It involves a tremendous amount of capital, a tremendous amount of risk, and it involves a willingness to operate a ranch for 90 days out of the year and not live the lifestyle 365 days out of the year," Haw says.

Ranching in Texas versus the Flinthills, the CEO says, is like night and day.

"Ranching in Texas seems to have a lot to do with hunting, lifestyle, recreation, tradition, history, etc. It's a phenomenon that I don’t fully understand, and that's why in the early stages I made an agreement with the Bass family that I would have nothing to do with their Texas ranches and they wouldn't bother me much about what we did with their cattle and their ranches in the Kansas Flinthills."

The Flinthills, Haw says, are an ideal package in that there is plenty of surface water, virtually no maintenance costs, and if pastures are properly managed there are virtually no inputs other than taxes and caretaker labor. There is also a fortuitous balance in terms of amount of rainfall in that it's enough to produce a lot of forage, but not so much that it's a bad environment for the cattle, Haw notes.

Land prices in the Flinthills have been cyclical. Haw bought his first ranch for $280 an acre in 1983, but he's seen land prices fall as low as $200 and more recently go as high as $500 per acre.

(To Be Continued...)