Free Enterprise FS ?

[grassfarmer]

F_S, I don't understand this dollar issue. If as you claim US fat cattle were bringing US$63 in 2001 and it took CDN$1 to buy 63 US cents didn't that make the fat cattle price in Canada $1/lb less the "basis" or whatever you would like to call it?
If cattle were worth $1/lb in 2001 then the low to mid 80 cents they are bringing now certainly are lower prices.
I sell my cattle in Canada, in CDN dollars and buy my inputs with the same. The fact the US dollar has collapsed in value in the interim is a rather weak scapegoat isn't it?

Sean, What kind of kill capacity does the Sask. plant have? Could they handle big numbers on a seasonal basis? I may know someone who might send some work their way in the future.

[smcgrath76]

They are currently limited by boxing capacity. I expect on a straight kill with a break down to 1/2 or 1/4 they could do 500 on a shift easy. With further breaking and boxing they are probably limited to around 250 per day.
I know they have not found their upper limit on straight killing and quartering yet, and I don't believe they have been pushed on breaking and boxing either.
Give me a call. my number is on our website ranchingsystems.com

[farmers_son]

Grassfarmer: I was responding to your comment "Do you believe [Cargill's] current actions to perpetuate the captive supply situation by their strategic policies of owning/controlling fed cattle are a factor in holding live cattle prices down in Canada?

Yes Canadian live cattle prices are lower today than they were in 2001. But it would seem to me the reason for that lies more with the changing value of the dollar than any strategic policy of Cargill or any other packer. The sad fact of the matter was we were playing with Monopoly money in 2001 when you consider the Canadian dollar was only worth 63 cents.

While we have seen a 138% increase in live cattle futures since 2001 that does not compare to the 400% increase in the value of Brent Crude futures, the 180% increase in Alberta Barley futures, the 280% increase in Corn Futures, 350% increase in value of Soybean Oil futures, or the most dramatic of all a 500% increase in the value of Minneapolis Wheat futures since 2001. I guess if you want to you can say that shows Cargill’s strategic policies re capitive supplies are holding down live cattle prices (however that does not follow that Cargill would have had a similar policy re holding down wheat futures which is a bigger part of their business) but what I think that shows is live cattle futures are due for a upwards correction and our Alberta live slaughter prices will follow. If I am correct using a conservative assumption that we could see a 200% increase in the value of CME Live Cattle futures from 2001 levels simply based in the general trend of the market this could mean that Live Cattle Futures would reach $125 within a year which would translate into Alberta slaughter steer prices of about $.90 or more by this August and $115-118 cwt, or higher, by this time in 2009. I would add that this brave prediction would depend upon our live cattle prices not being dramatically impacted by whatever comes out of COOL in the U.S. and that the U.S. economy does not get worse.

[grassfarmer]

Farmers_son, I see you didn't really dispute the fact that cattle were $1 in 2001 and are now mid to low $.80s in Canada in Canadian money - which is what I would call a decline in price. This was my point about the "blame the dollar" syndrome it is a convenient policy for ABP/CCA to blame all our problems on things that are outwith the control of producers/Government and themselves. It leads to a culture of leaders doing nothing instead of leading.
If the US dollar is the problem why not aggressively search for other markets? "Oh but we can't do that the US is our best customer" Why not BSE test for market access in foreign markets? "Oh but we can't do that it would upset the packers, the US or consumers"
If grain fed beef is uneconomic to produce because grain prices are too high investigate grass-fed beef "Oh no we can't do that, it's better to concentrate on growing higher yielding barley varieties so we can maintain our "advantage" over US producers by being the cheapest producers on the continent"
What happened to the supposed "can do" culture off the west, particularily Alberta? more like a "can't do" culture.

As for your price speculation of substantial increases in cattle prices, well have to wait and see. The NFU will be publishing an analysis of the beef sector shortly and it will contain some interesting reading.
Adjusted for inflation, current prices for cattle in Canada are approximately half what they were for a long period from the early 1950s until the 1980s. Throughout that time period they fluctuated very little when adjusted for inflation. The big change that led to the current catastrophic decline in profitability coincided with the arrival of the two US mega packers to Alberta and the elimination of competition from the marketplace.
If you choose to ignore the implications of this, like the leadership of ABP/CCA do we will continue to struggle to be profitable. Even if US cattle prices rise substantially why would they rise in Canada? there is not a competitive marketplace here and the two players would not need to bid higher for cattle. This is why the issue of packer domination and captive supply are very real issues - unfortunately the "leaders" can't see the wood for the trees.

[smcgrath76]

FS, i think you are on the right track. A couple of thoughts-
at some point in time someone is going to capture higher input costs (eg: grain) and is going to raise the price of the product. This may translate a couple of different ways that I can see...
1) demand could remain constant or decrease, thus pressuring the price of live cattle further downward.
2) the increase in price could reflect in live cattle prices if demand remains steady
3) I think a lot of pig guys are saying the same prayers only harder.

[rook]

smgrath - on an earlier post your point #6 said traditional agriculture is dead. Could you please elaborate on that? Are you talking just beef or all ag?

thanks...

[smcgrath76]

Dead was probably the wrong word. I think that the commodity production approach is not dead, but that it is extremely difficult for smaller family farms to conduct themselves competitively in this arena. It takes a lot of capital to achieve economies of scale that some of these operations can achieve. This means the business structure will be such (size, ownership, investment) that these types of funds can be raised.
Smaller farms (not sure where you draw the limit here) will need to focus on cooperation, value added, value chain participation, etc. in order to compete. To generate a return on investment will require innovation and unique/special product placement. One product will not do it, as long term success will ensure that others will try to copy it. For long term success of "family farms" those farms will need to either become large corporate commodity producers, or become value chain participants producing a hard to replicate product (not sell calves through auction).
The other choice many producers have taken is to subsidize their operations with off farm income. There is nothing particularly wrong with that, but it is also outside of the traditional family farm model.
I don't see a lot of opportunity for the guy with 150 cows to sell calves off the cow unless he is operating at an extremely low debt level, and that can only last on an industry scale until the next intergenerational transfer.

[smcgrath76]

Supporting math...
to earn $50,000 a year, a producer with 250 cows (family sized) and no other enterprises needs to establish a $200 per cow margin. Assuming not all cows get pregnant and that some replacements are kept, this number is even higher. This is hard to do in a commodity business where all product is relatively equal in quality and price when it comes to selling time.

[rook]

thanks for that. I agree - I see agriculture becoming two types - large commodity and smaller market/product focused. There will continue to be hobby operations and farms with off farm income.