The good, the bad and the ugly

[grassfarmer]

I'm posting here the article by Christoph Weder that appeared in last weeks Grain News. It lists the contact information of the retailers that are doing us no favors by selling imported beef in increasing quantities. So get at it folks - if this makes you mad let them know!

“Beef 2010 - The Good the Bad and the Ugly”?”
Christoph E. Weder – SVR Ranch Consulting
So it’s a new year and the optimists that still have cattle are thinking this will be the year!!! Last I checked, there were still a few cows in our back forty and so I guess we must be one of them…Not that I am a market analyst, but here are my two bits……. “Weder’s - The Good the Bad and the Ugly”.
The Good: The Herd Size….The whole world is liquidating/reducing breeding cow numbers because returns have not kept par with expenses….(now isn’t that an interesting phenomena?). From Australia to New Zealand to Brazil to Argentina and even our neighbors to the south all are retiring their spurs and replacing them with flip flops and enjoying the good life. Even my 4 year old can figure out that with fewer cows you get less calves, which would eventually mean less beef…. True for the most part but Big Pharma is mitigating this with TBA Implants, Beta Agonists and other tools of the trade, so even though we have less cattle they all die at a heavier weight, or at least they do so in North America. This said there is only so far that Big Pharma can grow carcasses and eventually beef supply goes down…however, countering the effect of the economics 101 supply/demand curve is that the demand curve is slumping as well… or at least it is for the high valued cuts. It’s now minute steaks, quick roasts and hamburgers instead of NY strips, ribs and filet mignon. To raise the value of fed cattle we need the middles to rally. Till now that simply has not happened. Or another way to look at it is simply the retailers should just share more of the pie. At least the argument that cattle prices are in the tank because there are too many will no longer be there....it’s just that everyone is too cheap and some aren’t sharing.
The Bad: The Canadian Dollar… if our dollar at present were equivalent to the value April 2003, our fats would be $1.30 / lb on the hoof. Is the dollar value going to change anytime soon…I doubt it… its Bad because its implications by far overshadow any gains made by reductions in herd sizes…
Not only does a high dollar make exports more expensive but it also makes imports cheaper to buy. The George Morris centre reported that last October beef exports were down by nearly 5% on a year to date basis. Total beef imports were up by more than 11% and Australia and New Zealand exports increased by a whopping 40% and 50% respectively. The main reason given, was that Canada’s domestic production of lean manufacturing beef has steadily declined as cows headed to the grass heavens. At the same time the domestic market for manufacturing and grinding beef has gained ground as a recession induced diet of hamburger helper fuels the fire. In fact right now this supply /demand curve on cull cows is actually working… there are less of them, the packers have a good demand for the products that come from them and rail prices for culls have grown by twenty cents since Christmas.
Will cull cows continue gaining value? I believe to a point but after spending a bit of time researching it, I think they will eventually hit a limit where it will be cheaper to import more grinding material than to pay more to kill Canadian cows…. That is unless global demand shorts the global supplies of grinding type products.
The other bad on the horizon is if you like feeding excessive amounts of grain to cattle for extended periods of time. The US ethanol industry has not lost its shine yet and in fact the mandatory inclusion rate of ethanol into the US fuel industry is about to increase. Likewise oil is hovering in and around $80 / barrel and so all of the fundamentals will work at keeping the demand for corn strong, which of course will keep barley up there….. The wild card as always will be the weather…. In a nutshell I don’t see any bargain basement feeding costs.
The Ugly: Canadian Retail…. As I mentioned in my last column our primary beef producers, both at the cow/calf and feeder level have been completely naïve when it comes to the disproportionate revenues generated at retail levels and what is reflective at the farm gate. Last week I checked out, “my home town advantage” / local retailer… lean ground beef $8.45 / kg….packer values for 85 lean trimmings were $3.25/ kg….Does it cost $5.25/kg to truck, grind, stock and make a small profit on ground beef?....Likewise bone in ribeyes….$22.49/kg….Packer price - $8.35 / kg!!!! Retailers complain about shop lifters….. I would like to ask who is calling the kettle black? Our equity is being robbed not by packers but by retailers!!!
Making the matter worse is the high CDN dollar…estimates are that this year well over 150,000 tons of US beef will hit the Canadian market….Much of that destined for Canadian retail. Now I don’t want to sound hypocritical and I know we export to the US but there we face COOL costs and discounts, while US product heads north easier than migrating geese... exacerbating the situation are retailers that spin doctor it so that it makes the consumer feel they are buying Canadian. I have to shake my head every time Erika and I go to Grande Prairie and walk into a save on Foods store….splashed all over the beef section are smiling pictures of B.C and Alberta ranchers and the idea that by buying this beef the consumer is supporting western ranchers…. the truth is far from it.
So who are the retailers without a maple leaf heart? Across Canada it starts with Loblaws (Superstores), in Quebec and Ontario it is Metro and in the west as I had mentioned the Overwaitea Food Group (Save on Foods). Now with the high dollar the advantages of bringing in US Beef are stronger than ever and I think the trend will get worse. This will undermine opportunities for our industry on this side of the border. BIC is trying to do their part, however the biggest way to make an impact is by hitting these guys in the pocket books and by making a little noise. I had to laugh at the last Cattlemen magazine. The front cover story was about, “Bringing Wolves out Into the Open”, get real guys if you think you are losing money to 4 legged predators figure out what you are losing to the 2 legged ones. We need mandatory COOL here and our industry organizations need to learn how to quite volunteering photo ops and do a little more lobbying to swing the pendulum.
Since your industry is not making a whole lot of noise about this, maybe you should; let them know how much you appreciate their support and their unselfish sharing of the consumer pie : Loblaw’s –Rodney Koning 905-459-2500 / rodney.koning@loblaw.ca; Metro – Claude Jauvin 514-328-8000 / cjauvin@metro.ca or Marcel Boulianne 416-234-6120 / mboulianne@metro.ca , Overwaitea Food Group – Ken Clark -604-888-2079 / ken_clark@owfg.com ext 2317 or Norm Gill 604-881-3452 / norm_gill@owfg.com.
The positive is that there are less cattle and eventually people will want to eat steak… the negatives are the high dollar, feed grains and retailer attitudes….Some things I know we have control over and other things we don’t….
My New Year’s resolution to rob from the rich and give back to the poor…in other words increase the amount of jingle coming from consumers into my pockets rather than leaving it at the retail level…. What’s yours?
Dr. Christoph E. Weder is a purebred Angus breeder in the Peace region of Alberta and also runs SVR Ranch Consulting. He is also a founding member of Prairie Heritage Beef Producers For additional info check out www.spiritviewranch.com

[per]

Thanks Gf, I'll get right on it tonight.

[kato]

Excellent!

I heard a hog producer on the radio yesterday calling for MCOOL in this country also. He said it needed to come in after the WTO thing is settled, but I don't think we should wait that long. Mainly because that one will surely turn into a multi generational issue like the softwood lumber. Those guys never accept rulings against them, we all know that. They'll keep appealing it until we're all limping around with walkers and canes, and maybe until our children are too.

If we forced labels on meat in the stores, and we left the "born in" part of the American law out of it, from what I understand, we would not be contravening NAFTA. If this is really the case, then there is no reason to delay something like this. None.

Any hog people interested in a coalition?????

[gaucho]

That's a great idea just focus on the symptom instead of the disease... the crux is the pie is big enough...its the retailer concentration and their ability into fooling Canadians that imported product is Canadian is the problem why it is difficult to get more at the farm gate. While as an exporter we get slapped with COOL costs. AS long as you sit and whine and ask for another gov't bail out things will never change. Take some responsibility and if you don't then you have no right to whine... its that simple... In today's day and age of internet, blogs, face book and twitter it is easier than ever to take on multinationals, then again there is the old fashioned way and GF certainly could fill you up with ideas.

[grassfarmer]

With ideas or BS? ;O)

[smcgrath76]

I wouldn't turn down free interest for a
year, but I agree that it is only a
symptom of the problem. Each operation
took on its' own debt, although whether
or not there was a choice can be
debated. I think the danger in this
approach lies in the fact that it
promotes more debt (since it is
essentially free) rather than structural
and functional change. We already know
most cattle operations are
overcapitalized and Canadian land prices
are by and large higher per productive
capacity than many other places. The
issue is really with a functional
marketplace (retail shelf/trade back to
the farm gate) so that is where we
should focus.
Every time we recieve "Free" money, it
always has a price tag. I think the
next tag will be to force everyone to EU
standards, when we don't require them.
I do strongly think we need to advocate
government to enable participation in
and access to these type of markets as a
choice. I think we need to tackle
retailers, etc. somewhat more directly
(not in the Beef Information Centre can
I help you? kind of way either).

[kato]

I was not offering up the idea as a solution. Or as a substitute for a solution.

But, that being said, the solutions to the problem are going to take time, and by the time they start to see results it just may be too late for a lot of producers.

On our operation, we just don't have the will to wait two or three years to see if things improve. We've frittered away enough equity already, and like many others, are not thirty somethings with lots of time to build it back up again.

This winter will decide what we do. We have to decide whether we shut it down while there's still time to salvage a decent retirement, or whether we go down in a blaze of glory. Or maybe we will do something in the middle. We just don't know.

Who knows, maybe this really is the year it turns around. We've seen that before, and from past experience can say that the big turnarounds that have followed the several recessions we've been through have been nothing short of spectacular.

All I can say is we don't have the luxury of having twenty years to get back what we've lost in the past seven if that turnaround doesn't show up soon. We've got more than a few neighbours who are in the same situation as we are, and one by one they are dropping out.

[perfecho]

I certainly agree that the problem has to be solved, not just another stop gap. I am tired of being thought of as always looking for handouts.....but a fair price makes so much more sense. As Canada imports more and more beef, things may even get tougher. Yes, we'll probably see some spikes and people will get optimistic and will "top the market".....but will they make any money?
A system that works is needed for sustainability.

[smcgrath76]

Kato, I agree that time is a big issue.
I think the one thing I am most angered
about by government and probably should
have known better is all the posturing
about what they are/will/can do...
I think brutal honesty about their
intentions would have probably saved a
lot of damage and made the decisions at
the farm level much easier to make on an
individual basis.
I think we need to tackle retail as they
are the ones who can tackle the
processing industry and government and
right the chain around.
I have been reading a book called hot
flat and crowded and the approach that
has been taken to preserve certain
ecological gems is the same we need to
take with our situation. Talk to
governments about economics, the public
about peripheral benefits, etc.
Basically tailor the complex message to
very simply target the areas of specific
concern to each audience involved.

[kato]

Time is everything.

The other thing, besides improving cattle prices that occurs after recessions has historically been high interest rates. Anyone here who remembers what it was like to pay an operating loan at 20% will know what I'm talking about. There was a time, back when we were thirty somethings and had a long time to get over it that we paid interest that was absolutely criminal. If that happened now, we'd be gone so fast we'd be a blur.

Everyone here should take their current debt and run it through the calculator and see what it would cost at even 15%. It would be scary.

I also remember a time when if you were to grow your calves slowly, grass them, then finish them, if you had any sizeable debt load at all, the interest could literally eat up the value of the calves by the time they were gone. This is another part of the source of the tradition of getting calves big off of the cow, and cranking them through the feedlot as fast as possible, but it's one that has been forgotten. Time is money when the cost of borrowing goes crazy.

I have a real fear of high interest rates coming back, mainly because no one seems to have remembered the lessons taught by the last time it happened. Rates have been low for a long time, and that tends to lull people into a false sense of security when they go and buy that new piece of equipment, house, or land. If history repeats itself, and it usually does, anyone who hasn't locked in their interest rates is going to be in big trouble.

On the other hand, I know people who sold out in 1980, took the money to the bank, in plain old term deposits and Canada Savings Bonds, and doubled it in five years. Unbelievable, but true.

[smcgrath76]

That is a great lesson and good reminder
Kato. Thanks.
I have run our numbers at 18% but not at
20...

[sagewood]

Kato, I am old enough to remember the high interest rates of the '80's and what it did to a lot of my neighbors, i.e. they lost their land and were forced into receivership--it was a nasty, ugly time and the lenders were mean-spirited and relentless in their attack on those in ag. who could not make the 20% interest payments and still stay afloat.

During the past month I have had the opportunity to talk to a lot of cattle people in AB. and while we like to discuss bulls and the upcoming calving season, many are asking the question 'when will this turn around'? Many of them, like you, do not have the luxury of 'time' left to make back what they have lost in these past 7 years. Many have told me this year is their last and some folks that I have known for years (and are younger than me by at least 10 years) have already sold out this year. They were out of feed and were not about to throw good money after bad, so just loaded up the cattle and headed to the local auction mart. The sad part of one sale was that the one open cow brought $50 more than the bred cows. These cows were all good Red/Black Angus with good genetics and always well managed and well cared for--they were not scrubs in any way shape or form. Even though many of these folks are in their mid 50's, they have all told me they are done--not going back into the business. I guess if enough of us shut down this year and sign off on the cattle business, it may help those who remain. At some point supply and demand have to take over--that being said--it seems if prices get too high the powers-that-be just import more U.S. beef and the price to the Canadian producer never improves. I understand that in some of the pricier downtown Calgary restaurants a good steak will set you back anywhere from $40 to $60...how is it that none of this huge cost never filters back to those of us at the farm gate. Personally, I think the cattle industry in Canada will never recover and years from now when the masses cannot afford red meat and it has become a great luxury, they will wonder what happened--those who can remember 'the good old days'will reminisce about cattle the way we talk about the huge herds of buffalo who used to roam the prairies. When I see the preoccupation the masses have with all things 'electrical' and the hysteria over what Hollywood and the tech industry are doing I wonder if the masses even care if they have beef to eat. I don't see a bright outlook for our industry, even if we get a loan/interest break--it is a stop-gap measure and I agree with everyone else who has said that people are tired of hearing about the beef industry woes and tired of hearing about us whine and ask for more breaks and handouts. To go out in a blaze of glory or with a whimper--that is the decision many of us need to make, and soon. It must be ground-hog day--depressing to think we will have six more weeks of nasty winter...

[perfecho]

Good post Sage.....forward to your MLA and opposition.

[perfecho]

Just a quick note with some after thought.....there seems to be "favorites" of the AB gov, I won't mention names, that will continue to do well. They seem to have a direct line to AG $, programs and available money. These people will survive and survive well. Is it because they are "forward thinking", in with the right crowd? Lobbying on their own behalf....where as the ordinary cowpoke has no voice?
Maybe it is meant to be?

[sagewood]

Perfecho, I do agree that some of that 'favouritism' does happen and will continue to happen, I doubt there is anything we can do about it besides change the government--but alas, the bureaucrats will continue on regardless of the change in tone of the government. I just listened with interest the interview with Shane Haney and Ryan Kasko after Kasko's trip to Brazil. He notes at the end of the interview that the 'big' operations who are managed from the cities and have investors seem to do well, but that there are thousands of subsistence people who barely eek out a living and hang on by a thread. This, remember, is in Brazil where the land is fertile and the seasons allow for many, many croppings and most of their cattle are grass finished. I suspect that if the truth were know from our government types that they will let the Canadian beef industry keep struggling until the weak die off and the 'progressive' or 'investor driven' businesses continue on while they controlling masses of acres of land either by purchase or by rental and those who wish to be in the cattle industry will work for a wage for these investors. At least that is the way I see the industry going. I hear a few rumours of 'quota-driven' type cattle operations. Whether this will come to fruition is anybody's guess--whether it will work for the beef industry as it has worked for the chicken and dairy people is also a good guess--it did not seem to work so well for the hog folks. I guess if the government finally throws their hands in the air and offers a buy out package for the beef industry, similar to what they did for the hog industry, it might be a way for the government and bureaucrats to get us out of their hair so they can concentrate on doing good deeds abroad. We are a dying breed and we have no clout with anyone anymore--sad fact of life in our industry and in Canada...