Cattle Carcass Weights Swell

[errolanderson]

What a change in the Cdn cattle market
since early March. June live cattle have
dropped more than $16/cwt.

Since topping around $129, the June
contract has taken a run below $112/cwt.
Carcass weights in Western Canada have
ballooned more than 40lbs. Feeders are
likely trying to battle this downtrend
and negative margins by holding cattle
back. But the bottomline is; beef
tonnage is building as a result. This
suggests an uninspired summer slaughter
market.

Barley prices remain red hot adding to
feeder woes. But the good news is that
feed prices should weaken once the
market eventually focuses on new crop.

Hug 'n hold your cattle risk management
tools. Our Cdn fat cattle market appears
in for a longer-than-expected period of
instability in my mind.

Errol

[grassfarmer]

Ah, the trials and tribulations of the commodity
"game". We've got our "risk management" in place -
direct marketing to the consumer so you can avoid all
this BS. Currently adding names to a waiting list for
beef to be delivered in fall of 2013.

[kato]

We're sitting it out this summer. We usually background a batch over summer, but this roller coaster is getting pretty old. We just don't see it working this time. I think there are others thinking like we do right about now, and that could also be contributing to the downturn in prices. The risk is just too high.

We'll stick with the cows for the immediate future.

[ASRG]

I wonder how this might affect the late summer/fall feeder market?
According to the Alberta Ag site 600 lb. feeder steers were in that $1.70/lb range? That is $1020. If grassed for 120- 140 days the pasture cost/reselling costs/salt &min/interest/etc. would bring the cost up to about $1165?
If the fall steer weighed 850 lbs that would give a break even of $1.37/lb.?
That doesn't count death loss or sickness or any kind of profit.

[grassfarmer]

I know someone who sold a pot load of 525lb June
born steers in March for $1.98/lb so the break-even
on them will be even higher than your example ASRG.

At the same time shouldn't be too quick to paint the
picture that feeder prices are too high and someone
up the line needs to lose a lot of money because of
that. I still believe there is enough profit potential if it
were shared more equitably through the production
chain. Last time I looked in the store lean ground beef
in 1lb packs was well over $4/lb a long way from the
$2.99/lb that it seemed to be for quite a few years.

[kato]

There's a cold hard reality out there that can not be ignored. And it all goes back to that BSE fiasco.

The national cowherd is a shadow of it's former self. There just aren't enough cowherds left to fill the capacity of the feedlots that still exist.

We have cows, and background calves too, so see both sides of it. When we got the initial shock from the BSE, the cow side of our operation took a gigantic hit that took the better part of ten years to get over. The feeders, on the other hand, were painful on the ones that we had on hand when BSE hit, but after we got past that, all of a sudden there were affordable calves to be bought. We didn't always make money in the following years, but we made enough to make taking the chance worthwhile.

Fast forward to now. The cows are now raising profitable calves again. Flip side is that those 375 pound calves are pushing the $800.00 range. That's a lot of money to put out on a small calf that's touchy to feed in the first place. On our operation, the cows are back in the driver's seat.

My prediction is that the rationalization that took place in the country's cow calf operations, is going to take place in the feedlots now. There's a lot of money out there to be lost, and it's a game that needs nerves of steel. Outside of Alberta, the small operators have no price protection or lock in strategies to cushion the blow. Don't even mention Agstability. If you're feeding less than a few hundred calves, locking things in is difficult, if not impossible. The risks have become enormous.

What this means for fall calf prices is anyone's guess. The fundamentals are still there, so calves should be good. They will find homes in feedlots. The big question is who will be running these lots. I suspect it will become a business belonging to the Big Guys. The smaller independent farmer feeders will be out of it. Trouble with that is that it's the bids from the smaller guys at the auction mart that keeps the Big Guys honest. I know that if we weren't on those little calves last fall, the big guy we have to bid against would have saved a pile of money. We were his only competition.

[grassfarmer]

Kato I don't think that's so much a prediction of the
future as a retelling of what has already happened.
There has already been a substantial restructuring
through the cow/calf, backgrounder, feedlot sectors -
on the processing end not so much, on the retailing
end not at all.
Looking back to the article Cam Ostercamp wrote
post BSE the feedlot sector has long been removed
from the reality of buying a calf, fattening it and
banking a realistic profit. His figure was around a -$7
average margin per head over a 20 year period. You
cannot call that a viable business model by any
stretch of the imagination. Most are custom feeding
cattle for the doctors and dentists in town with tax
problems or they are in captive supply contracts with
the packers (or both). Agri-stability probably works
quite well for these mega businesses that swing
wildly for losses to profits and the payouts will be in
the $millions the same as the big hog barns.
That's the commodity system and it is what it is. I
don't think it's going to change any time soon so the
options are to work within it or work outwith it. In the
grand scheme of things I think BSE had very little
influence on any of this, maybe speeded a process
that was inevitable?

[kato]

I'm not totally sure it was inevitable. At least without BSE we could have had some sort of input into the evolution of it all. BSE took ALL control from us. We had nothing to work with, so those with the money saw their chance to move in and get it all. We didn't stand a chance. When you're fighting for survival, you tend to look short term rather than long term. Everyone was in the mode of just making it until next year, and philosophical issues get put to the back burner. The big picture doesn't really matter when you're one missed payment away from losing it all. Believe me, there were lots of people in that situation, at least outside of Alberta.

As for the feedlots. In Manitoba our feedlots have been primarily custom feedlots for many years. There was one, run by Simplot, back in the 70's that bought cattle to feed scrap potatoes to. Other than that, a feedlot that actually owned the cattle was rare, even back then.

I'm speaking more of the custom lots, and the ones who put investor cattle into that are going to be in trouble. The investors are not there any more. Our local feedlot called it quits this year. He'd had enough. We've heard of others unable to find doctors or lawyers with big paycheques willing to take a chance. Pre-2003, both of these were very viable, and making good money.

With less custom feedlots, there will be a big hole in the system. Those cattle buyers that sit in the front row? They are the other major patrons of custom feedlots, and they are the ones that actually support the market, especially for those odd lots, and small groups. With a place to feed them, they will take a chance. If they have nowhere left to send these cattle, the discounts are going to rise, and rise substantially.

[errolanderson]

Guys . . . good discussion and don't
mean to derail, but look at the corn
market today.

Talked to several feeders in the Calgary
and Lethbridge area today and many
suggest that U.S. corn prices are headed
into-the-tank. $4.50 to $4/bu as
guesstimates. This scenario will doom
new crop barley bids. USDA is
forecasting a mountain of corn next
year.

Hopefully this will help out those
feeding margins.

[smcgrath76]

This in my view is a lot of discussion
about risk vs. reward. On the one hand
stability across sectors would likely
benefit everyone, however the
possibility of making large gains on a
turn of cattle would be much less. As
risk increases the opportunity to
partake requires a bigger stake and the
risk premium may remove players from the
game (smaller feeders?).
Contrary to Kato I think farmer feeders
may have an advantage in this market, if
they can produce their own calves and
feed below the cost of the marketplace
and sell into a premium or grid. The
negotiating power to set up a grid is
likely limited, but there is potential
to work together to do something.

[ALLFARMER]

I would second that motion SMC. Smaller
operators likely dont have as much over head.
No big bi weekly payroll to make, not trucking
feed in as far as big outfits. Never actually had to
write the big check & truck them feeders in. If the
cow calf guy doesnt need the money and has
lots if available feed why sell?

[smcgrath76]

Allfarmer - as they get worth more they
die better, also I don't know very many
that don't need the money. I am convinced
in excess of 85% of marketing decisions
are made based on cash flow and not
economics or maximum returns.

[kato]

It's the farmer buyers that I'm talking about. The ones who pick up a few extra to feed, and sometimes more than a few. We generally "pick up" over 400 a year, but this year it's going to drop.

A lot of sales around here depend on the farmers in the stands, like us, to support the calves that were mismatched, or odd sized, or in small lots. For instance, we buy the under 400 pound calves, which the big guys can't handle. If we don't buy any this fall, I know one other guy who's going to be very happy that he doesn't have to bid against us. He's pretty much the only other big buyer for these calves. We prevented a lot of bargains from coming his way, and he did the same to us. So unless someone else steps up and decides to live life in the fast lane, there won't be nearly the competition for those little calves. Feeding 350 pound calves is not a business for the faint of heart.

I agree that a farmer who feeds his own calves is in a much better position.

As for the corn price.. bring it on. It will help the entire cattle business, no matter if it's feeders or cow/calf.

[smcgrath76]

kato, I see your point and I agree.