Test Dollars... Test

Beef Production



Sep 20, 2007 | 09:57 1 We hit $0.9999US this morning and looks poised to go higher. Feed grains are also approaching some fairly high values. It will be interesting to see how this impacts the fall run. Last year when we thought prices were too low, lots of guys held off marketing. I think this year might trump last year by a mile.
I have also run across a lot of exiters in the last couple of months. It will be interesting to see if this is the straw that breaks the camel's back for a lot of guys.
Not sure our input costs will decline though. Reply With Quote
Sep 20, 2007 | 10:26 2 We sold yearling steers two weeks ago for five cents a pound more than the fresh calves we took to the auction this week. Yearlings weighed 731 @ 1.12 and the calves were 665 @ 1.07. These were not super yearlings, but they were super calves.

I'd say it's down.

It doesn't help that in our area at least the USDA has restricted the number of trucks they will handle at the border, because they got overwhelmed at the beginning of the month. It adds another bottleneck to the problem.

Things could get tight this winter. Reply With Quote
Sep 21, 2007 | 07:57 3 Prices at the local auction were off significantly yesterday. The dollar and grain prices, combined with a lack of help to process calves in feedlots are all factors according to one of the buyers I spoke to. Reply With Quote
Sep 21, 2007 | 13:09 4 Might be a good year to wean, vaccinate and get the calves going before selling them? Reply With Quote
Sep 21, 2007 | 21:26 5 There will be a break in this pathetic situation soon. Psychology is playing a role right now, and those who can use it are definitely using it. If you can possibly hold on for a bit ---- hold on. American futures were up sharply late today. Reply With Quote
Sep 21, 2007 | 22:07 6 Certainly this is a difficult situation but you should probably refrain from offering market advice rkaiser. You can sell feed barley in the Peace River area today for $4.60/bu. This likely means that we have by far the most expensive feed grain in North America(if not the world) available to us for feeding our cattle. Couple that with the recent move to par in the Canada/US exchange rate and I can assure you that we do not have a recipe for higher calf prices here in Alberta any time soon. The US futures market moving a little higher has little or nothing right now to do with the calf prices we are seeing. Reply With Quote
Sep 21, 2007 | 22:48 7 And who should be giving advice BWF - a margin player who has no problem with 90 cent calves? Maybe your advice would be to sell sell sell. By the way - who is this royal "we" you talk of when your say "feeding -our- cattle."

I wouldn't call my post advice Jeff just an opinion - just like yours.

American futures are about all we have for speculation. After all - the boxes that leave "our" LOL Canadian plants are traded directly into that American marketplace - which is seeing a pretty good demand for beef even though a recession looms.. Reply With Quote
Sep 21, 2007 | 23:21 8 High priced barley? what high priced barley?? you should take this thread over to the commodity forum where all the CWB bashers are whining how hard up they are, robbed of potential high prices by a cruel and biased judge.

Seems to me the calves last winter gained at least 10 cents a pound between December and March and there wasn't any new barley harvested between times. There is more than high grain prices at play here - it's the old risk/cost externalisation policy at play again. Reply With Quote
Sep 22, 2007 | 11:42 9 I understand clearly that 90 cent calves are no good for any of us in the long run and when I say "our cattle" I mean all of the cattle that will be fed here on the prairies this year regardless of who owns them. We are in the midst of a major shift in the cattle industry (here in Alberta in particular) and if you can't see the signals or choose to ignore them you do so at your peril. Reply With Quote
Sep 22, 2007 | 22:43 10 And what is that shift that we are missing BFW? You seem to suggest in your first post that the prices paid for calves are simply a reality and we should not look for any hope for better in the near future. I would tend to say that an attitude like that could chase more and more primary cow calf producers out of an industry where reality says that the prices they are receiving for calves this past week do not pay the expenses. Not a slim margin acceptable with large number BFW - but simply a waste of time and energy for a financial loss.

What is this shift that you are suggesting? A shift to showing the packer - the wholesaler - the retailer and the consumer that the primary producer will be lost if the cost of barley as well as every other cost in the industry must be born by that one sector?

Not hiding from reality BFW - just pointing it out to those who think that the cow calf man can survive on a 90 cent calf.

The shift that I see is more of a shift to backgrounding on the farm and not filling all of those feedlots with calves that I agree are captive to Western Canada with the dollar, fuel and those fancy new BSEconomic rules. Maybe riding this thing through and hoping that them there Americans see fit to buy up a bunch of grass fed yearlings that spend the summer grazing ground that their dead mommas used to live on. And if the Americans don't come - Cargill and Tyson will use whatever feedlots are left for some marginal custom work.

Don't worry too much about big calf numbers staying in western Canada BFW - by this time next year you might be bull dozing some of that pen space along with the feedlot alley boys. That ground would likely grow a couple of hellish $7.00/ bushel wheat crops mind you. Reply With Quote
Sep 23, 2007 | 08:25 11 I think you've hit the nail on the head! Reply With Quote
Sep 23, 2007 | 09:02 12 So what can we collectively do about it Jeff?

If you have not totally given up on the potential to change course at ABP/CCA, what would be on your wish list. My conversations about the destruction of ABP are more based on hopelessness for the status quo to change than anything else. However, I am a very hopeful individual and thus my decision to put my name in the hat, and search for others who see major change as essential.

What is it that the new founded National Cattle Feeders Association wants? Maybe joining forces with the Alberta Cattle Commission might be the way. I am afraid that my vote will not include a seat at the table for our competition for any hope of profit in the current "Canadian" LOL packing industry. Reply With Quote
Sep 23, 2007 | 11:53 13 So if cost of grain is the main problem affecting feedlots how much are you prepared to pay producers to grow cattle out on grass BFW? Surely it should be quite a bit higher than the rates per pound paid in previous years when grain was cheap?
How long do you need a grass reared steer in your feedlot to add the required "barley finish requested by consumers?" AKA removing the health benefits and loading up the saturated fats lol!

I see huge potential for moving cattle out of feedlot alley and back onto the pastures owned by aged producers who no longer want to feed and calve out cows over winter. Despite talk of high grain prices there is an awful lot of this province that can't grow grain worth a damn, blame it on early frosts, late springs, heat blasts, cool temperatures or whatever. It's obvious to me that this land would grow grass a lot better than it will ever grow grain. Given that any increase in grain prices will be offset by farmer's input price increases this land will be no more economic to farm than it has been in the past. Turn it green and lets grow some better beef - healthier for the consumer, the land, the environment and possibly even the producer. Reply With Quote
Sep 23, 2007 | 16:01 14 ...grassfarmer would that not require a new system of grading...i don't think the packers would be in any hurry to change the system they have set up...and if they were to change are they not still in the power of position knowing your animal has to be slaughtered... Reply With Quote
Sep 23, 2007 | 17:09 15 I don't think there is much we can do about the current market situation except manage our own affairs. The US farm bill and energy policies coupled with demand for grain (energy) from around the world will have dramatic impacts on livestock production everywhere not just here in Canada. In short I think the outcome here is a downsizing in the cattle industry to pre 1990's levels.

As for your comments on the ABP, (and I may regret this) I think that the only way to drive serious change there is to have its source of funding removed. A refundable checkoff would instantly remove the sense of entitlement that permeates the ABP and make it more sensitive to the challenges that our industry faces and more able to provide a little leadership to help it get there. Reply With Quote
Sep 23, 2007 | 18:21 16 BFW, I absolutely agree with your suggestion to reform ABP by cutting their financial lifeline. I have proposed before, and likely will do so again this Fall, that producers have the option to divert their levy dollars to an alternate organisation. As the ABP like to preach the value of a "free market" and the Alberta Government believe in "marketing choice" I think this could happen easily if producers decide to back it.

You didn't answer my question about the value of grassing more cattle for longer outside a feedlot to negate the higher cost of grain. Reply With Quote
Sep 23, 2007 | 20:14 17 I'm not sure how to answer your question Grassfarmer. Right now the price of feeder cattle will drop to a level that allows a feeder to use some sort of feedgrain to get that calf to slaughter weight. If someone with access to a lower cost method (grass, hay etc.) then I guess that person will be in a position to bid that animal away from the people feeding grain. I agree with you though that cattle will go on feed at heavier weights than in the past. Reply With Quote
Sep 23, 2007 | 21:22 18 Really what I was talking about was the custom business... many feedlots send cattle out to custom grazing operations now. What I was asking is are the feedlot operators who do this now paying an enhanced rate per lb of gain to the custom grazing operatives compared to when feedlot gains were cheaper? Or are they paying the same rate per lb of gain and pocketing all the benefit? Reply With Quote
Sep 24, 2007 | 10:59 19 Interesting article follows:

Flexibility key to rural survival
High loonie, BSE, biofuel boom, test farmers
Sat Sep 22 2007

IT'S no secret that the prospect of a dollar at par with the American greenback is seen as a win-lose scenario for Canadians.
On one hand, if consumers aren't already reaping the rewards of lower prices on the goods they purchase, they should be soon. But if they work in agriculture or manufacturing, they also have less money to spend.
And unfortunately, that makes it tough on rural Manitoba, a region heavily dependent on both. Manufacturing has been touted as one of the options rural developers have for replacing jobs lost in agriculture as the cost of communication and transporting goods by truck and rail has declined. But rising fuel prices are making long-distance hauling much less attractive and manufacturing is one of the sectors hardest hit when currency values rise.
Most agree that the loonie's burst into parity will take a bite out of farmers' returns. But thanks to booming commodity prices as a result of short supplies and heightened demand from the biofuel sector, they might not even notice.
One of the biggest impacts will be felt by cattle producers. The dollar's latest surge came only days after they learned the United States is finally moving forward with provisions that would allow cattle over 30 months of age to be imported.
It would seem the Bovine Spongiform Encephalopathy (BSE) saga is finally entering its final chapter, which is a huge relief.

"We've waited a long time. It shows the possibility that we might get back to normal pretty soon," Canadian Cattlemen's Association president Hugh Lynch-Staunton told reporters.
But familiar should not be confused with normal. As BSE's long shadow has faded, feed costs have risen because of competition for grain from the biofuel sector, while producer returns have shrunk due to a stronger currency.
A recent study commissioned by the National Beef Industry Development Fund into the impact of an appreciating Canadian dollar found that both cow-calf and feedlot operations incur significant short-term losses, but that cow-calf operations bear the brunt of negative impacts.
"In the long run, it is expected that the full burden of the exchange rate appreciation will be borne by the cow-calf operators as the loss in value will be incorporated into the value of fixed assets, namely land. The feedlot operations will in the long-run return to acceptable margins by simply paying less for feeder cattle," the report said.
Researchers found the stronger Canadian dollar had little impact on the number of cattle sold, only their value. Cattle prices drop one per cent for every one per cent increase in the Canadian currency.
This study's authors challenge the popular view that a weak dollar improves Canada's competitiveness.
Rather, they argue weak currency values reflect a country's lack of competitiveness. It simply doesn't make sense to build an industry around a weak dollar.
The stronger dollar forces packers to more closely align operating costs, particularly labour, with the U.S. "During the 1990s packers were very low-cost relative to the U.S., largely due to the cheap dollar. As of 2006, this low-cost, dollar-shield advantage has largely eroded," the report says. If there is any good news to emerge from the BSE debacle it is the impact it had on Canada's domestic beef processors. They enjoyed windfall profits in the early BSE days as the demand for packer space drove down market prices, while there was no corresponding decline in consumer prices. Post-BSE analysis found profits for the Big Three -- Cargill, XL Foods and Lakeside -- surged a whopping 281 per cent, while farm cash receipts for cattle dropped 34 per cent.
However, at least some of that money was invested into increasing the industry's capacity and its competitiveness. Domestic processing capacity rose 24 per cent in 2004 and is expected to increase another 19 per cent by the end of this year. Domestic slaughter capacity has risen 3.5 million head to more than five million. The more cattle Canada can process efficiently at home, the less likely producer returns here will be affected by currency fluctuations.
In short, the new millennium has so far been full of surprises for the rural and agricultural economy.
No one predicted BSE, the impact of being shunned by international markets, or the outcome by way of a more competitive packing sector. Analysts were flummoxed by the dollar's drop to unprecedented lows in 2002 and they failed to forecast its phenomenal recovery in 2007. As for the biofuel boom, no one saw it coming and it could well be over before people have its implications sorted out.
Taken together, these events suggest we're entering a new era of marketplace volatility, a realm in which winners are differentiated from losers by the flexibility and resiliency of their business plans.
Laura Rance is editor of the Manitoba Co-operator. She can be reached at 792-4382 or by email: laura@fbcpublishing.com Reply With Quote
Sep 24, 2007 | 13:43 20 One of our disadvantages (whether you are a big packer fan or not) is simply that our investment in equipment/technology is behind our competitors. So our labour produces less with the same amount of work. The low dollar contributed to this as new equipment from foreign suppliers was more expensive to purchase. If the dollar stays up long term, then look for either closures/relocation of processors, or an investment in equipment/technology to enhance labour productivity.
I think the cow/calf guy will take the brunt of low prices and many will exit, although I do see some solutions for some producers who want to take a different road. Reply With Quote
Sep 24, 2007 | 22:36 21 What kind of different roads do you foresee Sean? I see alot more backgrounding on farm as grassfarmer and rkaiser eluded too, and alot more direct marketing. Nothing increases cash receipts at the farmgate like town folk driving in with cash, and leaving with produce. I see a few changes like these in the future of our own place, because it's something we can do without great expense. We have the grass and water to grow beef. We may not be able to sell every animal consumer-direct yet, but the more we can, the more dollars stay in my pocket and not in those of ABP/CCA/XL/Cargill/feedlots/auctions/order buyers, etc. Reply With Quote
Sep 24, 2007 | 23:46 22 Pandiana, I'm not sure what the article you posted was really about but it doesn't make a lot of sense to me.
Among the most crazy statements in it were the 19% increase in slaughter plant capacity coming on line by the end of 2007 - where is this happening and are we also remembering to reduce cull capacity by the number of closures we have had?

Also the statement that slaughter capacity has risen 3.5 million to more than 5 million. That implies we started at 1.5 million which means we have increased capacity 233% doesn't it?.... since when 1970?

Also in the conclusion "or the outcome by way of a more competitive packing sector." How is it more competitive? there are less players now controlling more of the capacity. The article indicates "our" packers are not as competitive with US ones as they were in the 1990s due to higher wages. Reply With Quote
Sep 26, 2007 | 08:25 23 I see a couple of opportunities including the grassing/backgrounding one. There are some opportunities for lowering winter cost for some operations based on aftermath of grain production. For a lot of guys electric fence and controlled grazing is an opportunity they have not yet taken advantage of.
On the other end, I think there is opportunity for retained ownership, some direct marketing (although never forget there are only 32,000,000 Canadians), and further foreign marketing opportunities. I also think we will see some ownerhsip opportunities for producers in regards to processing facilities. I am not sure what these are yet, but I think it certainly has some potential.
I do think that many producers are going to leave the industry like it or not, and the big will get bigger. I just heard of an expansion last week to be at 3000 cows. Reply With Quote
Oct 2, 2007 | 21:49 24 It'll find a balance, eventually, but in the meantime, I think we're going to lose more producers. I heard the other day that in Manitoba the bred cow sales are booked until the end of the year already. In our province there are a lot of older producers who just want out. They've had enough.

We, on the other hand, being the thrill seekers we are, will stick it out. I guess we're just adrenalin junkies.

One bright spot to a high priced grain market is that overweight cattle just aren't there to add to the burden. Reply With Quote
Oct 3, 2007 | 10:16 25 It will all come out in the wash. We'll finish our cattle again I imagine-the feedlots will compensate for the high dollar and high grain with the prices they pay for cattle. It's amazing how some of the best years to buy and sell cattle end with a '6 or 7'. The most money I ever made on grass cattle was spring of '96 when the price cratered. The old adage 'When your crying you should be buying' was true then and I have a feeling is true this fall too. Most guys will do the lemming rush to the stockyards though I imagine. Reply With Quote
Oct 3, 2007 | 20:25 26 True enough most calves will get sold at auction regardless of price, but if you are having your cattle custom fed won't you be paying for the high priced grain too? I imagine the custom lots will be protecting their margins on this enterprise in a similar fashion to bidding down calf prices. Reply With Quote
Oct 4, 2007 | 00:12 27 Most times when feedlots start to buy their breakevens they tend to crack back orices a little more than they probably have too-when they get the rose coloured glasses on they tend to spend more than they should too. I'll take my chances on feed before I'll do the dump and cry. Reply With Quote
Oct 4, 2007 | 08:47 28 One of the biggest problems we have are all these futures traders and industry forecasters being complete damned idiots. I've been watching grains going up and up and my calf prices going down and down and then I hear on the radio yesterday:

"US futures prices took a hard hit today when industry analysts realized that the US harvest is going to be far in excess of original expectations and that demand for ethanol was going to be lower than expected due to lack of plant construction in the US."

I say we ban futures trading from the commodity market, as these idiots don't really have a clue whats happening from day to day, yet we producers have to pay for their mistakes. Reply With Quote
Oct 4, 2007 | 20:12 29 Good luck banning future trading....I have always been amazed that you could make more trading farm products, than actually growing them....especially if you invested the same amount of capital!So... who is smarter? Traders or growers. Reply With Quote
Oct 7, 2007 | 22:32 30 I wonder if the new cash advances will keep some calves off the market this fall? Reply With Quote