Can Anyone Tell me the Profits in Supply Managed Commodities?

[ASRG]

The discussion below on cow prices got me wondering about profits in agriculture?
I had suggested 8% would be an acceptable profit for buying heifers and selling them as breds, 7 months later?
I'm not sure how dairy/poultry products are priced? Apparently the supply mangement boards come up with a cost of production and add some sort of profit structure? Trying to find out how that is done is difficult, so was just wondering if anyone knew what percentage the profit is above production costs?

[kato]

Good question. Whatever it is, it seems to keep everyone in business. I don't begrudge them that though. If someone is willing to take on the type of 365 days a year grind of chores it takes to run a dairy, I say they should be paid for it. The closest we beef producers come to that type of scenario might be during a really heavy rush of calving, or maybe getting a batch of difficult feeders started up. We wouldn't want to do that non-stop year round without some kind of payment for our trouble.

Our comfort level when budgeting the potential profit on a batch of backgrounders always used to be $100.00 per head profit. It was a good number to put in a budget, because it had enough cushion that we could get out from under them if feed went up or prices dropped. And we used that cushion, more than once. ;-)

That figure is pretty much an impossible number nowadays. So our comfort level has dropped accordingly, to the point where we are staying out for now. The best we can figure in a budget is a break even. Any scenario that requires the prices to go up when you sell in order to make a profit is out of the question. IMHO

[grassfarmer]

I don't know what margin above average production
cost the body setting prices in say milk would
consider reasonable. I know one dairy producer told
me his net return per annum was around 4% of his
total investment i.e. land, quota, machinery and
livestock. So $40,000 net profit per million$ invested
which I think is pretty fair. Should note this is with
good management - although the milk price is
guaranteed there is no guarantee of profitability, that
depends on the individual producers ability to
manage his business successfully.

[Happytrails]

It seems wrong to me to include the cost of quota. It has nothing to do with cost of production, only regulation.

[grassfarmer]

Not sure if you were referring to my post HT? I'm
assuming you were as I mentioned the producer
worked out his net profit relative to his asset
investment in the business. I think thats fair - if you
were deciding to buy a dairy farm tomorrow you'd
need to buy quota at @ $40K/cow so to pencil your
potential return you'd need to account for this outlay.

I might be wrong but I don't think quota cost or
fluctuations to that value are included in the price
calculations the regulators do to determine the milk
price on an ongoing basis - I believe that is more
closely tied to direct production costs - inputs like
feed, fertilizer, labor etc.

[ASRG]

It seems to me the guys still in the dairy/poultry industries are pretty good managers? the ones who weren't are basically gone?
I'm old enough to remember when Liberal Ag Minister Eugene Whelan offered beef and pork the same deal? The beef and pork industry turned him down. Was that the right decision?

[wilagro]

Interesting aside: Wikipedia.org

Eugene Whelan was appointed as Canadian ambassador to the Food and Agriculture Organization in Rome, prompting Progressive Conservative Party of Canada leader Brian Mulroney to promise to rescind the appointment if he became Prime Minister. Mulroney won the 1984 election, and recalled Whelan as one of his first acts of office.

Brian was a nasty person even then.

[kato]

Eugene Whelan was quite a character. If my memory serves me correctly, either you loved him or hated him.

But he is also the last Ag minister that sticks in my mind as actually being on the side of the farmers. Since then, it seems that none of them had our interests on a higher priority than the party line, or the career. Whether you agreed with his policy or not, you knew he was doing what he considered good for Canadian agriculture. At least he seemed like he had good intentions. Which is more than a lot of them have had.