Dollars...

[grassfarmer]

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.

[BFW]

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.

[grassfarmer]

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?

[pandiana]

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

[smcgrath76]

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.

[PureCountry]

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.

[grassfarmer]

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.

[smcgrath76]

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.

[kato]

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.

[cswilson]

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.

[grassfarmer]

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.

[cswilson]

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.

[DiamondSCattleCo]

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.

[perfecho]

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.

[kato]

I wonder if the new cash advances will keep some calves off the market this fall?