Are Feedlots Making a Killing?

[kato]

We are some of those crazy people who still buy calves to background, as well as having a cow herd. What we're finding is that our own are too cheap to sell, and the backgrounders are too expensive to buy.

We get to see and have the joy of experiencing both sides of this debate. The thing keeping us from paying more for calves is the risk factor. I'm sure there are lots more out there like us that just don't have the resources or the nerve left to take a big chance on much of anything any more. We've been told things are going to turn around this batch, only to find that they didn't, so many times that we've just quit listening to the optimists. We now go into every batch we buy with the assumption that something is going to blow up in our faces before those calves are gone.

"The border will open, and then things will be good". No they weren't.
"Once the border opens, we'll get new export markets." No. Didn't happen.
"Now the border is open, so things will be good." No, now we have world record feed prices.
"Now the border is open, cattle numbers are down, feed and fuel are down, and the U.S. is looking for cattle." No. Now we have MCOOL.

What next? Oh yea, Alberta and their go it alone subsidies. Are we going to be able to sell cattle from Manitoba into Alberta? When will we wake up some morning and find that the hundred non age verified calves in the yard have nowhere to go? Auction marts in this province don't seem to think anyone needs age verified calves, so there's no such thing as a supply to buy. We want them, but can't find them anywhere in decent numbers, especially the small ones that we buy.

We're getting tired. Very tired. Not ready to give up yet, but we're sure seeing lots around here who are. Never ending uncertainty will be looked back as one of the biggest causes of the end of the cattle industry in Canada.

And I agree with you guys, CAIS and it's replacements aren't doing a thing for us any more.

[farmers_son]

BFW: I was using a 67 cent cost of gain. Penciling in a $50 profit for the feedlot and 95 cent fats that worked back to a 600 pound steer purchase price of $700 or $1.17 a pound. The best price in the local auction is $1.00 a pound leaving $17 cwt on the table. Not $20 but close.

If my numbers are wrong you would be doing me a favour to steer me right. I was using $3.25 barley and silage per ton priced 12 times barley per bushel. These were home raised calves so I had no relevant buying or selling costs. Health problems are minor although I used a 2% death loss. Most often I do not lose any calves.

[grassfarmer]

OK farmers_son here is my take. The charge you are making is that the feedlots are going to make $150 instead of the $50 a head you deem appropriate. That's based on assumptions that may not be correct.
1. you price silage on 12x current barley price rather than 12x the higher barley price in August when it was actually bought.
2. You assume all the grain fed will be at the price you quote which may very well be the low point in the market.
3. You assume you will sell the steer you buy today for 95c/lb - you might or you might sell him for 85c/lb - its all a risk.
Its easy to paint a best guess scenario but the feedlot is not going to risk its financial future on such wildly optimistic guesses.

Taking about making a killing - here are some figures of my own for packer/retailer profits, perhaps you would like to turn your sleuthing abilities on them?
As I've outlined before using figures for my own beef retailing business fed cattle prices are well short of where they should be. An average 600lb carcase of mine retails for $1620, I pay $420 to the processor plus delivery costs. Leaves me with $1200. Now the commercial fed cattle price in October when I shipped my steers would have been around $920 and we know that I only charge 75% of the average beef retail price. So the enhanced retail price of my 600lb carcase if i'd sold him to the packer would have been $2160. Now I am paying a very high price to get my cattle processed but even using that high figure ($420) and assuming the packer pays me $920 for my live steer he is $820 ahead!
The packer and retailer are taking this much between them on every steer!! - and you accuse the feedlots of making a killing?? if they only took $500 profit between them it would still enhance the live cattle price by over $300 a head!!
You reckon feedlots should take all that risk for $50 a head yet are happy to see the packer/retailer make nearly as much on each animal as they are paying the producer for the animal in the first place.

[BFW]

Farmers Son I think your numbers are reasonably close for your area. The only part of the equation I question is the price of the 6 weight steer. Buying the good ones today would cost you upwards of $105/cwt in the ring anywhere from Ponoka south. Add freight and commission and you are an easy $107-$109/cwt delivered. The 95 for fats delivered to Brooks or High River is pretty close to being achievable depending on the effects of MCOOL as we get into larger numbers here. There in lies the problem as Grassfarmer has pointed out. The risk in finishing cattle has risen substantially since the implementation of MCOOL and the only protection a buyer has is to buy the feeder animals as cheap as possible. I know this only speeds up the slaughter of the cow herd but there is no other solution in the short run. CAIS offers very little protection in this environment and is virtually useless if you have diversified operation with the grain side kicking out good returns. The AFRP payments where helpful and I think without them the feeder market would not be what it is today. Also the lack of a US bid on calves is also contributing to the wide feeder basis. The market is what it is and the risk of retaining ownership for producers is as great as it has ever been given the number of potential landmines out there.