Selling Calves this Fall

[pickarock]

I am sure most of the cow/calf guys have been thinking of what they are doing with their calves this fall. Should be hanging on as long as we can to them or dumping them and taking our loss right away. What are the bankers saying...... went to a mtg the other nite and gov't types say the "new super nisa" will help us out.

[15444]

I am planning to sell all the steers and the poorer heifers this fall, but might just wait to see what the New Super NISA is like. My neighbour sold his calves off the cows two weeks ago, got 70 to 85 cents a pound.

[NeilS]

My neighbor is a cow-calf operator who thinks the border will open soon for young animals. His reasoning is that the feedlots south of the border depend on Canadian calves or they will be short of animals. He also underestands that the younger animals are considered low risk for BSE, paving the way for calves next after boxed beef.

[kato]

I have heard the same thing. Apparently, "according to the science" young animals and boxed beef are on par.

But then again, "science" hasn't always meant much lately.

[jmillang]

I agree that young cattle are likley to be next on the importation list but the world of politics and trade are making things interesting.

The US sends as much beef into Japan as Canada sends into the US. So the US is not very likely to jeopardize that market for the sake of a importation of CDN beef. If you read some of the material that is posted on the USDA website as to what they are proposing to the Japanese as certification of CDN free product we won't be shipping CDN calves for a while. The USDA is proposing that only product that is killed in the US is "certified" CDN free so we won't be killing CDN calves in the US for a while unless the japanese reduce their demands on what they consider BSE free.

on the good news side the US feeders have capacity they can't use as there are not as many calves out there as they have feedlots so if they really want to feed cattle they need to bring their equity up here and invest in either calves or lots. Also in Alberta we have two packing plants that could utilize thier boxed beef operations to a heavier demand and thus we could fill some pacific northwest demand via boxed beef rather than live cattle.

The only thing for sure is we don't / won't have a normal market this fall and for some period of time. We now live in a new marketplace (which may be better than the old one).

[jmillang]

Interesting comments.......it defintely is not going to be a normal fall, yes American feeders want our calves, but the Japanese requirements and the America desire to maintian their export maket to Japan may well lock our live feeder cattle and slaughter cattle out .........I have not heard if feedlots in Alberta are placing cattle on feed, but I suspect that they are positioning themselves to do so, cow calf operators are going to have to be market sensitive and be very prudent in their makreting throughout the next six months .......personally I am prepared to sell my steers if the return is there $1.00 per pound or more for 500- 500 steers(intend to market end of August), but all of my hiefers will be remaining at home ........ I have lots of feed and and am in a good cash position so I can afford to string it out, but there are plenty of guys around me that are not, so I anticipate that the market will be flooded by the middle of September to the end of October whether the money is there or not! If the steers do not sell then they too are in the yard for the winter!

[topper]

It's interesting to hear what others are planning but I think no one has enough facts to make a proper decision on fall marketing. The way I see it is if we sell our calves this fall we are for sure going to get a beating and if we keep them until spring we maybe have a fifty-fifty chance that the americans will be taking live cattle and prices will be a little better. So I think I will be keeping my calves till spring and at least getting a chance at better prices. I realize that others because of economics will have no choice but to sell this fall, they may however turn out to be the lucky ones. Who knows!!!!Just think back to the drought last year and think about all those that where forced to sell off their cows, I imagine some of them feel pretty lucky now.

[kato]

It wasn't that long ago that some producers here in Manitoba were forced to liquidate due to TB. It was a horrifying prospect at the time. Who would have thought then that it was really a blessing in disguise! The compensation level for those cattle was pretty good by today's standards.

Just goes to show that you never really know how things will turn out. Maybe this cloud will have a silver lining someday. :-0

As for selling calves, we usually sell as short keeps, so will do that again. Our problem is cashflow due to the lack of cull cow sales this fall. Some calves may have to go to fix that problem.

[topper]

Kato: Why wouldn't you take that 50,000 that the manitoba government is offering rather than give some of your calves up at below cost of production pricing. Just curious as I was thinking of taking that loan for cash flow. I know people don't want to go further in the hole but money is money and I think that it is probably a better option than emptying the bank account or selling calves cheap.

[cowman]

If the Americans open the border for really young stuff(calves) we will see a massive stampede of calves heading south. Good for the cow/calf guy but the end of the feeding business in the west. And then next year we get whatever the Americans feel like paying us! Of course our grain farmers will have to find a new home for all their feed grain. I guess those nice Americans will be glad to take it off their hands...if the price is low enough!
Make no mistake here...this is not about "mad cow"! This is an out and out takeover of our resources by a greedy nation of pirates! And we wonder why most of the world hates America?

[rsomer]

jmillang: "The US sends as much beef into Japan as Canada sends into the US"...Since Japan’s outbreak of BSE in 2000, U.S. exports to Japan have declined. In 2002 the dollar value of Canadian imports to the U.S. exceeded the value of US exports to Japan. See: http://www.cbc.ca/news/indepth/background/madcow_canusjapan.html

U.S. exports to Japan would be expected to suffer further declines as Japan raises import tariffs from 38% to 50% effective August 1, 2003. Depending upon how much Canadian beef the U.S. allows in under permit after August 8, I optimistically suggest Canadian exports to the U.S. could again exceed U.S. exports to Japan in 2003. Without significant imports of beef and live cattle from Canada I would question whether adequate volumes of beef, particularly the beef with white fat that the Japanese prefer, are available in the United States for export to Japan.

"on the good news side the US feeders have capacity they can't use as there are not as many calves out there as they have feedlots so if they really want to feed cattle they need to bring their equity up here and invest in either calves or lots.".... I don’t believe U.S. feeders will invest in Canadian lots. It will be a risky venture for anyone, American or Canadian, to feed calves in Canada from this point forward. There is no effective price risk management mechanism in Canada anymore, other than government ad hoc handouts which may not be there for the next pens of calves. There is a risk of more BSE positives if, as some suggest, testing is increased. As long as that border can be closed on a moments notice as it was May 20 the price risk of owning calves in a Canadian feedlot is very significant. American or Canadian feeders will need to pencil in a profit per calf fed in a feedlot in Canada of many times, perhaps 10 times, the profit needed in an U.S. lot to offset the border related price risk. Since the risk at this time is equal for a feeder calf whether owned by an American or Canadian the Americans have no competitive advantage here. If our calves are so cheap the Americans are buying them then I should be feeding them myself, taking the risk but expecting to get the profit too. Obviously with the price risk management situation on the Canadian side of the border, once the border opens to live cattle, feeders will all move south and it would not be a good investment to own a feedlot in Canada.

Simply said, no one is going to fatten a calf in Canada for $25 a head anymore. Canadian feedlots will not be competitive once live cattle can move into the U.S.

"Also in Alberta we have two packing plants that could utilize their boxed beef operations to a heavier demand and thus we could fill some pacific northwest demand via boxed beef rather than live cattle"...The USDA will allow live American fat calves to be slaughtered in Canadian packing plants and the meat returned to the U.S. as U.S. production, no permits or restrictions on boned cuts. That helps our American owned packers, but does little for the Canadian cow-calf producer in Alberta this fall. It is incredible to think that Canada is allowing U.S. live cattle imports, a significant number of which are infected with the more serious List A disease Blue Tongue while the OIE considers BSE a less serious List B disease yet the Americans won’t allow our cattle into their country based on a single positive. And Blue Tongue is contagious while BSE is not.

"We now live in a new marketplace (which may be better than the old one)"... Any better and we would be giving our calves away. It is the same marketplace, same consumer, only the politics and risk has changed.

[kato]

Topper..our problem is that MACC wants security on the loan. We know they are offering to value the cattle they take at a fairly good rate, but we don't know what the bank is willing to value them at. We are strictly a cattle operation, and cows are the main security on the operating loan at the bank. We don't want to find ourselves in a situation where we have no security left for our bank operating loan. To make it even more complicated, we just lost our loan manager at the bank, and don't even have anyone there to talk to about this.

Getting money from one MACC, only to have the bank say "You are undersecured on your operating loan, and we want it all paid off now" is not getting us anywhere. It can and will happen, trust me. We had the bank pull that stunt back in 1995, and it really hurt badly to have to come up with a bunch of cash, exactly when it is the shortest. It left us with a severe distrust of bankers.

We are going to keep an eye on the situation though, and once we do the math, you never know. One day at a time.

[pandiana]

rsomer. "Simply said, no one is going to fatten a calf in Canada for $25 a head anymore. Canadian feedlots will not be competitive once live cattle can move into the U.S." I am not sure I follow this argument. Assumming a resolution of the BSE problem, what has changed, dollar-wise, in feeding cattle in Canada? We still have a advantage in the exchange rate. We still produce a tremendous amount of feed and forage (in a decent year).

Your point on price risk management is well taken for exporting to Canada, but American feedlots have similar constraints in feeding cattle as Canadian feedlots (excluding a confirmed case of BSE).

[topper]

Kato: I talked with MACC and they say that they will be willing to take second charge on this loan unlike their policy on stocker loans. They also say that they will apply this loan to operating loan paydowns if the banks will agree not to cut the operating loans off after they are paid down. I talked to the bank and I think there will be little problem with them agreeing to this as they don't want worthless calves either and they will still retain first chance on the cattle. Hopefully things will get a bit better and a person won't have to consider this loan but I think it will be a workable option if worse comes to worse.

[rsomer]

pandiana: you said "Assuming a resolution of the BSE problem, what has changed, dollar-wise, in feeding cattle in Canada?"

The politics has changed and politics has a direct impact on investment in the cattle finishing industry in Canada or the U.S. and elsewhere.

I believe what has changed is a new recognition that politicians can close the border. Producers knew this could happen however, before May 20, the risk of the border closing was largely ignored. Not any more. If the border closes it is much better to be on the south side of the line than the north side.

I see the USDA allowing American beef to be slaughtered in Canadian packing plants and returned to the U.S. without restriction while continuing to restrict and discriminate against Canadian beef as negative for the Canadian feeding industry.

COOL is still out there with the possibility that it could be amended to allow foreign cattle finished in U.S. feedlots to be considered U.S. production. This amendment is favoured by Texas producers wishing to access Mexican feeders but it impacts the Canadian industry as well.

I see comments in beef magazines and rural newspapers that Americans will come up to Canada and buy our lots. Myself I see the politics pointing to the movement going the other way, Canadians moving their lots south. Some things are supportive of Canada’s feeding industry though.

It is possible that due to environmental concerns there is no room for expansion of the U.S. feeding industry just like we have run out of room in Alberta’s feedlot alley.

Governments in Canada have supported the feedlot sector through this crisis. If feedlots feel they can rely on government to provide adequate risk management in the event of another border closing this removes much of the risk associated with being on the wrong side of the border i.e. in Canada. Given the degree of concentration in Canada’s finishing sector with the majority of cattle owned by 33 large feedlots I am concerned that it is not politically correct to hand over hundreds of millions of dollars in government support to a few very large multi million dollar feedlot operators. As a result government support to the feedlot industry is more difficult than spreading the same dollars around to thousands of cow calf producers. The federal government support may not be able to save the feedlot industry.

However, the Alberta government has set a goal of increased agricultural value adding by 2010. Growth in the feeding industry is needed to achieve this goal. Given the impact the Crow Rate Offset Program had some years back on growing the feeding industry in Alberta one should not underestimate the degree to which Alberta could influence the feeding industry to remain in Alberta rather than move south. Kind of hard on Saskatchewan though.