Margins are Tight

[ValueChainFX]

pandiana you are right in asking why the tax payer should pay, and are the farmers making a living, and is this a disaster, and how do we get a handle on our costs?

I do believe that the tax payer pays one way or the other. I also believe you can prove anything on paper! I see many of the guys doing their calculations on input costs and margins in a rather creative way sometimes.

All we can really do is the best we can. Knowing that big business is there at every corner trying to "DO THE BEST THEY CAN TOO"!

From all this mess, I think the producer has opened their minds up to some of the possibilities. Many remain skeptical and cautious, as they should be. But knowing that they are not going to come out of this mess and gain ground by themselves may be the only silver lining in this cloud. Now the trick is to find enough good people to make working together profitable to us all! Can we do it? I hope so.

[cowman]

Well I guess you might just be right and maybe I've been looking at it all wrong. I do know it seems like at the end of the day I have less purchasing power from my agriculture pursuits! Not necessarilly less money...it just won't buy very much anymore.
It's like you sell a big calf and get $800 and it won't even fill up the gas tank where 10 years ago it filled it up twice! Somewhere along the line "real" prices to the primary producer are slipping pretty bad.
I see so many farmers today just looking for a way out. Not just in cattle but grain farmers and hogmen. Five years ago or so a pig barn was a ticket to success...now it seems to be nothing but drudgery and doom. I don't hear any pig farmers expressing any kind of optimism. They seem to be actively looking for a way out.
I suspect in the next ten years or so we will complete the farm "revolution" where the small(and not so small)traditional farmer will be gone. Years of neglect and the rising cost/price squeeze have made our whole industry an industry of old men. And in the long run maybe that is a good thing. No longer will our children have to live a life of debt,drudgery and lack of appreciation! There are so many opportunities for a young man(or woman) today if they have a can do attitude. Maybe better not to waste their life on agriculture!

[rsomer]

The local auction sold cows last week for as low as 5 cents per pound. A year ago at this time they brought 50 cents per pound. No need for a calculator to know if that is a disaster.

I have worked out that the average cow calf operator will have a cash deficit of at least $150 per cow this year. Actual accrual losses will more than that. When we recall how many cows were sold and herds dispersed last year because producers were unwilling or unable to approach their not so friendly banker lady for $150 per head to purchase feed we can get some appreciation for the disaster that is coming down the pipe once the calves are sold and the cattle cheque doesn’t make it to weaning time next year. And this time there is no market for those cows.

""aye ye can prove anything with a bit of paper and a pencil" I think the numbers cowman put up which I see elsewhere all the time are really trying to drive home the point that cost of feeding the cow is significant and reduced feeding costs are necessary to offer any opportunities for profit. Unfortunately I think many miss that and instead take home the message that there is no money to be had raising cows. The point I was trying to prove is there is money in cows once the debt is paid off and if you hang onto the cows tail she really will pull you through. Before that happens of course money is real tight. But cattle can provide a reasonable living once debt is paid off which takes 25, 30 or more years. A better living at the end of the road than would be provided by the alternatives available for many if they left the industry which they will if all producers ever see is depressing information like in the article.

[grassfarmer]

I agree that sweeping generalisations of how bad the economics of cow/calf are will depress people unnecessarily. All too often we read the figures - rough figures, of the cost to feed a cow, take Cowmans last quoted figures. He costs hay for a cow for the winter at 35lbs/day x 4 c/lb x 200 days to come up with $280 a cow. I would argue this is where management comes in as you can feed less (and cheaper)hay for less days and come up with a very different result. Feeding hay at 35lbs will be way more than a cow needs early in the winter so that can be replaced with some straw in the ration. Allowing for some straw usage plus hay at 3 - 31/4 cents a pound it should be possible to reduce the "hay" cost from $280 to $180 or less which makes quite a difference to the bottom line. I believe that if you want to make money at this job you need to make these efficiency savings - after all this is the easiest part of the production chain for the rancher to control.

[pandiana]

grassfarmer: How big are your cows? Do you feed straw to your cows in the 2nd and 3rd trimester. How much grain and supplement to you have to feed and at what cost to balance these rations? I agree that feeding the lowest cost ration makes sense. On the other hand all things have to be considered.

[grassfarmer]

Pandiana: My cows probably average 1400lbs although in future i'll be trying to breed them closer to the 1200lb mark.
I'll feed what ever I can buy economically and use one of the local merchants Cowbytes programs to balance my rations. This winter it looks like they will start on ad-lib straw with a ration of silage every second day. As the winter moves on they will get more silage in the ration and post calving I will drop the straw portion although they will still have some available to fill up on. Last winter they were on a blend of grass silage and high dry matter canola silage because straw was unavailable at a realistic price. Doesn't look so nice this morning for extended grazing this fall but if the weather cooperates we should get through to mid December on banked grass and stubble grazing which cheapens the winter feeding period.

[rsomer]

People tend to focus on feed and overlook an important cost item - interest and debt servicing. Cowman indicated $131 per cow interest/depreciation. The Farm Financial Survey 2000 pegged the average debt to equity ratio for a cow calf operator at 15.3%. I couldn’t find an exact number but am assuming $8000 capital per cow which works out to annual debt servicing requirements of $150 per cow based on 7.5% interest over 10 years. Any depreciation would be on top of that. Which ever number you accept debt servicing would be second in line of importance just behind feed and pasture costs. Cattlemen are going to be strapped for cash and be hard pressed not to accept the interest free advances proposed as a solution by the Canadian Cattlemen’s Association and government. They will be damned if they do yet damned if they don’t take on this additional burden of debt and fall deeper into the debt hole. Once debt servicing plus cash operating costs and income tax total more than receipts the operator begins a downward spiral into even more debt that is difficult to stop. A significant portion of this debt would be owed to various government lending institutions.

[cowman]

rsomer: Never be hesitant to grab some of that interest free money! Just realize it has to be paid back. So don't go out and blow it on a new pickup! But interest free government money can replace the banks money so that can be a good thing?
I know the 35lb.hay thing is way too high and yet I bet lots of people feed/waste a lot more than that. With decent straw(and hopefully lots of it) you can get the hay portion down to that 20 lb. rate if it is fairly decent hay. Seldom does barley make much sense for cow/calf unless it is cheap and hay pricey. Cheap straw is a must...which it certainly wasn't last year! I like the idea of extended grazing and practice it myself on a limited scale. If it snows early the grass is still there in the spring.
But in reality I'm not making any money on this land because it is just worth too much. Way too much to grow barley on or canola or cattle or hay. What it really needs growing on it to make any money is suburbanites,horses and dogs! Which will happen but I hope I don't live long enough to see it!

[pandiana]

"But cattle can provide a reasonable living once debt is paid off which takes 25, 30 or more years. A better living at the end of the road than would be provided by the alternatives available for many if they left the industry which they will if all producers ever see is depressing information like in the article."

rsomer, what are we living on while we wait 25 o 30 years?
Yes, this thread is depressing. My bottom line is very depressing. I am a realist, I like to see things as they are so that I can make realistic decisions. I want to see if I am on the same page as everyone else or is my operation unique in some way. If this is a common problem, then like valuechain, I believe the only hope of changing the way the beef industry works is by working together towards a common goal.

[rsomer]

While we are working to pay down the debt, we make some personal sacrifices. No fancy vacations, no RV, our van and ¾ ton have both just hit 399,000 kms. But rather that and have a paid for farm someday than live in town and end up old with nothing more than a house and car to show for it. When I was starting I bought a parcel of land with nothing down/no security. In a few years it will be paid for and worth ¼ million. Now that land did not provide me with any luxuries while I was making payments but to end up with ¼ million starting with what was actually zero dollars is an excellent investment.

There are aspects of this thread that are depressing but there is hope too. Knowing costs is better than not.

We do have a common problem and that is producing goods for a commodity market in a nearly pure competitive environment. I absolutely believe whenever producers can work together to create whatever competitive advantage they can, it is to their benefit. Learning how to work together may well turn out to be challenge of the next decade.

[cowman]

Pandianna: You are raising purebreds and that is a whole other ballgame than a lean and mean commercial outfit. You're selling a premium product not a commodity so you need to feed better. Anyone who doesn't know that has never played the old purebred game!
rsomer: I do know where you're coming from. If you can keep focussed on the goal at the end of the road it can be a good thing. I just might question the idea that a young person might end up with more farming at mid life than doing something else. If the non-farmer has a good job/business, invests his money and isn't lavish in his lifestyle he might very well end up with a lot more! Maybe by mid life he can buy out the farmer who is sick of doing without any of the good things in life? Putting off instant gratification of ones wants is a good thing and can definitely build wealth. But I think it is kind of sad to see these old farmers who are worth a fortune that have no clue about how to enjoy their hard earned dollars. Not to worry though the kids will have a merry old time blowing it!

[pandiana]

cowman, if raising purebreds is such a bonanza, I would think you would still be doing it. Keep in mind some realities. About 50 to 75% of my herd functions as a commercial herd. Heifers or bulls that are not 'premium' will go to market with your commercial calves. Those that do sell for 'premium' help to offset my marketing costs (advertising, sales catalogues, auctioneers, entryfees, travel to shows, registrations, transfers, clipping and fitting, DNA typing, etc,etc). The value of the premium that is paid for these premium animals is dictated by market forces...tight cattle market...tight purebred market. That is if there will be a market at all. How many cattlemen are buying extra bulls when they have no market for their old boys?

[pandiana]

Sorry cowman! Just re read your post and need my glasses cleaned. Thought you said I should 'feel' better when you said I need to 'feed' better. whoops

[cowman]

Pandianna: It is a tough old business! Believe me I know. It just isn't a business it is a way of life!
We raised purebreds for about forty years and though it paid for the farm it was never easy! My mother was the push because she came from a prominent "purebred family"! My dad was so-so. As long as the benifits rolled in he was all for it, but got pretty sick of it when it was basically a liability!
But Lord knows it is a lot of fun! nothing can compare to the feeling when you lead that fancy bull through the ring and the bids just won't stop!!!
Sort of like an addict! It rocks your world!

[jensend]

pandiana - just some input on straw rations in the second and third trimesters. two years ago in a fairly easy winter for east central sk we fed all our cows including first calf heifers a ration of oats straw (very good quality) and 14% pellets (averaged 10 lb/day) right up to the last few weeks before calving. the cows gained weight all winter and the calves were born anywhere from 70 to 130 lb depending on cow color. very few calving problems. we boosted the quality of the roughage in the last few weeks before calving, kept on with the pellets and since our heifers started three weeks after the older cows they had a little extra bloom on them. it was an easy winter and we boosted both energy and protein once we were well into calving.