Crash go the feeders

[cowman]

On the news last night they showed how the price of feeder cattle is basically in free fall mode in Manitoba. I'm sure it is here also, but that was where they were reporting from. It is convenient for the meat oligarchy that the CFIA happened to come out with a report saying it could be years until the border is open?
The cow/calf man was told by all the "experts" hold those calves, he who owns the cattle when the border opens will make a killing! Harlan Hughes comes to mind.
So they held them. Knowing that they never had enough feed to take them through until spring, let alone to slaughter! Now they face a complete wreck!
It would seem dissillusion is starting to set in and people are bailing. Will they ever be back? Will they be able to afford it? A lot of equity has vanished in the last 10 months, never to be seen again. While our useless governments and cattle associations continue to dither and feed us disinformation. If they had got on the ball right from the start, instead of dithering and delaying, we could have this problem under control.
I hope people can hold on. Unfortunately the people best able to hold on are the "playboys" who are not in it for the money. Sad.

[rsomer]

There certainly is a tremendous opportunity to buy feeder calves right now at bargain prices. Live fat prices in the northern U.S. are US $1.27 yesterday. That translates into CND$1900 for a fat steer. So much for BSE. Our boneless beef is selling into that market right now.
The ABP Market Report shows a 800 pound steer could be purchased for $400. June CME live cattle futures for June are 70.20 . The feedlot could lock in a hedge at $1120 for that $400 feeder calf in June. That is a difference of $720 per calf gross . Cost per pound of gain is less than 40 cents per pound or $320 per calf leaving $400 per calf contribution. There is unreal profit potential in those feeders, someone is going to make a killing on them.
And look at the U.S. situation. The supply of calves and yearlings outside feedlots is 4.5 percent below last year. The annual cattle on feed data also confirmed expectations that in recent months there were significantly less cattle on-feed in feedlots not included in USDA's monthly Cattle on Feed report. Many of the cattle normally on small grains and other winter pastures were placed into commercial feedlots during late 2003. The number of estimated calves, non-replacement heifers, and steers grazing small grain pasture in Kansas, Oklahoma and Texas was about 800,000 head less than 2003's. The U.S. cannot keep up this pace for long. They are going to run out of cattle sooner or later. For eight consecutive years the number of cattle and calves in the U.S. has posted a year-to-year decline. They cannot last until November without our live cattle.
Cowman, you said "The cow/calf man was told by all the "experts" hold those calves, he who owns the cattle when the border opens will make a killing." The experts are right, there is a killing to be made owning feeder calves right now. Sure, the feedlots are being coy right now holding back from buying calves, trying first to get more government handouts and secondly to get that next batch of feeders even cheaper so they can make $500 or $600 a calf this time around. Forget $25 a calf profit, the finishing lots are going all the way this time.
The market is telling us that now is the time to buy feeders or hold on to what you have got, not to sell. And the border has to open up, the U.S. is not going into an election with empty meat counters,, They need our beef sooner rather than later.

[kato]

I agree totally. I hate to be a conspiracy theorist, but boy..sometimes you have to wonder.

There was optimism galore in December. The feedlots filled up with good pricey calves. Any yearlings they bought are getting pretty big now, and they know they are going to take a bath on them. Whenever they (or anyone for that matter) loses on one batch, they try and buy the next batch cheaper in order to "go for the average".

It just seems such a coincidence that a couple of weeks ago the National ran a story about how the big feeders had been meeting for days to discuss how they would survive the latest situation.

Within days orders dried up, and it all went to pieces. Is this a concerted effort by a group of well organized businessmen to save their collective butts? If so, you can't blame them, I guess, but I wish they weren't saving their own butts at the expense of ours!

It's time the businessmen at the bottom of the pile, AKA the ones who produce the calves in the first place, without whom there would be no industry got organized as well. We primary producers are the foundation of a big part of the economy in Western Canada, and I'm not sure how long we can last.

[cowman]

Rsomer: I find it amazing that live fat steers have risen to $1.27 US in the States. The Alberta Ag site quotes the Nebraska price on Jan.31/04 at a top of $81.60/cwt. US. Either you made a typo or the price is really booming?

[bombay_43]

From Agweb.com, Feb.06/04:

Feeder Cattle Declines in the CME feeder index are a concern to traders, although nearbys have factored in steep cash declines. The CME feeder index has dropped to $86.84. March futures already hold a $3.60-plus discount to the index.

I signed on to the newsletter. It's sometimes good to see what the other side is saying.

[rsomer]

cowman: Sorry for any confusion. I think I may have misread the cattle report. Todays ABP Cattle Report says "U.S. TRADE:
Packer inquiry is improving with asking prices $77.00-78.00 in the South and $128.00 in the North. Choice steers and heifers $72.00 bid." I believe the $128 is dressed price. See: http://www.albertabeef.org/acc_daily.htm
US$78 a pound would translate to CAN$1250 for a 1200 pound steer. There is still CAN$400 profit in every feeder calf being bought by the feedlots this week if the border opens before the calf has to be resold for slaughter.

[cowman]

Neil Janke seems to be optomistic that the border will open...he just doesn't say when! Macau(a small island off China) opened its borders fully to Canadian beef yesterday and Hong Kong is expected to follow suite fairly soon. The scary thing is Ralph Klein intends to visit Hong Kong fairly soon! I wonder if we could duct tape his mouth shut while he's there so he doesn't say something stupid to screw it up?
The problem right now with feeder cattle is that the guys selling have no other real option? They don't have enough feed to carry them over and no money. The bank is eager to be paid and has not bought into the early border opening theory. Fortunes are being lost, or made(maybe), right now in the mart. Some will come out bankrupt others will make obscene profits(maybe)...that is the system we operate under?

[rsomer]

It is not so much that this is the system we operate under as this is what happens when the market is not functioning. Without competition the market does not work to distribute profits equitably throughout the value chain. Over 80% of the finished cattle are fed by 130 feedlots in this province. Without competition from the U.S. market these 130 players are in a position to drive down the price of feeders in order to make obscene profits and may very well do so. They will not feel any sympathy for the poor devil who has to sell calves into a market that doesn’t work. These are the same 130 feedlots that split over ½ billion in government handouts between them last summer. They are not acting any differently than the packing plants. I do not know if we can blame it on the banks, at least some of these 130 mega feedlots obtain financing by means other than just the banks. These mega feedlots are run by some very savvy people who understand markets, finance, business. I guess we should not expect the mega feedlots to act otherwise.

[kato]

Back to my conspiracy theory. What would happen if cow calf producers were to get it together, and as a group, decide to finish their own cattle? Or if they custom feed them, only put them in small lots.

The big feeders have finally figured it out, that they can drive the market. They are willing to work together. WE have to learn to do the same thing. With the amount of money in the value of a steer nowadays, I think that if anyone should go it should be middlemen.

[ianben]

This is how BSE operates by disrupting markets affecting supply long term.

Farmers stop selling as price drops initially but cattle keep growing and cows that would have been sold are calved again.

Result massive oversupply

Competition which drives prices up when shortage drives prices down when oversupplied. No conspisy necessary.

Getting a real idea on the guys further up the chains problems is possible. They are not necessarily making mega bucks.
Here selling prime cuts was always easy but forequarters had same value as cull cows. How would that affect the maths? Removal and dissposal of SRM is another cost to be factored in.

If the border opens it does not mean prices will rise because I think you have so much beef stored up in the system which must hit the market one day

More buyers with too many cattle for sale will see even lower prices.

Here in UK prices drifted lower and lower for many years post BSE and no good news seemed to raise prices for long. Like you we just had too much product in the system for the new situation.

I really think you have to find out exactly what is out there and then all bite the bullet and agree to cull.

[pandiana]

What do you mean, Ianben, when you say we have to cull. I would love to, but short of digging a hole there is no way except give it away. Culling will have the same result as, at least temporarily, swelling the glut of meat in the coolers. The only way we can cull is to find markets for our cows and bulls. No. one goal should be to displace the imported beef coming into Canada. Then look for offshore markets. Macao, or any other place. Sell if ultra cheap to establish markets.

[rsomer]

ianben: Whether we need to cull or not will depend on how long the border remains closed. I do not see our BSE problem lasting nearly as long as yours did, partly because the world has learned a lot at Britain’s expense. We have a rather special situation in Canada with our access to the U.S. market. Our prices will recover even before the border reopens as prices react to the anticipation of market normalization. The North American market is not oversupplied with beef. Canada’s problem is that our access to that market has been cut off and our access to the competition needed to make the markets perform somewhat normally has been cut off as well. I think our situation wherein the Canadian beef packing industry is virtually totally foreign owned is unique in the world. However consumer demand remains strong throughout North America so it is reasonable to anticipate reasonable market prices will return to Canadian producers once access to their market is restored. I think this will happen very much quicker than most are saying. Our problem should not be expected to last many years, I would not expect it to last even many more weeks as long as we don't get any more bad news.

[kato]

The cattle numbers on our farm aren't going to go up, because we won't keep heifers. They will be sold. We are only going to replace a cow if she's open, or to old to carry on. If she loses a calf, and is otherwise healthy, she stays. We usually have enough twins to keep the cow/calf ration close. It just means some cows work a little harder than others. ;-)

When the market returns, then we will cull as usual. However, from now on, longevity will become a higher priority when selecting heifers. Those old girls who can still do the job into the teens have the genetics that will help keep you in business.

[kato]

Oops...That's cow/calf ratio.

[cowman]

Canada will calve out a record calf crop this spring. These calves will have to find a home this fall...somewhere! If the cull cow problem isn't solved this year we will record an even bigger calf crop next year. We are creating a surplus although I do agree with rsomer that it could be reversed tommorrow if the border was to open.
If we had taken those 600,000 cows last year out of the meat system we would be current or in a sustainable holding pattern, instead we are in an expansion mode when we definitely shouldn't be!
Of course an unjustified expansion can't go on forever. Sooner or later it starts to unravel and then it gets real ugly! Our governments decided to roll the dice on the border opening and I hope they are right! If not we are in some serious trouble?