Cost/price?

[cowman]

My local beef specialist has some very interesting ideas. His contention is the cow/calf sector has had two years of unprofitable returns and if things don't turn around dramatically we are heading for year three. He suggests three years of losses means we should definitely consider getting out of the business of cow/calf.
Now he doesn't say that cattle can't be profitable...just cow/calf.
He suggests that pasture and feed resources can turn a profit through feeders but unlikely through a cow/calf operation.
He also insists that any operation should know it's true costs. When pricing feed and pasture you need to charge yourself with what it is worth on the open market. Therefore I have to charge myself $50 bale(for that is what I sold some for in Oct.) plus a small amount of interest. I have been offered $30/month for pasture so that too is what I need to charge myself. If my money wasn't tied up in a cow it could be sitting in an investment fund so she needs to pay that bill as well? And I guess that goes for just about everything else?
Bottom line...no money in cow/calf and unlikely to be any this year either?

[rsomer]

The first thing that comes to mind when I think about the beef specialists comments is that profits have been divorced from risk and that the two should always be viewed together and at the same time. Also a long term investment like cow calf is being compared to a short term investment like feeders and off farm investments.
I have no doubt that whatever profitability the cow calf sector enjoyed in the past years is gone for a while and the profits in the near term will be in the feedlot sector. The investment in cow calf should not be evaluated in the context of three unprofitable years rather in the longer term viability of the industry at least 10 years ahead. The risks of owning a cow herd and a pen full of feeders is different and should be kept in mind when comparing profitability.
Yes we should know our true costs but those costs needs to be viewed in the context of the entire farm stragegy. The long term profitability of many beef operations hinges on being integrated producers of grass and forage, weaned calves, and sometimes feeder and slaughter calves as well as cull cows. The competitive advantage of many operations comes from the cash flow stability that results from this integration. True, with CAIS and programs like that there is a tendency to focus on the most profitable sector and depend upon CAIS for cash flow stability but I am uncomfortable depending upon a government program like that that tends to change every five years.
The money in an investment fund concept is pure crap. The calculations that lead up to that conclusion never factor in the reality that the cows are a walking tax deferral and before you can sell the cow and put the money in the investment fund to get 2.5% interest in a guaranteed account you have to pay the tax. If your beef specialist is trying to convince you that your money could be invested in something that earns a higher rate of return keep in mind the risk associated with that rate of return. Not everyone that invested in Enron, Worldcom, Martha Stewart, Nortel came out with as much money as they started with, much less an attractive rate of return.
Bottom line, when comparing profits we must compare the associated risk. We need to be careful when comparing expected returns on long term investments to short term investments. Also be careful when viewing costs and profits of a individual farm enterprise out of context of its role in the overall farm operation.

[rsomer]

Once again rsomer gives a very good technical overview. I was thinking a bit on the lines of another thread where cowman talked of his grain farming equipment sitting idle for the winter if it wasn't for the cows. And did the local beef specialist put that machinery in to the big picture. Or what about the land and buildings you own. I have seen figures that say one guy feeds cows for $300.00 per year and another feeds for $700.00. What's that all about?
Bottom line is we have an overall financial picture in every idividual case. Like every other business there are risks, opportunities, and yes, tax advantages. We chose this business like any other small business entepreneur chose his, and when he, or she, decides to bail out, a plan must be in place.

To say that we have seen no profit for two years, and likely will not this year is a very narrow view. Hell what is profit? I know that we are moving ahead.

[grassfarmer]

rpkaiser, I heard figures quoted recently about the cost of wintering cows in Western Canada. The average cost, the lowest cost and the highest costs. The highest costs generally were in BC but the highest individual farm costs identified were at the Gov. farm at Lanigan, SK. And this is the one that has been doing all the cutting edge research on swath grazing etc to reduce winter costs. Maybe extension specialists aren't to be entirely believed?

[grassfarmer]

I heard the figures quoted recently for winter feeding cows in Western Canada. The highest costs generally were in BC but the highest individual farm cost was at the Gov. research place at Lanigan SK. This is the place that does all the research on swath grazing, maybe extension specialists shouldn't be entirely believed?

[cswilson]

As for specialists they're like the guy who knows a thousamnd ways to make love but has never had a girlfriend. As for bailing on your cowherd I do no the quickest way to financial suicide is to be an in and outer-trying to guess the market. All in all I see more positives ahead for ranching-why sell low then buy back high. Remember the saying "If their crying you should be buying."

[rsomer]

About beef specialists and extension people... I don’t have any problem with the advice the beef specialist gave cowman except where "He suggests three years of losses means we should definitely consider getting out of the business of cow/calf." And since cowman has mentioned several times he is considering getting out of cows this advice may be appropriate for him. But that is not to say that everyone should consider getting out of cows. It may be time to "consider" the future of the beef industry but for most of us that will mean hang on to the cows tail a little longer. I have no problem with the other advice from the beef specialist especially the last item "Bottom line...no money in cow/calf and unlikely to be any this year either?" We need extension people aka beef specialists. That is not to say they are a replacement for individual decision making. But they can provide us with some things to "consider".

[kato]

We have cows and we buy feeders. The feeders can be profitable, or can be losers, but rsomer is right.. they have far more risk.

In our operation, as we get older, we are investing less in feeders and more in cows just because of that risk.

To look at the profitability of a cow herd over 3 years is missing the point. A cow herd is a long term thing. Very long term. Three years is just enough time to raise a heifer, and wean one calf. You don't even know if you've done a good job with that one heifer for at least four or five years. How can you decide on a whole herd in three?

This is no business for someone looking for a quick buck. It does have rewards for someone willing to invest the time and effort into developing a "group" of cows into a "herd."

[cowman]

This beef specialist also runs a cow herd and he runs them very tough. Perhaps he looks at it differently them most of you guys do? I mean lets face it he has a pretty healthy government check coming in! But consider that?
He isn't doing cows because he needs the money but as a strictly business venture? And he sees that the returns are not worth the effort? Who knows maybe he will get a different more profitable business/hobby. But he does know his stuff...he isn't some armchair expert and he definitely isn't small time...about 350 cows with his brother.

[rsomer]

It is possible for a beef specialist and other extension people to have credibility even if they don’t have cattle or farm. Primary producers have to accept the fact that we are entering a time when knowledge is becoming more important. That includes the knowledge the primary producers have concerning their operation, but in fact many producers do not know about the costs and break evens on their own farm. The knowledge the extension people and other professionals possess is also becoming more and more valuable. The challenge for primary producers is figuring out how to integrate all this knowledge into a competitive advantage for their farm.

As long as I can remember I have been told by government experts that there is no money raising cattle or farming in general so I do have some skepticism when I hear that same old line again. Until I see the basis for the beef specialists remarks it is difficult to comment on specifics. But if we were to apply his advice "He suggests three years of losses means we should definitely consider getting out of the business of cow/calf." to the entire industry it would have serious consequences for the Alberta beef industry and economy. I would be surprised if Alberta Agriculture is advocating that everyone get out of cattle. But it may be OK for some operations.
I would like to see the numbers the beef specialist was using.