CAIS IS USELESS!!!

[cswilson]

When does land become too good to raise livestock-I'm so damned glad I got my useless cows and horses and not a bunch of really useless canola and wheat growing on our place. You are making the right decision though cowman-I can tell ranching isn't for you. The most expensive land cows run on in Canada is still cheaper per cow unit than just about any you can buy in the U.S.A.

[poorboy]

rsomer,

There is a flip side to the CAIS money going to the big feedlots that you may have forgotten. When a feedlot gets a big payment, they tend to come right back and pay more for calves. Witness the fall of 2003. It was ridiculus for feedlots to pay that much money for calves. The gov't money that feedlots got and optimism that the border was going to open went right into propping up the price of calves. If you did not sell your calves in the fall and you normally do, then you were just plain greedy. The price was very good by historical standards. If you normally keep your calves and you did, then you genuinely got beat up.

So my take is that the CAIS money will trickle downhill from the feedlot to the cow-calf producer. A feedlot can't have steady claims or their CAIS margin will continue to drop and they will be in trouble also.

In looking at the cattle industry, the big loses are going to come this fall. If the feedlots do not see any aid money or have the price of fats go up, then calves in the fall will be 60 cents per pound or less. The cost of gain will be higher than the fat price, so the only way to have a margin will be to pay LESS per lb than the fat price. If you sold your calves in the fall each year, you have not been beat up very much yet (other than poor cull cow prices) as fall calf prices have been GOOD. This year may be the worst yet for cow/calf guys that sell calves in the fall. Just something to be aware of, hopefully the border opens and this all changes.

On grainland, the CAIS program may be the worst thing to happen to agriculture. With already thin margins it will cover guys who can't seed or harvest on time because they have too many acres. I do think it will be the end to medium size operations.


If all subsidies were to end it would help for farmers to know their costs. Most farms do not draw a wage for thier own labor and management, but look at the year end profit as what they made. When we buy stocks in big corporations, they pay everyone a wage or salary and then they have a stockholders return, which is hopefully in the 8-12% range. Most farms only make 3-4% on their assets without paying a wage. Maybe if farmers had to take more notice of these numbers we would be better marketers and managers. It is too bad that the profit is so slim that we even have to worry about these things!!!!

[rusty1]

poorboy - you said it better than I've been trying to tell everyone for a long time. The feedlot industry is mad at the cowcalf boys for their lack of understanding in that. Infact a large buying group told me Friday "( to %^$%^) with the cow man, what have they ever done for the feedlot industry." High prices for fats have always tricked back to the cc producer except when barley starts to climb.
The real big problem as we discussed in church today with some feedlot opperators is that The 3 packers currently hold about 75% of feeders in the feedlots right now. There is probably anothe 300,000 head of US owned cattle on feed. Plus suprise of suprises the packers are getting phone calls from c/c producers they have never heard of before who kept their calves and fed them out. Again packers capacity is killing all it can now so guess what. I listened to a feedlot operatore last week on his cell with a packer buyer. The message was that he had been told to buy 500 fats that day and he had 10,000 on the show list. The feedlot opporators are fully expecting to see fats go to $35 / cwt by summer. So guess whats going to happen to the price of calves this fall rsomer.

[grassfarmer]

Interesting guys, this is what I was alluding to in my "cattle numbers" thread a couple of days ago. If this is the case why are feeders now making considerably more money that they were in February? Surely 50-60cents /lb would be enough to pay if you are expecting $35 fats?

[rsomer]

I haven’t seen where any of the last government money the feedlots got trickled down. My take on the trickle down theory is if it works so good give the money to the packers who will pass it down the line. I don’t think anyone believes that will happen and I am surprised when people believe the 33 mega feedlots that control over 50% of the pen space act any differently. Just because they got manure on their boots does not mean they give their money away. They don’t pay any more for calves then they have to and certainly will never pay more for a Canadian calf then they can get an American calf for even if the calf is being paid for with their multi million dollar Canadian subsidy cheque. You had better believe that in the future CAIS dollars will end up in the pockets of the American cow calf producer now that the feedlots have unlimited access to U.S. feeders.

To be clear, Albertan cow calf producers benefit from having a nearby feedlot industry. I do not begrudge any of the money the feedlots got, they needed it. I do think however that the cow calf producer did not receive much benefit from the BSE payouts to date, the money never made it down to them. The feedlots cannot on one hand say the packers got all the money and on the other hand the feedlots say they passed the money all down to the cow calf man. Most likely what happened was what money the packers did not get the bankers did. The best way to get money to cow calf producers is to pay the money to cow calf producers which has not happened to date.

I have no idea what will happen to the price of calves this fall but even the most pessimistic predictions suggest the border will be open after the November elections in the U.S. I would expect that will get factored into calf prices.

The point of my comments was not to illustrate who is cheating who in this time of market failure. I was pointing out the policy toward agricultural subsidies in this country has changed in a manner that will see a competitive shift towards very large operations at the expense of medium and small producers. We already have way too much concentration in the feedlot industry and I would expect to see the same thing happen in grain farms with 50,000 acres being controlled by a single operator becoming common place. Obviously the government does not value the contribution the average producer makes to rural Canada and the economy of this country or they would not pursue policies that are sure to drive them out of business.

[cswilson]

Who knows maybe we'll see more sundowners-there's lots here-work in the mill-have a 1/4 or two-hire the seeding done-write off some tax money. These guys really don't have a cost of production when you talk to them. They pump lots of cash into economy though. I think we'll see more of those guys than the 50,000 acre megafarms.

[cowman]

I must agree with rsomer that the federal government seems determined to get rid of the little guy and wants ag production in the hands of big operators. And who knows, maybe that is the best thing in the long run? When the returns are so small maybe the government is actually doing people a favor by skidding them?
I also agree however with cswilsons contention that we might see more of the "hobby type" farms. Which also might be a good thing? After all if it is treated as a hobby instead of a business then it makes sense to have no profit, or very minimal profit? This system would also keep people in the country and small rural communities and therefore justify keeping the darned infrastructure in place? If we just have a bunch of 50,000 acre farms it could get pretty lonely out on the bald prairie?
And by the way cswilson, I have never considered myself a rancher...in fact I would definitely never want to be called that! Never liked horses or being a cowboy type sort of thing. But I do know a thing or two about cows and I do know a thing or two about growing things. In fact if it wasn't for the monotony of going round and round on a tractor, I'd actually prefer grain...well I'm not too keen on being out in a field all day by myself either...you know, doesn't suite my personality type of thing? I actually quite enjoy most of my little business ventures...now that I have the boy home to do most of the dirty work!

[rsomer]

Yes, with the changes to CAIS made May 21 we will see agriculture shift to mega farmers and sundowners / hobby farms.

But it is not a good thing. Much of rural Canada is struggling with rural depopulation as it is. In our area and in areas like ours it is a struggle to provide basic services like schools. It will be impossible if we do not find some way to maintain the farms we have got. Our rural businesses are suffering now, replacing 10 average sized farms with one mega farm is going to make it worse. It is not in the interest of Canada to see agriculture in the hands of the few instead of the many. And I question if CAIS and agricultural subsidies are even politically sustainable after people realize all the money is going to a few very wealthy agri businesses instead of Joe and Jane working on the land.

In a cash starved economy like agriculture where and how the government dollars are injected into the rural economy has a dramatic impact on who prospers and who sells out. Raising the limits on CAIS to $3,000,000 per producer will mean the majority, 80% or more, of CAIS dollars will go to the huge producers. Before this change the majority of the money went to majority of the farmers, average sized producers like you and I. People like K-Way who only get $44 from CAIS will be gone and gone quick. There will be no more acres farmed, there will be no more cattle grazing, but there will be a whole lot fewer farmers and ranchers doing it.

CAIS threatens agriculture more than BSE ever will. The border will open eventually but by the time CAIS is done agriculture will be forever changed. A $3,000,000 limit on CAIS payments threatens the ability of our children to farm for themselves.

[magpie]

Agree with you rsomer sort of what I was talking about in the thread below about the power elite, governments providing a climate for business that are more aligned with the state farms of the former USSR. There is however a move against this type of agriculture, how successful they will be I’m not sure. I believe it will depend on the consumers choice between dollars and the mind set of food safety. Go to www.themeatrix.com , this site is I believe where our consumers of tomorrow will come from. Agree or disagree with this site and until this issue becomes an election one on par with health care its steady as she goes with the exodus of the rural population unfortunately. Actually Joe 2 and his signs are ,if worded in the proper way are possibly a way to bring this to the electorate.My school in the 70 had 300 students now 60, sad indeed.

[k-way]

rusty1 -- Just a side comment that if the cow/calf guys didn't exist, neither would the feedlots. We all have our necesssary place in this system. I don't begrudge them any help they got. Just give us a level playing field for getting some too. And don't count on trickle-down that won't make it this far because we won't last that long.

We've been talking to Dave Nilsson and he told us back in February that they expect fall prices in the 60 cent range for calves. And things have gotten more complicated since then.

Besides, anyone who thinks that the worst case scenario with the border is for it to open after November is dreaming. Right now that's the best that we could hope for. I think we only have a 25% chance of that happening at best. 50% if Bush wins and 0 if Kerry does. More and more conditions are getting stacked against us. Even AB Agriculture guys are starting to beleive that.

We put in a call to Shirley's office and got a call back from AB Ag. They are starting to wonder if CAIS is as useless to us smaller cow guys as we have been telling them. And they also are looking for ideas on how to make the industry more sustainable than it is now. However the best solution that we came up with is some kind of downsizing with help to get out with at least your shirt.

They still beleive that the smaller farms will weather this better than the big boys, but I'm not convinced. As for hobby farms, CRA made that a no-go option long ago with the rule that your gross farm income has to be higher than your off-farm income to qualify. That was the real beginning of the exodus. Unless you don't care about dumping money into a farm with no return or benefit except "the lifestyle".

cowman is probably right that maybe big farms will be for the best as far as profitability is concerned. But I don't want to be around when that day comes. The day agri-business becomes all-consuming is when food prices will really begin to reflect the true cost of production (including salaries). Multi-nationals don't do anything without the expectation of profit, and basic food prices will go the way of vehicle prices. My background in marketing says the a car doesn't sell for what it costs to build, but for what the market will pay. And my husband knows from when he sold cars that the profit margins (for the manufacturers at least)on cars are huge. Food will be the same way when they can charge what they please, only people will be forced to pay because food is much more necessary than a car.

[jtietjen]

magpie,

that website made my day. Gives me a whole new perspective on my analysis of matrix revolutions.

thanks

[rusty1]

k-way - I couldn't agree more. You WILL NOT find me taking potshots at one sector or another. It really disapoints me when I see producers from either side slamming the other. If we havn't figured out by now that one sector is an island to itself then we havn't learned a thing.

[poorboy]

The whole problem in Agriculture is that people have not been paying themselves. If everyone was, then agriculture in general would be holding out for slightly more money. We would know our costs of production and maybe hold onto our products longer in hopes of better prices. The Canadian Wheat Board is a classic example, farmers deliver their grain every year, but do not know if it is going to sell for enough to cover the costs of production. Most farmers probably do not even know what they need to cover their cost of production. The threat over the years has been, that if you ask too much then cheap imports from other areas will be brought in. As farmers we should be doing our best to make sure that these imports are not coming from countries that are using chemicals that are banned in Canada or grain that is subsidized by big gov't.

The real threat to agriculture in Canada is that the cost of living is so high, that most farms are now not able to cover the cost of living. If you did not need to take out money to eat, clothe, etc., there would be cash left for farm related expenses.

Farmers have been trained to be price takers for so long, that it is hard to see the picture any other way. Grain growers should probably be storing way more product than they do. In low priced years a lot of it sits in inventory, and sell in higher priced years.

Perhaps, Cash based accounting is partially responsible for some of the problems. It is real hard to tell if you are making or losing money on cash based accounting, because of selling and buying over different year ends. Year end tax buying in cattle has been a major problem for some time. It is also a major problem in droughts and crisis like bse. Because the cows were either farm raised or a direct write off when bought, they are now 100% income when sold. In the 2001 and 2002 drought, a lot more cattle would have been sold, except for the tax implications. It is also hard to change from fall sale calves to yearlings. You have no cash flow for a long time and you will have trouble in the future selling yearlings and calves in the same year if prices improve.

Gov't aid money could be spent in a lot better ways than is currently being offered. Rural depopulation is probably the biggist issue coming. With no people why would anyone want to live in a small community, and it will be very tough to find 2 jobs for both parents. If the gov't took all the programs money and changed it to look like this:
1. You only get paid if live within 30 miles of your farm, even if you are the landowner.

2. The first so many units of production are subsidized at a very high price, and no subsidy after that, up to a maximum of so may dollars per person. Say $50000 per farmer for this example.

3. A tax reduction is issued to people according to how far they live from a major city. The further away you live, the bigger the tax break.

The thought process behind all the above ideas is simple. Encourage people to live in the country, and provide every farmer with some high priced goods to cover their cost of living. If your cost of living is covered, then you hit your gov't payment limit, there is not as much incentive to farm 50000 acres.

The other unmentioned item is discounts. I know of large grain farmers that get so much money off from John Deere and Case for buying in multiples, that they can purchase 5 new combines often for less total dollars than it costs me to purchase 1. This is directly encouraging large farms by lowering their cost of productioin. It is about time the Gov't passed a law to stop this. There should be no multiple discounts, be it fleet savings in agriculture or industry.

Sorry for the long rant, but I feel that we could do a lot better job with the same money that is spent now. How much of the Gov't money is ending up in wages for employees in Ottawa or other big cities. Paperwork should be done from small towns and cities in rural Canada.

[cowman]

Another thing we should never forget is when the government took away the 5 year average? This was perhaps the biggest tax grab in history but was largely ignored by most of the economists of the day? Thus we have farmers locked into this cycle of continuing to be forced into a cattle market when it really doesn't make sense? It caused all kinds of problems...not the least of which was distorting true market signals? It also made it very difficult for the grain farmer to hold out for better prices?
It was a step that fundamentally changed the face of agriculture, just as much as the death of the CROW did, and perhaps just like CAIS will? The bottom line is these government policies are all geared to one thing...getting rid of the small farmer/businessman! Now why would any government want to do that? Well you have to look at who they work for I guess? Is it you? Is it me?
Do you ever wonder why a prominent lawyer would want to quit a $500,000/yr. job so he could be a MP for $100,000 or so? A sense of civic duty perhaps? Give me a break! These are lawyers we're talking about here!
The cold hard truth is the people who are our "elected" leaders are a bunch of hacks and bagmen for the "power elite" and are rewarded very well for their evil work that takes away our rights, freedoms and wealth and gives it to their masters!
I remember talking to an old Hungarian immigrant many years ago when Mulrooney had just got elected. Asked him what he thought of the Conservative victory? He said" Who cares? Nothing has changed. Same old dog...different leash!"
I would suggest he was exactly right?