Allowable US Imports

[kpb]

grassfarmer, rest assured that not every farmer that has oil patch income is running a sink farm ! Many of these farmers have a wife that is running the farm, and the income brought in from the oil patch helps keep the bills paid and the kids in clothes and gets them educated. In my area there are a lot of farms like that. With the current restrictions on the amount of farm losses farmers with off farm income can deduct it hardly seems like there are many sink farms, as you call them left.
Oil patch dollars built many farms in the resource areas of the province, many people worked twice as hard to do it too. I can remember neighbours that worked all day at their oil patch job, and half the night and every available weekend on their farm. Some of them are in their 60's now and are still farming in a fairly big way. The one thing that they managed to do by working in the 'patch' was to get established without an overwhelming debt. Other farmers in this area and others have sons that want to buy into the family farm and have taken jobs in the oil industry to help them get a grub stake to do so.

[kato]

I think keeping the costs down is the answer in the long run.

I bet someone with a smaller efficient herd and lower costs can balance a ledger book just as well as a bigger operation. There comes a point where you get stretched too far, and no matter how good your intentions are, day to day management will get harder.

We've got close to two hundred cows now, and that's big enough. We keep our costs down pretty well, and up until the BSE hit, we were doing quite nicely. With no intention of getting bigger.

There's only so much of us to go around, and from now on the emphasis is on managing what we've got even better.

Maybe that will include marketing finished beef through the new plant in Neepawa that's supposed to be up and running next year.

[grassfarmer]

Kpb, I agree efficiencies can still be made on most farms but that in itself is not the solution. The numbers game hasn't worked for feedlots over the last 20 years if you believe the figures you see published, it hasn't worked for dairy producers in non quota countries either. Maybe Canada needed a shake up of it's beef industry - I know the UK certainly got all shook up post BSE and many,many people no longer farm, it's a leaner industry. Instead of increasing production per farm by buying or renting more land to run huger numbers of cattle I would argue we need more intensity of production on the acres we have. Imagine growing 50% more grass on the land you have compared to buying land which the low returns of beef production can't pay for. As for being more efficient - we could be, bigger - we could be, SMARTER is the one we need to be and thus far we are not succeeding as an industry.
I applaud rpkaiser for being proactive in our industries struggles - it just needs a lot more people to follow that lead. As he said you can sit at home and farm for long hours on a big scale but that in itself will not guarantee you longterm success - even though it may feel like it because you are outdoing your neighbours just now. Once the Corporations knock out the weakest in society they will turn on the survivors and pick them off to - it's the way they operate.
Kato, I agree keeping costs down is important and the easiest thing for a producer to control you can't overlook the importance of having a big enough business to generate turnover. I know guys with 60-70 cows that sold 50 calves last fall - bringing $450 each gave them their paycheck for the year -$22,000 after deductions - before paying any farm expenses. That scale of operation can't provide a living no matter how low your costs are.

[kpb]

kato, If stockmen and stockwomen want to have small herds and try to make a living off them, good for them, but the bald economic facts show that you have to have a minimum herd size to make a good living. Or you have to work off the farm, which is also ok by me but shouldn't, in my opinion, entitle you to support payments.
Consider please, that if a rancher has 200 calves, there will normally be 180 calves at weaning time (90 per cent bred and make it over the summer). If half are heifers, you can likely count on, say, $500 per head times 180 equals $90,000 gross income.
The Dept. of Ag. figures say it takes about $250 to over-winter a cow and another $100 for pasture and trucking. And there's vet bills, drugs, yardage, etc. But let's be generous and say you can keep that cow, calve her out and pasture her for $350. If you say all expenses are $350 times 200 cows then your expenses are $70,000.
But then you have to buy some bred heifers to keep your herd size up or hold back heifers in the fall, feed them in the winter and breed them. And you gotta get a bull every year or so to replace the one that got lame. So instead of a net of $20,000 ($90,000 minus $70,000) you actually got a net of, maybe, $15,000. I can't make a living off that and sure can't raise a family.
And, remember, that's using a cow figure of expenses, all-in, of $350 per cow and a rate to weaning of 90 per cent of all cows that meet a bull--both of these numbers may be optimistic.
kato, your numbers are undoubtably better than these--your posts are always interesting and educational--i'm just using these numbers to show how, generally, a 200-head operation, by itself, cannot make it now and will face increasing pressure in the future.
There are lots of fixed costs in this business and that is why a larger operation can make better money. I also know that adding yearlings can help make more money because you can run a lot of animals and because you are moving more animals, more quickly and own an appreciating asset rather than one that is depreciating (a mother cow).
And, yes, cowman, there's a certain gamble involved as there is with cow-calf, but any business has some risk and you can eliminate a lot of the yearling risk by holding them to finish. As the oldtimers say "Buy them as little as you can and sell them as big as you can" to make money most times.

[kpb]

grassfarmer, I always enjoy your posts and read your last one right after posting mine. I think we agree that you need a minimum size to survive in this business and I definitely agree that you should use intensive systems to max out the use of your land before buying more.
Would you please give me your thoughts about what direction you think the average cattleman should go in his own operation in order to prosper if not to get bigger? I'm not talking about curtailing the big packers, government help, building our own plants, etc. All of that stuff may or may not happen but this stuff is not something I can make a business plan with.
grassfarmer, you may be right that even the big guys will eventually be eaten up but the bigger you are the longer you'll last. And as for the feedlots, I know a few big feedlot guys and, believe me, they'll be around a whole lot longer than the guy with 100 cows trying to stick it out.

[rkaiser]

Go kpb go. I'm heading the other way.

Calving about 220, wintering 40 coming 2 year old bulls, 50 coming year, and 80 heifers. The rest are in a custom lot. Add in the extra work involved with a purbred herd, and my wife and I are maxed out. I have had three minor injuries due to rushing around in the last two years, luckily they were minor.
Your spread sheet is practical kbp, but every person is still an individual. Off farm income, passed on land, equipment, cattle, etc.

We all have to decide how much is enough, and no one has the right to set a number as a standard to be a good, or viable cattleman/cattlewoman.

Some of the best cattleman I know would not even come close to your minumum number kbp.

[cowman]

It really is all about money and time and everyone has to decide how much of each he wants? One size doesn't fit all!
The problem with getting bigger is you need to committ more time and obviously money. I would suggest that most land prices are too high to justify trying to pay for it with cattle?...at least in a good part of Alberta?
Personally I've never really liked the idea of a lot of debt. Seems to me the bank ends up making the lions share of the profit. I wonder how many operations are going to go under because of a high debt load that wasn't really a major problem until this wreck happened? We saw the same thing happen in hogs a few years back? Times were good and producers built barns and expanded...only to go broke when the market crashed!
Perhaps I am totally wrong but I do believe it is better to be cautious if you want to survive in the long term. Rapid expansion, based on debt, can make you lots of money real fast or it can break you just as fast! I guess everyone has to decide how much risk they are willing to take?

[greybeard]

kpb ,your posts reflect the conclusions I have come to. I don't like it but the numbers don't lie. If you think you can live on less then you'll wake up like cowman some morning and say this isn't worth doing any more. People soon get tired of working for nothing. Grassfarmers example of the $22000 gross is not unusual.
Commodities don't keep up with the consumer price index. You have to produce more for less or look for other income..
Page 4 of this newsletter has an article that makes a long story short. http://www.gardinerangus.com/pdfs/GAR_nsSpring03.pdf
You will have to cut and paste it as I don't know how to link it.

[grassfarmer]

kpb, Not wishing to speak for anyone else in the industry I'll tell you how I would plan to remain in business.
Your calf price of $500 is substantially below the long-term average of calves sold in the fall I would guess? At the same time it could be said your $350 cost of keeping a cow and paying ALL her costs is low too so I'll work with your figures.
Basing my example on a 100 (purebred) cow herd rearing 90 calves I would plan to sell 5 breeding bulls, steer 40. Keep 12 stock heifers sell 25 for breeding and 8 as fatteners. Assuming bull calves at $1000, 25 breeding heifer calves @$750 and 8 feeder heifers @$500 brings $28,000. The difference I would make is turning the remaining 40 steers into grass fed beef to direct market as quarters and halves. At a net of @$1300 a head this enterprise would add $52,000 to bring a total of $80,000. Take from that your $35,000 figure and you are left with $45,000 - more than twice what you reckon could be made off a 200 cow herd. The beauty of this system is you don't need to buy the bigger landbase, double your herd, add processing plants or any other high cost items - it seems the perfect diversification to me.
Before everybody shouts me down for doing something radicle or impossible it's only my opinion, and my choice. It will take a lot of work, management and marketing to succeed at this but I believe it is possible. I agree that ranchers that rear and dump calves on the auction system once a year have little hope of gaining a sufficient return in future.
The key is understanding that we cannot succeed in the longterm as commodity producers due to the David and Goliath situation N. American agriculture faces with the transnational corporations in control of both markets and politicians.

[kpb]

grassfarmer, thanks very much for replying in detail to my question. I have no experience with purebred herds--we run a commercial operation and backgrounding here so your answers are most informative to me.I am particularly interested in your figures for steers that you market as cut-up beef. Do you market this beef yourself? How is grass-finished beef accepted? Is it a big job to market this and do you simply use word of mouth or do you advertise or market in any other way? Do you handle the slaughtering, etc. and market only the finished product or do the customers handle the slaughter themselves? Also, how long does it take to finish a steer on grass and do you need to feed any grain?
thanks in advance for your time in answering these questions.

kpb

[kpb]

greybeard, I tried to look up the article you suggested but could not get past the main GAR page. Can you summarize or will someone else who knows about computors give us a link that works directly to this article. The one you gave us, greybeard, will not go through--at least a doufus like me can't get it to go past the main page.

thx, kpb

[InAHurry]

Greybeard's referenced article

Why is profitability so rare in the cattle business
— Troy Marshall (Reprinted from BEEF Cow-Calf Weekly electronic newsletter.
To get your free subscription, sign up at www.beef-mag.com.)

The data tells the story: there isn’t much
profit in ranching. Even with good prices the
last several years, ranching still remains a
lifestyle choice for most operators. If they
looked at it strictly as a business, they would
invest their money elsewhere.
A large percentage of producers subsidize
their ranching habit or are eroding the equity
positions that were built by previous genera-tions.
As a result, smaller producers who work
off the ranch, as well as large operations, are
growing in numbers while the number of mid-size
producers shrinks.
As frustration builds, everyone’s searching
for the reasons behind this lack of profitability.
Often, they point to such things as competi-tion
from other meats and foreign countries,
concentration, vertical integration, captive
supplies, price transparency, value/price dis-covery,
government regulations, etc.
Admittedly, all these factors have a role in
the industry’s lack of profitability. Ironically,
however, the primary culprit is often heralded
as the solution—the cash/commodity market.
By its very definition, a commodity busi-ness
isn’t profitable for the average producer
because, over time, prices tend to hover
around breakeven. This definition is what
makes the discussion about price spreads and
marketing power so ironic and irrelevant.
If a commodity market is functioning prop-erly,
the only relevant factor is the breakeven
cost, because that’s around where prices will
end up on average. This basic fact is com-pounded
by the reality that many producers
aren’t profit motivated.
When functioning effectively, a commodi-ty
market tends to concentrate, as high-cost
producers are forced out of the system.
Another component of commodity markets is
that individuals have no pricing power;
they’re strictly price takers.
The biggest problem with a commodity
market is that it does a poor job of differentiat-ing
the product on a quality basis. In addition
to its inability to reward quality and send prop-er
incentives relative to consumer demands, a
highly segmented commodity business can’t
transfer the information, if it’s available,
throughout the production system. Why then,
with all of these problems, do so many folks
hold the cash/commodity market up as the
solution to our current marketing woes?
The branded revolution, the value-added
pricing systems, the grids, the forward-con-tracted
cattle, etc, were all created as attempts
to address the cash market’s shortcomings.
Meanwhile, proponents of the cash market
argue that it’s all about competition, that these
alternative marketing methods reduce the
amount of competition.
At some level, they’re likely right, but pure
competition in a market that guarantees that
only the low-cost producers are profitable and
which increases risk in a cyclical business, isn’t
a very exciting prospect. Fact is, a cash/com-modity
market guarantees margins so tight that
any significant profits that are generated are
mirrored by losses in another segment.
Most importantly, this cash/commodity
business has led and will always lead to
decreased demand. The reasons are numerous:
Narrow margins and a lack of profitability
mean insufficient revenues for new product
development, research and marketing.
The competition between segments
rewards the segment with the most knowl-edge.
That means that information isn’t shared
up and down the system. The result is that the
focus isn’t on meeting consumer demands.
Competition that doesn’t differentiate the
product actually results in rewarding the bot-tom
end more than the top end. Thus, the
incentives are reversed.
The cash/commodity system’s support of a
segmented mentality also decreases efficiency
because each segment uses its own measures,
which may not equate to overall system
efficiency.
Competing protein sources steal market
share as they make system-wide efficiency
gains, and as they respond more readily to
consumer demands. It is true that a commod-ity/
cash market may represent the purest form
of competition, but the results of that compe-tition
are not beneficial.
Certainly, we must maintain healthy com-petition.
We must have price discovery sys-tems
that are transparent, and producers must
be able to maintain market access. But, the
next time you hear someone declare the evils
of value-based, value-added marketing, while
trumpeting the need to return to the cash/com-modity
system, keep in mind that competition
can and does take place outside of commodi-ty
markets. Remember that those who make
money off transactional costs, those who
make money by selling inferior cattle at aver-age
prices, and those who hold a competitive
advantage from either a cost standpoint or
knowledge standpoint will also advocate a
return to the previous system.
Those who claim that a cash/commodity
system is the only means for competitive price
discovery are simply wrong. Personally, I have
very little interest in having my kids enter a
commodity/cash-driven business where the
winners are simply the low-cost producers
with economies-of-scale advantages from both
a cost and knowledge standpoint. I am, how-ever,
very excited about having them enter a
business that rewards quality, creates an
expanding demand base, and produces prod-ucts
that are competitive with the other protein
sources from a value standpoint, and a system
where brand equity can be created by meeting
specific customer needs and where margins
are both sustainable and sufficient not only to
be profitable but to prepare for the future.

[grassfarmer]

kpb, This was our first year of direct marketing so we are still learning. It was a way to utilise my experience of grass fattening cattle and grass management but the marketing side was all new and rather daunting.
We deliver the cattle to a local slaughter plant who custom cut it to the specs the customers request (once we've helped the customer understand what cuts you get from an animal)and we then deliver the finished product cut, wrapped and frozen. We marketed through friends and contacts in year one but hope to expand it through their friends in future as well as internet marketing and local advertising.
The concept is not mine - it has been running for many years now in the US particularily in the New England area. The Stockman Grassfarmer magazine covers this area of production in depth.
In a recent issue a Vermont producer was running dual purpose Devon cattle which he milked seasonally as well as fattening their calves off grass at 2.5-3 years old. His cows produced 1000 gallons per lactation which sold for US$5000! His steers weighed in the 700lb carcass weight region and sold for US$3500 each! This is an extreme case, the opposite of your maximising numbers in a commodity market situation, but there are plenty consumers out there willing to pay a premium for a product they perceive as superior. Imagine the output from even 40 cows on such a system!
Joel Salatin and his family from Virginia were pioneers of this pasture produced, health food direct marketing angle. He is the master of land use intensity - stocking poultry, pigs and cattle all on the same pastures to achieve income levels that easily match that of modern city workers. Something we all aspire to I'm sure, but done without sacrificing quality of life or the fresh country air for city smoke.
The idea has really taken off now and suppliers are really struggling to supply the market they have created.
This system really favours producers close to a large population, I wouldn't like to try it in rural Saskatchewan but there is enough oil money in Calgary and Edmonton to consume a lot of beef. I also have a lead in the NWT that could sell many cattle for me to workers in the diamond and resource sector but it needs to be Federally slaughtered to allow that out of province sale.

Our cattle were killed at 18 months old off grass only, to yield 690lb carcases. It is a fairly complicated task matching the right cattle genetics and growth stage to the pasture quality given the short summers we have up here. It's not as easy as chucking piles of barley at feedlot cattle.
The reports we have had back from customers have been extremely positive thus far. The concept of grass fed beef is sometimes a hard sell in Alberta (even here on Agriville, LOL) but the proof is in the eating. An interesting comment we get from customers who grew up on farms is that it tastes like the beef they remember growing up with and they have been unable to find with supermarket beef.

[cakadu]

Right you are grassfarmer. Direct marketing is not for the faint of heart and consumes a great deal of time because you take over the middle man spot if you will. The benefits are there, but they come with a lot of hard work.

Joel is the pioneer and is certainly on the money. The one thing that Joel has that we will never have here in most of Canada is the ability to pasture much longer. Pasture chicken is still around here in Alberta, but it can only be done for 5 months of the year - maximum - and of course you have the supply management guys to deal with. I see that Joel has gone to pasture raised turkeys, which is kind of appealing to me but again you have to deal with the supply management system.

Our most recent experience with the processor has been an absolute nightmare. We thought we would try someone new as the waiting lists are so long. I couldn't have made the cutting instructions any more detailed if I tried and they got them totally wrong. We ended up with NO trim at all so there went the ground and the stew meat and there was a lot of waste. We had 4 lambs cut the same way and told them explicitly that we wanted one lamb per box and instead we got boxes of legs, chops and shanks and WE had to figure out what belonged with what.

So, who has to live with that mistake - WE do and the customers that got lamb from us this time got one heckuva deal.

We are trying to move more towards a grass based system, but being babes in the woods so to speak and having the drought, grasshoppers and a steep learning curve, we are going to be working at it a little longer. One day we do hope to get there, so I hope that yourself and others will be around to call upon for advice.

There are never any failures, only things to be learned and we have certainly learned for next time when it comes to ensuring the processing is done properly.

[kpb]

InAHurry and Grassfarmer, thx for taking the time to reply to my questions. Everyone should read both your messages--they are thought-provoking.

kpb