Killing the cow plant

[cowman]

Age verification is probably a good thing, but once again who has to pay for it? The primary producer.
It's just like the bar code tags when they were first introduced. Who paid...the cow/calf guy.

[farmers_son]

http://www.agr.gov.sk.ca/docs/statistics/finance/other/bankrupt03.pdf

In 2003, 19 livestock farms in Alberta, 4 in Saskatchewan and 10 in Manitoba went bankrupt. Overall 68 livestock farms in Canada were bankrupted. Livestock farm bankruptcies were higher in 1989-1992 than in 2003.

In 2003, overall 202 Canadian farms declared bankruptcy up 13% from 2002. The majority of these farms were field crop operations.

I have not been able to find numbers for 2004.

Bankruptcies only tell a small part of the story. Many operations survive with increased debt. Debt that will have to be paid back if and when times get better. The interest on that debt is going to hurt Canadian farm profitability for years to come.

Cowman, you said “In the big picture who will survive? I always said the guys with the deepest pockets and a commitment to the life, will be the ones who come out the other end. “ That is exactly right. But it has been that way for many years, before BSE.

The size of the “cow plant” is a not so much a result of the profitability of the cow calf business but a result of lack of profitable alternatives e.g. cropping or hogs. When we look at the high production costs for cropping operations, on the more marginal land in the prairie provinces, there is still more contribution per acre from cows than there is from grain. Although the names on some mailboxes may change as a result of BSE, along the lines of Cowman’s comments of deep pockets and commitment, I would expect the size of the cow herd to continue to grow. There is simply no large scale alternative use for the grass land other than niche markets like sheep or buffalo.

I would however expect more on farm feeding to take place as producers attempt to capture more value from every animal. The packers seem to be willing to deal with smaller farm scale feedlots. The choice then for many cow calf producers will be either to feed out your calves or get off farm work.

I do not see many feedlots operators with off farm jobs.

“The Canadian cow herd continues to grow and produce more calves every year...sooner or later that has to cause some problems?” There is lots and lots of room for growth in the cow herd if we can get packing plant capacity in this country to process the beef. The problem is packing plant capacity and access to the U.S. market, not size of the Canadian cow herd.

[pandiana]

The apparent fact that many cow/calf producers continue to 'soldier on' despite several years of losses is not just a testament to their tenancity but I think it is a reflection of other factors.
For example, as I have offered in previous posts, many primary producers are (were) asset rich with good lines of credit. They have some wiggle room in how they manage their operations unlike many feedlots that operate on a more current basis.

In addition, if primary producers wanted to sell, they will incur an immediate loss in cattle or land. Farmers have always lived on hope. Hope that the weather holds, the border opens, the government hands out one more cheque or..miracle of miracle, they offer to support the building of a cow plant.

Although it is generally accepted that the average primary producer normally culls between 15 and 20% of their cows each year, which has been estimated at up to 25% of their income; they also have taken a hit on calf prices according to Alberta Agriculture Market Review (2003 vs 2002 were down on average 20%). Yes, there have been periods where calf prices approach historical prices. If you are lucky enough to sell only in those periods you would only have to contend with the outrageous increases in input costs that impact your bottom line. However, there have been many weeks when calf prices were poor and obviously many calves were sold during these periods.
According to Alberta Agriculture statistics, 'farmers' are still occuring significant net losses.

How many more years can they afford to do this is anybody's guess. Would any ordinary business that incurred 3 or 4 years of net losses still be in business. Enter "life style" and "historical perspectives" and "attachment to land" into the picture.

[pandiana]

I thought this comment added something to this discussion as well as some of the other current threads.

Lackluster cattle prices
by Kevin Hursh

A major price spread has again developed between Canadian and American prices for fed cattle.

Sandy Russell, a beef economist with Saskatchewan Agriculture and Food says the spread is currently as high as $34 per cwt. That works out to about $450 on a typical fed steer.

Back in mid-February when an early March opening of the border to live Canadian cattle was expected, the spread was as narrow as $15 per cwt.

Russell says most Canadian feedlots are losing money at current fed cattle prices, having bought calves under the assumption of a better market than currently exists.

As for feeder cattle, the price of 500 to 600 pound steer calves in Saskatchewan has been averaging about $1.15 a pound, as compared to $1.21 at the same time last year.

Some of the calves coming to market are enrolled in the government set-aside program and cannot be slaughtered until either October of 2005 or January of 2006. Russell says set-aside calves are being discounted in the marketplace with the amount varying widely from one week to another and one auction market to another.