How BSE affected cattle marketings

[farmers_son]

I wish the feds were up. The rail price of fat steers was between 1.30 and 1.40 since September 2004; for a short while as high as 1.50. Last week the price was 1.38-1.40. Now of course there is the U.S. dollar and the price of fats in the U.S. but the border opening has not done all that much to increase price of live fats in Alberta. It comes down to continuing lack of competition and the difficulties that remain, the obstacles that are in place keeping us from arbitraging with the U.S. market. So I think Graceys comments are as valid today as they would have been if made in March. I agree with Graceys comments except that I have not seen a price jump for fats, maybe he is talking about Ontario.

[smcgrath76]

I completely agree with you F_S. The challenge of our commodity/raw material mindset is that we continually drive down costs/margins/prices and all in the name of perfect competition. Unfortunately the buyer of the commodity doesn't operate in this "perfect" arena, and we have to figure out how to compete with them or go around them if we want to move further up the food chain.
Maybe I am starting to think like cowman, but as long as people are willing to struggle, work for free (or pay to work) and/or subsidize their farms/lifestyle and maintain status quo, I think we have a long row to hoe.
I know that figuring out how to move out of commodity production is the next important step for our business.
Had a good chat with a talented business person the other day and they suggested that as a rule of thumb a business should cash flow (or gross) 50% of their asset base and keep 15% before tax. In other words, if I turn $1,000,000 loose I should be able to generate $500,000 a year and keep $150,000 to share with government. We both agreed that the cash flow needs would vary depending on the business type and structure, but...
How many of us control $1,000,000 worth of assets (not a big farm anymore)? How many of us generate $500,000 out of each $1,000,000 of assets? How many of us take home $150,000 pre-tax out of our $1,000,000 asset base?
Not me, but I am sure trying to figure out how to accomplish this goal. I don't agree with the lifestyle argument very strongly. A homeless person pushing a shopping cart in downtown Calgary has a lifestyle, Donald Trump has a lifestyle, we all have a lifestyle. I don't think choosing to farm should mean we have to live out of a shopping cart (even though we fill it - ironic eh?).

[kpb]

smc is on the right track I think when he talks about the return--or lack thereof--on the capital we have invested in our businesses. I have been giving this a lot of thought lately because I have a lot of money invested, particularly in land, and a low return.

At the risk of farmers_son saying these points are irrelevant I would ask you, grassfarmer, if you think sending 100 cows out and getting 88 calves back is acceptable? Because I get your point about death loss after weaning, which, at 5% for backgrounders and 5% for feeders is not acceptable for sure. Grassfarmer, the reason, in my mind, that pre-conditioned calves do not get a premium is because, in the past, calves were marketed as pre-conditioned that were not. So how about this--I'll pay more for pre-conditioned calves if the cow-calf producer gives me a money back guarantee of no death loss for the first, say, 6 weeks I own the calf?

farmers_son, although fats have not gone up much since the border opened, heavy feeders have gone up at least .20. I think the basis is now down around .10 on the fats which is about right on the historic average given that we now also have some additional costs to export.

The problem is that the U.S. fat market is dropping. I'm afraid that all this BSE stuff has made us miss the top of the U.S. market and we are now on the downslope. If that's the case, and I think it is very likely, we're in for four or five years of declining prices (assuming a normal 10 year cattle cycle).

kpb

[grassfarmer]

kpb, No I don't consider 88% weaning acceptable. There is room for management improvement there for sure. We managed over 95% weaned per 100 cows exposed with the 04 crop and will do better this year. This has not been bought by high, or increasing inputs I may add, I'm working cows harder than I've ever done but am now working with nature rather than against it. My production costs are way lower than my "conventional" (winter) calving / no management grazing neighbours.
I don't know you well enough to guarantee my calves - for all I know a buyer might put his cattle onto a 80% grain ration straight away and lose half the calves with bloat. Some of my existing buyers I would however consider this with - that's an interesting marketing angle. I think for the stakes we all have invested in beef production we should be mature enough as an industry to adopt preconditioning. Bad apples and cheaters must be weeded out on the cow/calf end but I think we are wasting too much money by dismissing preconditioning as something that won't work because some producers cheated a bunch of years ago.

I also think often of our asset values relative to earnings - unlike most producers I've gone that stage further, sold the whole shooting match got the cash in hand but have still reinvested it in agriculture.
I like the lifestyle but it is also my business and provides my income. I think the guy Sean was talking to was in a very different business - one with a lower asset base. Agriculture is just not like buying a shop in town - you will never get gross turnover values of 50% of asset value. Land is a relatively safe investment and is appreciating most places in the world. Realistically if I get a 3% net return annually of my $1,000,000 that's $30k and in addition get a 5% asset value increase due to land valuation increase($50k)I'm happy
it's an 8% return on investment which is good enough in my book for a very safe investment. I know of investments this year that could have turned a million into 1.5 million in 6 months - but they aren't things I'd be risking big sums on (certainly not betting the farm) - but it all depends what a persons comfort level with risk is.
Donald Trump would take that risk every time - but he's currently a bankrupt isn't he?

[kpb]

grassfarmer, the point is that if you don't trust me to feed your (our) calves properly, why should I believe you when you say you've pre-conditioned these calves? I think you are an honorable person but, as you said, I don't know you and it is quite true that every year people claim their calves are pre-conditioned when they are not.

The fact is that if you want me to accept that your calves are pre-conditioned and pay a premium for them then I guess I need a guarantee that that is so. And the only way I can get that is if you back your claim with money. Yes I may feed your calves wrong but, in this case, I'm the customer and you are the one trying to sell me. There are lots of calves around and if you want me to pay a pre-conditioning premium for yours I guess you'll have to provide me with some insurance.

In regards to return on invested assets, while it is true that land appreciation has been good lately, I would point out that land can also decline, even in hot markets like Vancouver and Toronto. And the declines can last many years. Also, smc has an appropriate measuring device for assessing a business. Cash flow is a better indicator of the health of a business than perceived and unrealized asset value gain. On that basis, most farms and ranches do not pencil out well.

kpb

[cowman]

If the average weaning percentage is 88% then some people must be weaning a lot less? So many people suggest they got 100% calf crop...nary an open cow...in fact many say they got more than 100%!
Now after hearing that sort of thing quite often, I wonder where all these real losers are hiding out? They must be calving down in that 60% range!
Is it possible to survive calving 60%? They must have one hell of a good job?
If we say it costs $200/year winter feed and bedding, $150 grazing, $30/breeding, $20 salt and vet, $35/replacement, $50/cow interest, $50 labor, $15/misc., we have $550 in that calf? That doesn't take into account things like machinery costs or fuel, taxes, etc.
So if we get $650/calf we have a gross of $65,000, a cost of $55,000 for a net of $10,000? However if we only wean an 88% calf crop we have a gross of $57,200, but our costs still stay at $55,000 for a net of $2,200!
At 65% calf crop our gross is $42,250, cost still at $55,000 for a net LOSS of $12,750! I don't know why anyone would want to lose money, but obviously some must be?
Of course you are making money on your grassland and your crop/hay land...well maybe? Depends how much your inputs and machinery costs are? Not so sure about the land appreciation thing...in Alberta I think so but I talked recently to a newly arrived business man in Red Deer who sold his Sask. farm land...got less for it than he paid in 1980!
If you want to get the results Seans guy suggests, I agree you have to do things a whole lot different and that probably means moving up the food chain? In reality a lot of people have pretty well taken the cost side about as low as possible? Not much room to squeeze another nickel out of costs? The fact is with $1/liter gas and $150,000 tractors we need to get a better price for our product?
The way the system works is you must now become a feeder,packer, and yes retailer if you want to get a respectable price for your product. And for the majority of beef producers that just isn't going to happen?

[cowman]

One other thing...kpb: I suspect you and fellow feeders will do very well on feeders you bought last fall...if you still have them?
Last fall calves were very cheap in October, and feed was very cheap? Lots of heifer calves in that 500 lb. range got down into the high eighties? Even at 90 cents the price was around $450? Now take a maitenance ration at around 70 cents a day and you probably came to grass with maybe $600 in them? Three months grass at $20 and you come up with $660? What is a 950 lb. heifer selling for today?
Last fall you stated it very well...that you were pretty sure you could turn a profit on feeder cattle! Obviously you were right.
We should never be afraid to admit we did well!

[cowman]

I think that every producer should aim for 100% calving and weaning, but perhaps can settle for 95%. Anything less than that certainly does not bode well for the viability of the operation or say much for management practices.

As input costs continue to rise, those cows are going to have to produce and be fairly easy keepers to make any sort of bottom line.

Feed will be fairly reasonable this fall, and if the calf prices are better than last year at least there may be a chance for some producers to get back on track. Depending on how much of the BSE money they have to return !!!

[grassfarmer]

Cowman "So many people suggest they got 100% calf crop" - suggest being the operative word. This figure is calved weaned per 100 cows exposed not per 100 cows on farm at start of calving or at weaning. I suspect in truth most producers don't keep good enough records to know where they are. The difficulties many had providing simple inventory numbers for CAIS proves that.
In my experience a 100% weaning figure would be very hard to attain. We had many, many years in Scotland where we didn't hit 90% and it is only since moving here and learning an awful lot that I have been able to raise these higher. To reach 95% weaned you need to have excellent grass for conception, no scours - period, some twins and a touch of good luck. I don't think people weaning 60-80% are slackers or unfit to keep cows they are just poorer managers. It is very easy to get things wrong with cows - a bad scour outbreak can certainly reduce percentages. When you learn that if you give a cow every chance to be a cow it gets easier. Winter calving, continuous grazing,unsuitable bulls, confinement feeding, extended breeding seasons are not things a cow does naturally.

[pandiana]

grassfarmer, your statement "This figure is calved weaned per 100 cows exposed not per 100 cows on farm at start of calving or at weaning." illustrates the importance of defining the measurement. The figure "is" whatever parameter you are trying to measure. Harlan Hughes, in the same Cattlemen issue, uses several different formulas including calves per cow exposed, calving percentage per cows in inventory on January 1st. 100% calving can also mean that there was not a net loss of calves to dystocia, which is a valid measurement if it is defined as such. He also uses the formula lbs weaned per female exposed which I think is a good measure of productivity.

I am in agreement with most observations that an 88% loss to weaning would appear too high even measuring calves per cow exposed. This is one area where we have some control on out bottom line whereas increases in input costs, such as we are seeing with fuel prices, are well beyond our control. Without a doubt, I will have trouble matching Hughes feed cost benchmark of $27.25/month/cow, as in my area, summer pasture alone is valued at $30.00 per month.