How BSE affected cattle marketings

[pandiana]

I was reading this article in Cattlement (August 2005) by Charlie Gracey and was rather intrigued by some of his observations.
His conclusions did not differ from what most primary producers already know but maybe the scope is broader.
He used a rather novel statistic to base his conclusions on: Fed and Non-Fed cattle Marketings per 100 cows. CanFax data.

He concludes in his summary:
" .We have adequate capacity but inadequate competition for our annual fed-beef production and there is no significant backlog of fed cattle. Of course the reopened border will bring back some of this necessary competition. Evidence of that is shown in the price jump when the market first opened.

. We have neither adequate capacity nor any semblance of competition for the supply of non-fed cattle and very limited markets for the non-fed product.

I believed from the beginning that the major problem was in the non-fed sector. This anaysis confirms it. Unfortunately, some people are sugesting we must get used to low cow prices if we are going to displace supplementary imports. This is nonsense. Cow prices in the U.S. are triple what they are in Canada and the U.S. does not permit supplementary imports."

Some of his numbers I find a little difficult to follow such as what happens to the fed beef that is not marketed i.e. the other approx 40% not shown on the tables.
Also, he notes "By the end of 2005 we will have disposed of a total 25 cows per 100 in the herd over a 3-year period. Normally we would have marketed about 42.4.

I would be interested in hearing your comments.

[farmers_son]

Mike Johanns made the following statement when the USDA changed the rule from its original concept to allow in our cow beef to continuing to restrict cow beef. He said “Our ongoing investigations into the recent finds of BSE in Canada in animals over 30 months are not complete. Therefore, I feel it is prudent to delay the effective date for allowing imports of meat from animals 30 months and over,” said Johanns. “This action also addresses concerns over the portion of the minimal-risk rule that would reopen the Canadian border for beef from animals 30 months and over, while keeping it closed for imports of older live cattle for processing in the United States.”

“At the same time, I am asking U.S. officials to move forward in consideration and development of a plan to allow imports of animals 30 months and older for slaughter as well as beef from over 30-month animals as the next step in resuming full trade with Canada,” continued Johanns.

Well the investigations into BSE are not only complete but now the U.S. has BSE too. If science is ruling the day we should see a rule allowing in our cow beef and live cows born after the feed ban very soon. However given the recent problems with NAFTA I am not holding my breath.

I disagree that we have seen competition drive up the fed price of live cattle. The U.S. has enough restrictions on importation of our fat steers that any effect of competition influencing live prices has been muted.

Sometimes it is a matter of our glass being half full or half empty. The continued trade harassment of our cattle industry by the USDA encourages expansion of our packing plant industry as well as expansion of our cattle herd. I would point out the closure of the cow plant in Nampa is positive for Canada long term.

However the cow calf guy should not have to stand the cost of this continued trade protectionism alone. The feedlot sector was well looked after with the fed cattle set aside which is still running in Alberta. We should be looking at supporting producers who are holding cull cows off of the market in a similar fashion. It is not fair that the cow producer should have to reduce their CAIS margins to support the industry when other industry sectors received direct support.

[grassfarmer]

Pandiana,
I also wondered what happened to the missing fed cattle - I assume that what are missing are not in fact fed cattle but breeding heifers retained in the herd. The difference shown between fed steers and heifers marketed longterm is about 13% so if you add that to the 60% accounted for that still only brings you up to @73 calves per 100 cows. I wonder how many calves out of 100 cows are actually reared?
farmers_son, would you care to explain your comment "I would point out the closure of the cow plant in Nampa is positive for Canada long term." ??
Speaking of CAIS I was talking to my accountant last week and he was saying it looks like there will be few CAIS payouts to cow/calf producers for the 2004 year and even less for 2005.

[pandiana]

grassfarmer, Gracey notes that approximately 35.00 steers per 100 cows are marketed every year. If we assumed that 50% of calves are steers then 15% could not be bulls could they? I think this could be the case on the heifers side in some yars but he already shows a differential of about 12% for heifers not marketed as fed over steers leaving 25% not accounted for. Surely not death loss!

[pandiana]

Thanks, farmers_son, for refreshing my memory on the USDA OTM ruling. I am of two minds regarding the re-opening of the border to otm.
On one hand, I continue to be offended by the US in general and R-Calf in particulars stance on ignoring USDA, OIE and NAFTA in their efforts to keep the border closed. Their response to the softwood trade ruling just adds fuel to my resentment.

Nonetheless, keeping the border closed to OTM will, hopefully, continue to put pressure on find a Made in Canada solution to this market. Our government, and possibly our organizatons, have been woefully inept at not taking more initiative in promoting solutions. Gracey has a little more credability than BIG-maybe this can help to add influence.

I hate to keep re-stating the obvious but ..we still need packing facilities devoted to processing OTM beef. Private enterprise may succeed in adding some capacity but without government 'initiatives' we will not have enough, soon enough to support the primary producers that are bearing the brunt of this loss. I still believe bricks and mortar last a lot longer than government aid, relief or whatever you want to call it.

[kpb]

pandiana, like you I was also mystified by the numbers used in this article. However, I can get things a little closer--further on in the magazine, there are real numbers from Manitoba producers which show an 88% successful weaning rate.

Assuming that we're all about the same across the country, that would mean only 44 male calves were successfully weaned from 100 cows (again assuming a 50-50 male female split). After weaning there would be roughly a 5% death loss for backgrounders and 5% for finishers (I think the ag depts. generally say this). So drop another 10% from the 44 and you are down to 39.5 fed male calves from every 100 cows. Pretty close to Gracey's figures and then there are a few kept as bulls. So you're there I think but I agree the death loss and conception failure is a little daunting.

As to your other point, I agree entirely with you that we need more domestic plants but you know what? It is not going to happen. The governments do not have the will to backstop these plants, the Canadian consumer has lost interest and the private plants that were proposed are withering on the vine. Remember how many were proposed a while ago--maybe 50 or 60. We might end up with three or four for the short term and how many will still be here and independent in five years?

Farmers_son, I must disagree with you on the issue of higher prices. Prices are much higher now for the heavy feeders at least and that, as Gracey says, can only be because of the border opening. It is only through increased buying competition that feeder prices rose. But once the border opened it was inevitable that prices here would eventually revert back to near-historic basis levels. Otherwise there would be a market inefficiency and that is always eventually corrected.

kpb

[grassfarmer]

kpb, "After weaning there would be roughly a 5% death loss for backgrounders and 5% for finishers" - maybe it's time folks were getting on board the preconditioning bandwagon, these losses are way too high at what should be a relatively "safe" stage of an animals life.
I agree with your factoring in losses to get to Graceys figures though.

[farmers_son]

I think you people are missing the point. It does not matter one bit how Gracey got his numbers. The number of cows out there or death loss of calves is irrelevant. It doesn’t change the importance of the message Gracey is making. While I have not read the article the important points I saw in Pandiana’s post was there is no competition for fed and non fed animals and limited markets. While it may be an interesting exercise to backwards engineer how Gracey got whatever numbers he used to make his point, the point is lack of competition and limited markets, not how many cows are hiding in the tress or death loss of calves.

"We have adequate capacity but inadequate competition for our annual fed-beef production and there is no significant backlog of fed cattle. We have neither adequate capacity nor any semblance of competition for the supply of non-fed cattle and very limited markets for the non-fed product." That is a pretty important conclusion for someone in Gracey’s position of influence to make. The question for producers is not the death loss on calves but what do we do about lack of competition and limited markets for live fat and non fed live animals. Because not doing something about is not an option.

[cowman]

The feeder market is up, the fat market is up. Cows are slowly climbing despite the border not being open...yet? I would suggest things are swinging back to normal and soon it will be business as usual?
It takes some time to get some of the stupidity out of the way but BSE has basically become a not so major problem? Now if that half wit group R-CALF would just shut up and go away we might progress back to where we were?
I really do believe the CCA and ABP should be suing R-CALF to put a nail in their coffin and break them but I doubt that will happen?

[grassfarmer]

I'm well aware of the problems farmers_son and I'm sure kpb is too. I agree "Not doing something about is not an option." - unfortunately that is the option the vast majority of producers have chosen to take. So we remain in limbo waiting for "someone else" to make the changes we need.
As Cowman says the feeders are up, feds are up and cows are rising so prosperity is just around the corner. Doesn't matter that the prosperity the cattle industry has seen in North America in the last decades has been very limited at best and negative the rest of the time. It's always easier to sit back and do nothing then complain when things don't work out rather than work for positive change.

[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