Hay and grain?

[farmers_son]

I agree.

However we are forced to respond to market forces beyond our farm gate. While we do have direct influence over the expense side we also have to make decisions regarding herd size, amount of debt we can carry, need for off farm jobs, more or less machinery, even land rent and land purchases or sales.

Those decisions are often critical and strategic and directly impact the survival or success of the operation while feed decisions are largely routine. Up to now the right decision was more, more, more cows. At least up to 2002 the more cows you had the more money you made.

At some point we need to be aware that the change in the value of the dollar represents a dramatic and fundamental change in our industry that will negatively impact our competitiveness (defined as profitability). Every decision we make in the next few years must be made in context of the impact the dollar is going to have on all aspects of our operation.

By being aware of oncoming change we can be better prepared for it and make adjustments to our operation before adjustments are forced on us.

[cswilson]

At what point did you presume that because we were discussing hay costs that we weren't aware of the other things that impact profitability. If you are totally certain which way the dollar is headed maybe you should be a currency trader.here's a simple formula for profitability-Income has to be greater than expenses-works for 20 percent interest-90 cent Canadian dollar-drought-flood-how each of us applies his knowledge to make the formula work is what makes ranching the great business it is.

[farmers_son]

And if I was sure which way the price of hay was headed I could be a hay buyer.

Checking back I see the discussion mentioned hay, barley, straw, silage, drylotting, machinery, maintenance, depreciation, interest, swath grazing, twine, delivery, even Belgians. I threw in the dollar.

So was I wrong to mention the dollar? Even though there is not a line on my expense statement for exchange rates it is the number one item affecting my operations bottom line in this economic environment.
Our farm’s profitability has more to do with overall industry profitability than our individual management.

Darn good thing I never mentioned the price of fuel…LOL

[cswilson]

I think deep down you posted to show us old fellers how much smarter you were-if you read your post I'll think you'll see what I mean. You don't have to bother doing that farmer's son we all know you got the bases covered. Your point is taken on the exchange rate-but like I said I'll worry bout things I can control-maybe a team of Belgians is mundane to you but if I replace 300 hours of tractor rent by using them that's 10,000 plus into my coffers-if I shave a dime a day off feed costs on 500 head that's another 10,000-maybe pennies to you but dollars to me. I'm curious what is your strategy to overcome the exchange rate armageddon.

[farmers_son]

I mentioned exchange rates because I was interested in what people thought. There has not been much discussion of exchange rates.

Belgians are not mundane at all and may offer a way to cash flow your way through what I see is a big problem in the next few years. Much smarter than a shiny new tractor and loader. You are right to focus on things you can control. I would say you can control how the stronger dollar impacts your operation. As for the dollar I hope I am wrong but better safe than sorry.

$10,000 is dollars to me too. I am concerned the stronger dollar has the potential to impact my operation to the tune of $100,000. Your operation is bigger than mine.

[cowman]

Farmers son: Obviously you have a good grasp on this money thing. Personally I just don't get it although I have often pondered the whole situation. I guess I just have a mental block or something when it comes to this whole currency thing.
I do feel that sometimes the currency thing is just used to rip the people off? By the exchange today we should be worth a lot more than last year...and yet our money doesn't buy anymore things...probably less!
I do appreciate your bringing out your insights on the currency thing, even though I still don't get it completely!

[cattleman2]

I am slightly confused about the dollar affecting us as well, and I am an individual that is working in the finance industry, to support the cows...

We pay in CDN dollars for our inputs, we recieve CDN dollars for our output, how does the exchange rate factor in to the equation at all???

One might have said in the past that the US created a floor price for our feeder and fat cattle, so with a stronger CDN dollar (weaker US dollar) the floor price will be lower everything else remaining equal.

This doesn't preclude the canadian producers or the US producers from paying more (or less) to buy the calves, but I don't believe that it will really affect each and every farm in the magnitude of 33% as I believe was stated above.

Please explain if I have it wrong?

[farmers_son]

What was stated above was a reduction in gross revenues of 33%. Everyone that sells calves or cows would experience this kind of decrease in revenue assuming a constant U.S. market.

The comparison was between the dollars low January 2002 at .625 and an assumed dollar in the near future of .93 cents resulting in a 33% decrease in our revenues. If the dollar continues to climb at the same rate as in the recent past it will reach 93 cents within a year. Does this explain it for you?

The dollar closed at 85.63 today, almost a full cent above Friday and the highest since November 1980.

[cattleman2]

Why does everyone have to recieve this reduction??? This would be a reduction in the "floor price" but does not mean that we are all going to recieve the floor price. I kind of think that since the dates you are quoting I have recieved MORE $$$$ per calf.

We can't get so wrapped up in the aspect that the CDN $ has gone up so we are going to recieve less...IT has happended in the past when we have had currency fluctutations and guess what, the Americians had to come up with more $$/cwt in US dollars or they didn't own the cattle, they stayed in Canada and were put on feed here.

[FarmRanger]

Cattleman2 has a valid point, our dollar in relation to the US dollar is only one aspect to look at. Even though a large portion of our trade is with the US we are not in a vacuum. The Americans will find that they will have to pay more for everything else as their dollar drops in value, why not cattle?

[cswilson]

There was some fairly well off cowboys when our dollar traded at a premium to the U'S' dollar. I'm getting more like my old neighbor across the swamp-a very wealthy outfit but you'd never know by looking at it. Anyway a management guru crnered himone day and pointed out all the ways he could maximize his operation etc. etc. My old neighbor kinda scratched his head and said-'You know sometimes I just like to buy some shells and go hunt moose.' It was priceless-the management guy just deflated like a balloon lol.

[farmers_son]

Cswilson: I have a lot of respect for those old fellows. They learned a lot by surviving the 30s although they had some very good times after WWII. I am thinking the management guru should have gone hunting moose with your neighbour. There is time for fun and time for looking after business.

Cattleman2: Sure, prices rise and fall. Lets hope prices go through the roof. My grandfather said hope for the best but prepare for the worst. The changing dollar is going to have a negative impact on prices. I stay with my comments that if the dollar reaches 93 cents that the impact will be a 33% reduction in gross returns assuming (note I said assuming) the U.S. price of live cattle remains constant. That is not a market prediction, it is simply math.