80 cent calves?

[BFW]

Talk of 80 cent calves for this fall is a little premature in my opinion however flat to declining live cattle prices, further increases in the Canadian dollar and significant increases in grain prices could make it a reality. Right now I think people would be willing to pay at least a dollar a pound for good six weight steer calves this fall. I know I would, maybe even a little more.

[kpb]

You know a few people have called me gloomy since I predicted .80 calves at the bottom of this cycle. But I have found that it's better to try to be knowledgeable about things and realistic than just hoping for the best and trusting in fate.

One of the things I know for sure is that in cows, like stocks, it's better to do exactly opposite what the crowd is doing. Last spring, when we were still in BSE and everyone was scared I said that everyone should go and buy as many calves as they could because there was hardly any downside and the potential to make lots of cash if the border opened. All the downside in those calves was already priced in. Last fall I got scared because feeders looked too high and everyone was optimistic so for the first time in a long time I didn't background any.

Right now what I see are a lot of guys buying breds for big prices, buying expensive grass calves when fats are low and sinking. Another thing I learned from a previous life in the stock brokerage business is that you have to keep your emotions out of your decisions. I have a herd of cows just like everyone else on here and I like those cows--I like this whole business or I wouldn't be doing it. But that doesn't mean I want to lose a lot of money that I don't have to.

Now I ask you to look at where the U.S. is in the cattle cycle because that is what drives us, like it or not. They are in the midst of a classic cattle cycle. That can only mean progressively lower prices over the next few years culminating in a blow-off in three or four years time when you will see the lows for the cycle.

Combine that with a strong Canadian dollar and what have you got? .80 calves is what I say. Not this fall and not in 2007 but maybe 2008 or 2009. Prices on calves will fall towards that figure during the next few years--not in a straight line and there will be rallies---but as a downward trend.

I would ask anyone who disagrees with this scenario or thinks its unlikely---farmers_son?--to show me where they think we are in the cattle cycle. Or why they think feeders will rise from here. Not because they want the prices to rise (the market, like any market, does not care what you want) but rather where is the evidence to back the case for higher prices.

I think cowman's prices are pretty much correct. We can quibble about them a bit but generally they look ok to me. At the bottom of this cycle, like the bottom of every cycle, there will be money lost.

kpb

[cowman]

Kpb: Grudgingly I think you might be right! It isn't fair...but that is reality!
I have come to think you have a pretty realistic view of the situation and a pretty good idea of how this thing works.
I will hope you are wrong.
I do think BFW has a good grasp of the situation this year? It is pretty sad situation when a poor call is based on another wreck for the grain industry?

[15444]

kpb, thankfully you came back to posting. I really enjoy reading your thoughts on the markets. You always seem to have such a solid grasp on all facets of it. I totally agree with your points. I don't see the market crashing this fall, but rather a steady progression downwards over the next few years. Regardless, I am still a little uneasy for the coming fall. The question is whether there will be a 20-30 cent drop in feeder prices this fall, or if that will be delayed for another year. So many factors that could influence calf and cow prices this year. Keep posting.

[cswilson]

I know if calves hit 80 cents I'll be buying-when everybodies crying you should be buying-the cattle market just about always trips up in a year ending in 6.

[mb_rancher]

Kato,

Would this place be located near hamiota?

[Horse]

I would like to wade in on this $1/ day grass when you take most cows are 1600# and calves are 300 plus by grass time I dont think you could feed them for under a $1/day.
I have a neibour that would like to rent some land and we sat down and tryed to come up with a price and we kind of agreed that if I didnt charge him anytging he would probably at best break even, thats growing greenfeed at todays price whitch is low but mabey the quality may be poor so that part probably averages out.
Then we tryed to figure out the breaking up or some old hay and pasture and that works out be an expensive exercise by the time it gets back into grass, so I think the best solution is like this Aboriginal told me he said that when christ left this world he told them DONT DO NOTHING UNTIL I GET BACK.

[cowman]

I also wonder kpb if the "classic cattle cycle" in the USA could be the start of our cattle industry going south?
The American rancher has had a couple of good years, while we were in a wreck? As I've said before I don't know where all these cows are going, but they are definitely leaving my area? And you can just bet they won't be coming back!
As Farmers son says: The Americans get $200 more per animal than we do, so doesn't it make sense to raise cattle there? Despite the border costs we are sending a lot of feeder cattle south every week?
I know there are ups and downs in the cattle cycle and you ride out the tough times and enjoy the good times, but it seems to me our "good times" were basically stolen away by the BSE thing?
I suspect a lot of people lost a lot of equity in the last couple of years? Can they afford to lose some more? Do they have understanding bankers?

[farmers_son]

Kpb: You asked “I would ask anyone who disagrees with this scenario or thinks its unlikely---farmers_son?--to show me where they think we are in the cattle cycle. Or why they think feeders will rise from here.

I frankly do not believe in a cattle cycle. The cattle cycle if it ever existed does not exist in today’s non functioning markets. The notion that the prices we receive for our live cattle somehow relate to supply and demand unfortunately ignores the realities of captive supplies which in this country are said to exceed 60%, lack of competition between our two major packers, import quotas which are regulated by government who can turn on or turn off the import tap at will not mention that we now are dependent upon markets beyond our border for exports and as such we would expect influences to come to bear from cattle inventories in other countries if you insist on believing that supply and demand affect the prices we are paid for our live cattle. So for me the question of where we are at in the cattle cycle is like saying where is the man in the moon. The answer of course is there isn’t one.

I certainly did not say that the price of feeders would rise from here. The challenge for producers like me is to accept that we just do not know and do not have any control over what prices will be this fall or three years from now. Any attempt trying to predict prices ignores the reality that our markets are non functioning and have absolutely nothing to do with supply and demand thus there is no way of predicting what prices will be.

However we have difficulty living with reality and economics force us to gaze into our crystal ball because we have bills to pay and payments to make. The forces I see guiding prices are not supply and demand rather:

When the major monopoly packers build new capacity or buy capacity like Better Beef they lower the live prices for about a year until the plant is paid for.

The packers will only lower prices to a point where they do not get attention from the federal government.

The real variable in feeder prices is cost of gain more so than the fat price.

Imports or the possibility imports of U.S. feeders will limit our domestic prices.

Feedlots be penciling in larger profits for themselves when buying calves which would be negative for weaned prices.

Cattle inventory numbers do not rise or fall because of weaned calf prices but because of major droughts and availability of feed and pasture.

The overall economy drives the demand for retail beef. However those market signals do not make it down to the producer level and certainly do not make it beyond the packer level.

High energy prices may be inflationary.

[cswilson]

Well farmers_son when the cycle spanks you good you'll become a believer. Maybe if you don't believe it exists you won't follow it and you might even make some m oney till then just keep figuring.