80 cent calves?

[cowman]

Okay obviously this is something that I have been thinking about since kpb first brought it up? So here goes?
Say a April calf from a British type cow, sold in early October? We'll be generous and say the whole works average 550 lbs. X $.80 =$440? Knock off $20 sales costs and you clear $420?
On another post here pasture is $.85 a day, so say we can ggraze for 165 days at that price...$140.25? Then we feed momma for 200 days at what? Well hay is cheap right now, but I don't think $1 day would be accessive if you use a tractor, truck or whatever? So $200?
Now momma has to be rebred so we'll say $25...which might be low considering bull prices? Then there is salt/vitamins/mineral at say $5(cheap)? Vet costs...well say $3 for RFID tag, $1.50 for regular tag, $.50 for 8-way, maybe a shot for IBR/BVD at $2.50 and throw in $2.50 for miscelaneous? So say $10? No vet work and no ivomec/fly control.
Now what is your cow worth? If she is $1200 then it would be reasonable to expect 7% interest on her? $84? What does it cost to replace her/depreciate her? We won't go with BSE prices but traditional... say over 10 years she goes from $1200 to $700 or a $500 loss or $50 a year?
Unfortunately most of us need corrals and fences so how about $5 for upkeep? Then there are the other things like waterers, lights, taxes, accountants and other micellaneous...we'll be generous and say $10?
We won't go into labor as we all like to work for free and we won't count interest on our feed supply or the cost of a horse, quad or pickup truck to check the cows! Or the fuel to run them!
Now that comes to $529.25 or in other words a loss of $109.25 on every cow? Now if you only have 100 cows then you only lose $10,925, but if you have 400 cows you lose $43,700! Why if you got rid of the cows you could live on the money you wouldn't be losing!
Now maybe my figures are all wrong or something? I think they are fairly cheap but then what do I know? Some people seem to think cows and grass are free and of course their chosen "breed" are so darned efficient they don't eat or need vaccines or salt, and they get in calf by immaculate conception!...all the while weaning 110% calf crops of all steers in 21 days and all right at the top of the prcies available? Maybe I'm not doing something right...

[wd9]

cowman, must be the rainy weather because you sure aren't a ray of sunshine this AM.

[farmers_son]

You have included some costs I would question.

If, and it is a big if, calves get to 80 cents I think you will find that pasture will be cheaper as well as winter feed. I think it is unreasonable to expect a 7% return on a $1200 cow at the best of times and I would not include a ROI in a budget such as you have listed. Example it is wrong to pencil in a $84 return at the same time as a $109.25 loss, just doesn’t make sense.

Using the numbers you posted I would say your costs are high by roughly $250 or more if at some point calves are only worth 80 cents. However there would be no question that contribution would not be sufficient to meet even conservative debt repayment needs and those with debt will find themselves in dire straits.

What you are really illustrating is the effect that a strengthening dollar will have on our operations. The benefit from a falling dollar and therefore the impact of a rising dollar is on our ability to repay debt. Our low interest rates as well as the struggles of the past few years may have encouraged a number of producers to take on more debt. They will find that debt is very difficult to repay as the dollar rises. There is no question a number of producers will not make it.

[farmers_son]

I don't necessarily agree that feed will be cheaper if calves are cheaper.

It sure hasn't worked that way before.

[kato]

That same post quoted a dollar a day for big cows with January calves. We have big cows with February calves, and if we were offered pasture at at dollar a day we'd turn it down. 85 cents is getting closer to reasonable, but still more than we've been paying. Custom grazing costs also require trucking costs to and from the pasture, so you'v got to watch that expense and factor it in.

Grassers in our area pay grazing on a pound of gain basis. I know one outfit that writes such a mean contract that it's possible to custom graze their cattle and not make a dime. They make the grazer cover the loss of weight going out in the fall that occurs from death loss. The amazing thing is that they still have all kinds of guys who pasture cattle for them.

[cswilson]

The price of hay and pasture have got to line up somehow-you can buy all the hay you want up here for 1.5 to 2 cents a pound-pellets are 6 cents/lb delivered-I can feed my cows 30 lbs of hay a day plus 5 lbs of pellets for what guys want to rent grass for. You can easily add a dime a day to the pasture rent to cover trucking etc.We drylotted our grass cattle last summer because it pencilled better than trucking them out to grass-strange times we live in for sure.

[cswilson]

cwilson, if cows are drylotted in Alberta the operator requires a Agricultural Operations Practices Act permit and the criteria may make drylotting them fairly expensive .

[cowman]

Not just sure where you are on this farmers son? You need to make $84 on cow investment no matter what? Yes that does come out of the total loss? How is that a problem, or do you like to just give your money away?
Is feed going to get cheaper with 80 cent calves? I don't think so...the guys growing hay aren't making it now?
Don't know how my prices are so "high" in your estimation? Tell me where I'm not getting it? I need to be enlightened?

[cswilson]

I'm sure you could feed them out on pasture and get by without the paperwork-I'm just saying that there is a big disparity between what grass guys charge in relation to what hay is worth. When COG on grass gets the same as the feedlot you might as well put your yearlings in the feedlot.

[cowman]

And cswilson...I agree with you! Something just doesn't gel right n this thing? Garst Bros. in Nebraska showed they could feed cows cheaper on silage than on pasture a long time ago? Like the sixties?
When our winter costs show less cost than grass, what does that mean?

[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.