Excellent read

[grassfarmer]

Here is a link to Kit Pharo's newsletter that I thought people might find interesting. There are good articles highlighting how the price of corn will negatively impact chicken and pork production way more than it need affect beef. Also an article by Jo Robinson on healthy fat.

http://www.pharocattle.com/Jan_Feb_2007.pdf

[cswilson]

There might be an upside to the great ethanol goldrush after all. I'm sure 'whine' production will be up in places. One thing about Kit he's always thinking-it's worth your dime to call him up and discuss the State of the Union-he's a knowledgeable and interesting guy.

[rkaiser]

Should have been at the ABP annual meeting Mr. Wilson - they were pouring drinking, absorbing and force feed tubing that whine. Missed my chance to meet Kit in Edmonton this fall but hope to get another chance some time soon.

[blackjack]

...if corn goes to 6 bucks and stays...that will mean a whole lot less cattle in my area...the land use will go from pasture or hay back into crop production or rented out to those that gamble to make a buck...heard some interesting news...germany has excess bio-fuels and are looking at export...makes me wonder how long the ethanol production will last...

[cswilson]

Long enough to break a few people-beef isn't the only thing third world countries can raise cheaply. Guess we'll wait and see where the punch comes from then roll with it.

[cowman]

The other day I met a hired hand of the local feedlot. I had heard a rumor that they were selling their cow herd(1200) and asked him about it? He said yea they are all going to Strathmore in March. He went on to tell me they were breaking up as much of the pasture land as possible and growing canola! Said in the big picture they were phasing out the feedlot(7000 head) too!
Now I've known the owner of this huge spread all my life and he is a very smart cookie and always seems to be ahead of the curve. He was into holistic management before anyone else I know. He grazed corn and turnips before anyone else. He grew trees(on a big scale) for the landscape industry. I gotta believe he knows whats coming.

[cswilson]

$4 Canola lol. When I worked for Bill Hunt in the early 80's we took a dozen Char bulls to a big outfit by Cereal-kind of like your guy-considered very smart-he was breaking up sod and selling cows to grow wheat-I don't think that was quite the recipe for success then either. Mind you volounteer Round Up ready canola makes great grazing so his neighbors should do all right.

[cowman]

Now I'll tell you this outfit has been around since a long time before the 1980s? These boys aren't a flash in the pan and will be in business probably long after you and me are both long gone!
Good business men who know how to make a buck!

[cswilson]

The outfit I was talking about was a third generation one also-it seems in Agri-ville.com a pessimist or a quitter is a good businessman kind of a contradiction in terms-we'll see I've outlasted a few guys who were smarter than me. I bet your fellow keeps his fingers in the cattle business too. Established farmers are having trouble making a go with Canola can't see a quasirancher hopping in and ringing the bell-I'm sure he'll shift some eggs from one basket to another but I bet he doesn't turn it upside down and shake it either.

[grassfarmer]

Cowman,
I understand the initial enthusiasm of farmers towards the ethanol story - they have been taking poor prices for their commodities for a number of years and suddenly commodity prices are rising. That's half the story - the other half is to consider why commodity prices were poor in the past and if this will impact them in future with ethanol. Commodity prices across all sectors have been poor in recent years, not because there was no market - have you seen prime beef cattle destroyed because there was no demand for them? have you seen grain left in the fields because no-one was buying the grain? The answer to both is no. There are buyers but because of the nature of the buyers (few and powerful) they can artificially manipulate the product price. Evidence of that is to be seen when you compare beef prices in store or oats price in the store and compare it to the price producers receive.
With that clear evidence why would you expect producers to get rich in ethanol production if corn hits $5 for example? History shows it is likely the return to the producer will remain the same, or even decline over time. Look at the current fertiliser price predictions on the commodity boards to give you an idea of where this new found wealth in ethanol will go - it isn't headed for producers pockets.

Ethanol production from grain or canola will prove to be biggest white elephant of our generation IMHO. If we want to be more environmentally friendly (which was originally the idea behind all this wasn't it?)it would be smarter to seed more marginal grain land in western Canada down to pasture and move hundreds of thousands of cattle out of intensive livestock operations in the Oldman, Bow and South Saskatchewan River watersheds.
This would result in less greenhouse gas emissions than burning 8 barrels of ethanol to produce 10 barrels of ethanol. Ethanol production as it is proposed using grain crops is very inefficient. The driving force is really the Government subsidy that will pay millions of dollars into the pockets of the few large processors that are running plants. Just the same as the current beef situation with Cargill and Tyson - I don't see too many beef producers out buying new John Deeres or extra fertiliser based on the price of cattle.

[cowman]

cswilson: You are probably right. This guy has some very good land but also has some very hilly, pot hole type land that would be almost impossible to farm. He has the cows listed in Strathmore for late March though. Not just sure what strain of Beefbooster they are, black and tough cows!
Grassfarmer: I think you are probably right about there being a shift in where cows are raised. There is a lot of good farm land that has been put down to pasture/forage in the last 12 years, and a lot of that will probably be shifted back into grain/oilseeds if the prices remain strong.
I believe this whole biofuel thing is about the most exciting thing happening in agriculture in a long time. Doesn't really matter if it makes sense...the public buzzword these days is "green" and they are prepared to pay for it! No longer will the farmer be at the mercy of one market? With the legislated blends there will be a market? A market that looks like demand will outstrip supply...instead of the food market...where supply is larger than demand?

[grassfarmer]

So did you not read, not understand or not believe my previous post Cowman? Remember the definition of insanity is doing the same thing over and over and expecting a different result - the conclusions you make about ethanol being wanted where there is no demand for food are just plain wrong.

[brian99]

Good points all, but something here does't make sense. If corn and subsequently barley continues to rise, calf prices will come off. Yes the cow calf producer will be substantially hurt. Historically that's when the feeding industry makes the most money. These things always get overdone. If we hold true to form, sell the cows and buy the calves back!
The ethanol situation is what adds a whole new twist. The calf numbers will get very ugly if the feeders become unprofitable for an extended time.The key to this whole thing IMHO is the dried distillers grains (DDGS). Somebody has to feed this stuff and with the new numbers George W is thinking about, wow is it going to be cheap.
Feeders here need a source. It's that simple. We need to be competitive and that means a couple of big ethanol plants here. If we don't get that, yes feeders are done too.
Back to that Strathmore producer, have you figured out how many canola acres it takes to cover the overhead on a 7000 head feedlot? That's major dollars sitting idle. And the stuff that's mobile? Who will buy it? Feed trucks could be pretty cheap.
I think the whole industry will change, but we'll find ways to make it work. Cows will get more efficient, not necessarily smaller. I plan to grass my calves to 1000 lbs. Maybe buy a few more to offset the cow losses if the dollars look right. Put cattle back out on grass where they belong and let the pigs and chickens get hurt.
I had one more point but I can't remember it now. Better go check the cows. Haven't started feeding yet. Maybe in a month or so. Global warming is working for me! LOL

[farmers_son]

I read Kit Pharo’s newsletter…. A bit of good common sense mixed with quite a bit of BS, er self promotion.
It is interesting for we Canadian producers to note the U.S.cow calf producer has just come through a period of absolute record high profits. On this side of the border it is easy to overlook how much money those U.S. boys were making in 2003-2005. Any problems they are having at the moment has more to do with drought than anything else.

Re $6.00 corn. The most the ethanol industry should impact the price of corn is by the amount of the export basis. By that I mean the cost to ship the corn from U.S corn country to an export market plus the amount to ship corn from another corn exporter into the U.S. In other words the price of corn could rise by the cost of freight out plus the cost of freight in. It will not rise by any more than that in terms of a world value.

I think part of the reason the price of grains is rising is the lower U.S. dollar. As the value of the U.S dollar falls vis a vis other world currencies the price of grains in U.S. dollars should appear to rise even if nothing else changed. Since our dollar tends to move with the U.S. dollar we see the price of grains rise here too even though the “world price” may have been little changed. Likewise the price of live cattle should rise with the fall of the U.S. dollar and we Canadian cattle producers would do well to keep that in mind.

Beef cattle get to eat the feed grains that the pigs, chickens, and milk cows leave. Plus cattle can eat what is left after the ethanol industry is done with the grain, which the pigs and chickens cannot. The big thing for Canada is that if we fall behind the U.S. in building ethanol plants than our feedlot industry will not have access to that cheap food source which will hurt us competitively. We could see our feedlot industry move south after spending billions to prop it up during our BSE crisis. It could be that Canadian cattle producers should be advocating for more ethanol plants in this country.

I did appreciate Pharo’s comment that cattle producers are not in competition with each other but rather are in competition with alternative protein sources, like chicken and pork. I find it incredible to watch the U.S beef producer shoot himself in the foot by advocating for MCOOL which is directed towards creating trade barriers for non U.S. cattle producers while the U.S. chicken producers is MCOOL exempt. They are handing the chicken guys a huge advantage.

Re grass finished beef. It was not that long ago all beef was grass finished. There must have been some reason the industry changed. Without question an animal fed grain will reach slaughter weight faster than an animal fed out on a grass based diet. Switching to a grass finished animal would mean a dramatic increase in the number of animals being feed grass at any one time as each animal would need to be nearly twice as old before reaching market. I would wonder where those grass acres would come from, certainly not at the expense of grain acres if Pharo’s prediction of $6.00 corn became reality. It would seem as if the cattle herd in North America would need to be reduced by half or more as we have reached the limit on arable acres on this continent.

However there is another possibility. That the price of cattle, pigs and chickens as well as grain will rise with the development of the ethanol industry. However profitability of producing these commodities will stay roughly the same. The fundamental competitiveness/profitability of agriculture will not change at the farm gate. There will not be a big shift from one commodity to another. The cost of producing grain will rise thereby restricting the ability of producers to switch marginal acres from grass to grain. The price of grass should rise in concert with the price of grain, there always has been a relationship between the price of hay and barley, at least in the long term.

Cowman: the fellow you know who is selling his cows, breaking his pasture and seeding it all to canola. If he plans to break his land and seed it to canola this year he may be relying heavily upon crop insurance. Otherwise if he takes a season to break his land and do a good job of it that will result in a dramatic change in his cash flows.

[kpb]

farmers_son, according to Dr. David Price who has written several books on cattle raising, economics and feeding, etc., the reason that the feedlot industry came into being is that it was (is) cheaper to finish an animal on grain than on grass. I believe it was in his book on Cattle management where he makes the argument that finishing on grain is cheaper based on moderate priced grain, given the land base and extra time needed to finish on grass. And despite the extra machinery, facilities, etc. needed to finish.

I have never worked out the comparative numbers to test his assertion so do not really have an opinion on this but his argument sticks in my mind. The book is buried in storage somewhere but I will try to dig it out in the next few days to give an exact reference if anyone is interested.

kpb