Excellent read

[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

[cowman]

grassfarmer: I don't think it will happen how you see it. I have found that once a trend starts...it usually continues?
For a good portion of cow/calf producers, the business has become no longer profitable, enjoyable, sustainable? Now you can preach the "new way" all you want...but a lot have decided they want out and don't want to change! And I would suggest to you that is a good thing for you, if you want to continue?
Lets be realistic here. The average age of cow/calf producers is what? I think stats Canada quotes the average farmer in Canadas age at 58? There comes a time when you just can't, or don't want to, cut it!
A good percentage of the cow/calf producers quitting, won't be going into grain farming...but their land will!
Maybe I am totally wrong and all these old boys will "see the light" and change over...but I don't see it? What I do see is a lot of cow herd dispersals, a lot of hay land sprayed with roundup last fall, a huge demand for canola seed and fertilizer?
As I said before, if you are staying in cattle this has to be encouraging? The supply is about to shrink!
Canada killed 672,000 cows last year despite totally dismal prices? With a 5.5 million cow herd I would think that number of culls should mean the cow herd is fairly static? Suppose the border opens up in late summer and cows prices rise dramatically...do you think we will draw down the cow herd?
Now maybe I'm totally wrong but I think if that cow price hits close to 50 cents we will see a massive sell off!

[brian99]

farmers son,
I think you missed a couple of points on grain prices. The first is psychology. CBOT is a futures market. If corn is percieved to be short, prices will go up even if every physical order is filled. What is believed to be expensive one day, isn't the next.
One interesting area that has not been discussed is will elasiticity vs carryover change because we are moving from a feed source to an energy source...you can shut your ethanol plant down for a week or two, but you can't run out of food.
The second thing is speculators. The old addage goes something like "the market will remain irrational one minute longer than you remain solvent". Corn should remain reasonable to support demand as prices rise but it won't. There is too much money to be made.
cowman,
As far as I understand, those old cows had to be killed. I bought some old canner cows and calved them out for a while, but they ran out of gas and had to go. Most guys who had the inclination picked up some of these type of cattle, and now they're out of time. On the flip side, there are lots more coming, and lots of heifers.
These new cull cattle seem to be going into other herds, not hanging on a hook. I don't see the Canadian cow herd shrinking until we're deep in the red, but I do see individual herds getting bigger. IMHO only then will canner cows go dirt cheap, grassers will be held longer and eat the grass left by a smaller herd as these cattle are liquidated.
The point I forgot yesterday is that we have a little time. To effectively use DDGS feedlots have to move back to the cornbelt. Feedlots in Texas, Arizona, etc. will be uncompetitive because DDGS is so wet and therefore too expensive to haul. The same is true for southern Alberta. I wouldn't be surprised to see the feeders push for a very high yielding nonboard wheat outside the KVD system to compete with corn. I guess time will tell.

[smcgrath76]

The one thing that seems to stick in my head regarding ethanol and biodiesel is that it is cost competitive because oil is high priced and heavy gov't influence. The ROI is lower than conventional light crude.
So we grow grain/canola to serve this market because the price is high, because oil is high. Does this not mean the input costs are high? I have never seen a solar powered tractor yet, and most fertilizer takes a pile of energy to create.
I am not sure the margins on high priced grain, driven by high priced fuel are any better.

[jensend]

Ag Markets Could Tumble With Oil Price, Says Plain

What’s behind high corn prices is expensive oil, according to Dr. Ron Plain at the U. of Missouri. So if oil prices fall sharply, Plain says, corn will likely follow.

"If crude drops back down into the thirties - US$20 to $30 a barrel - then we're going to stop building ethanol plants and corn's going to come back down," Plain says.

Spot crude oil prices have already fallen by around US$27 a barrel from their high in August of 2006. But could crude oil really fall all the way into the $20 to $30 dollar a barrel range? Plain says there's no doubt it's possible.

"If China and India would go into a recession," Plain said, "then that would greatly reduce demand for crude oil, and prices could go back down very quickly."

not everybody is a corn bull. i don't know what will happen but there are no sure things and if grain prices spike so will fertilizer, chems, machinery, land rents and prices, etc. i don't see a lot of extra profitability in the grain production regardless of farmgate prices.

[blackjack]

...since the alberta government has been promoting alternative markets for grain...i too see the ethanol going ahead...since supposedly our prov government will not want to be seen has actually investing in the plants ...they will provide incentives at the back end...i think there will also be good support for crop insurance...

...father's son...with today's modern tech it will simply amaze you how good the crop will be the next year...but that is usually cause rainfall is not the limiting factor has it would be where you live...