Excellent read

[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...

[grassfarmer]

I find it hard to believe the eager pursuit of ethanol by Governments given the total inefficiency of the system. Conventional oil yields 10 barrels of oil for every one barrel burnt to extract it. Ethanol yields (optimistically) about 10 barrels for every 8 burnt producing it.

How can we reconcile this with a global population that is growing fast - adding the equivilent of another N American population every 6 years? Where will the land come from?
Global oilseed production (canola,soya etc) is currently 400 million tons.If this all were converted to biodiesel it would only supply about 16% of the worlds diesel consumption. Even if the entire corn and wheat crops of the world were turned over to ethanol it would not supply one third of the world demand for gasoline.
We have absolutely got to smarten up as a world community - this SUV culture is unsustainable and we must start to do something about it. And it will need to be something a lot smarter than producing ethanol from food crops.

[farmers_son]

Grassfarmer: The thing that I find most remarkable about bio fuel is how government can basically create an industry overnight with a few policy changes.

How do we reconcile a global population that is growing fast with farmers struggling financially? That does not make sense either. The SUV culture is sustainable as long as there are people in the economy with the disposable income to sustain that culture. Sustainable is a relative word. Obviously given a long enough time frame nothing is sustainable. Even our solar system will eventually collapse.

In the short term, what is unsustainable is a handful of large processors/exporters controlling primary agriculture. And while bio energy is exciting and is injecting quite a bit of optimism into the agri econcomy at the moment I am not sure the basic problem of a few large players controlling our prices has been solved.

[grassfarmer]

Absolutely farmers_son, the biggest problem ag producers almost everywhere in the world face is concentration in the rest of the food production chain leading to unsustainable returns for producers. Everything on the earth ultimately comes from the land through food producers - all the SUVs, computers and stock markets are worthless crap without food. We as sustainers of all life on earth deserve a higher position in the order of things.
I just don't understand how the enthusiasm for biofuels is blinding producers to the fact that the same income restricting factors that affect current ag production won't apply to ethanol production. Even the fact that the Carlyle Group and Cargill are involved doesn't flag up a warning. I guess some folk just like to dream of better times and ignore the current realities.

[rookie]

Grassfarmer.....you wonder why? desperate people will grasp at anything that looks better.....

[blackjack]

...one thing for sure you hope it does not turn out to be another ostrich fiasco...but on a much larger scale...

[cowman]

Well it might be a flash in the pan, but sure enjoyed getting $3 at the bin for feed barley this year? Sure a lot better than last year before the world went "ethanol crazy"!
Face the facts: Whether you like it or not the USA has decided they can't rely on mid east oil? Both the USA and Canada have legislated blends? Therefore through legislation, they have created an alternative market for grain and oilseeds! Someone MUST fill that need? Will it be the Canadian farmer?
We all might think the government is crazy or something...but this is what we have...so learn to deal with it!
I would think anyone who intends to stay in cow/calf production should view this whole deal from the big picture? It looks like the cow herd is going to shrink...I think that is pretty apparent? The demand for our product is about to get back in line with supply. We won't need to export beef and feeder cattle, and face all the goofy protectionists in the USA?
We will have options. If the Canadian consumer doesn't want to pay a fair price for food...then how about fuel for their SUV?
If little Georgie decides to slam Iran...then look out as it will be "Katie bar the door"! All commodities will skyrocket when the first nuclear missiles strike the facilities in Iran!

[grassfarmer]

On and on and on Cowman with the story that consumers don't want food and won't pay for it. The reality is somewhat different - look back to the graphs that show the price of a loaf of bread, or a pork chop or retail beef over the last 30 years and they have all increased many times over, the steeply rising retail price line reflects this. Contrast this with the almost flatline return the producer has received over the same period and you find the problem. The huge and ever increasing gap between the two lines is the problem - the money removed by trans national corporations through their stranglehold on supply, processing and retailing sectors of the agri food sector. Is the $2500-$2800 consumers pay for a fat steer in the store not enough? I think it is but the producer has to receive more than a miserable $900 for producing the animal from conception to slaughter.
Try reading the information on the following website to educate yourself. www.nfu.ca/briefs_policy/briefs/2005/corporate_profits.pdf

[cowman]

grassfarmer: Went to the site but not sure how that is supposed to educate me? All it was, was a rant about farmers getting the same price today as in 1975? Which is totally false? Check out what a fat steer was worth in 1975...it certainly wasn't $87.70(avg. price per pound Jan.19,2006)!
Consider the live price on the Alberta Ag website...$87.70/cw X 1300 lb steer = $1140.10? Now go to the avg. beef wholesale price...$147.50/cw? Consider the steer yields 60%(780 lb) and you get a carcass value of $1150.50? Or a profit of $10.40 per animal!
Now I realize the byproducts have a value. Most plants consider the byproduct value pays for the processing/sale costs! Now maybe that is wrong or something?
But I do wonder...if that animal is worth $2800 in the retail store...then who is making all the money? I would suggest when it leaves the packer it is worth $1150.50...when it hits the store shelf it is $2800! Does this tell you something? Maybe we should be giving credit where credit is due? Sobeys and Safeway?
I also wonder when you sell your home raised beef if you give your customers a 780 lb. carcass at $1150.50? You should if you want to be as honest as Cargill or Tyson?

[cowman]

Further information:
Choice steer Omaha(US $)

1975 avg $44.61/cw
2005 avg $87.28/cw

[grassfarmer]

Why do you try so hard to remain blind Cowman? Nowhere in that document does it state that the 1975 price of a steer is what we are getting paid today. Picking a few random figures out of the air to prove that there is no money to be made in beef processing doesn't convince either because the real figures were contained in that document - Tyson, record profit of $524 million. Cargill record profit of $2,734 million. Sure retailers are making good money too - Sobeys $168 million profit (3rd highest ever)and Safeway $728 million (not a record). The balance of power in N America remains however in the hands of the processor rather than the retailer.

No-one starts more posts than you Cowman with "no wonder everyone is getting out of cattle the prices we receive are the same as they were back in 19xxx ...how come?" Yet when anyone tries to answer your question you stick your fingers in your ears and sing lalala.
Here is my final attempt to try to explain in simple terms why little of the price consumers pay for their food makes it into producers pockets. Rushing into the fools gold of ethanol production without understanding the causes of the current farm income crises will likely lead you to be calling for everyone to get out of the ethanol business in a few short years because there is no money in it, consumers won't pay for it etc etc.

One could describe the farm crisis
this way: a customer puts $1.35 on a grocery-store counter for a loaf of bread. Powerful food retailers, processors,railways, and grain companies take $1.30, leaving the farmer just a nickel. Powerful energy, fertilizer, chemical, and machinery companies take 6 cents out of the farmers’ pocket. Taxpayers make up the penny.

The dominant corporations are, each year, taking more and more, leaving farmers with less and less. Take corn
flakes for example. In 1984, before the advent of the modern farm income crisis, a box of corn flakes cost $2.06. Of that amount, the farmer received 9¢ and the
food retailer, cereal company, grain company, and various transportation companies took the balance: $1.97. Today, the consumer pays $3.64, the farmer gets 6½¢, and the other players take $3.57. The farmer gets a fraction of what he or she received two decades ago, and processors and retailers have nearly doubled their take. Therein lies the problem.