Right Sizing...

[smcgrath76]

It has been interesting to get several
farm news pieces every day with
predictions as to cow numbers in the US
and Canada. Both countries are going
through liquidation, with predictions
that Canada is ahead and will slow down
the liquidation but that the US has
several more years of downsizing to go.
Without profitability I think Canada can
easily continue to drop and at some
point fall under the 4,000,000 cow
number. Oligopoly of processors aside,
this does create the issue of balancing
supply and demand.
This creates a variety of questions and
an ethical dilemma in my mind...
1. Does this create a unique opportunity
for Canadian producers who can hold on
to be at the front of the wave of price
recovery?
2. Does this create a glut of cheap
livestock feed in Canada (not enough
cows to use the poor crops) or does
ethanol use that up?
3. Does this drop the cowherd to a size
where only 1 processor is interested in
operating here? (potentially worse than
even the current scenario)
4. We know the domestic market is the
most profitable, should that be the size
of the Canadian industry?
5. Is it socially responsible to
a) not sell food to the global
marketplace when we have a tremendous
abundance of renewable resources (land
and water beyond our ability to eat all
the food produced) and a large
population seeking nourishment?
b) somehow grow our Canadian population
by leaps and bounds (move the people to
the food, vs the food to the people)?
6. Does option 5b) create the exact same
ecological disaster that the original
settlement plan did (see the dirty
thirties as an example)?
7. Does "right sizing" responsibly use
and improve our Canadian resource base
(in my mind this means optimizing food
production, clean air, water and
improving soils and ecosystems)?

I have been thinking about this issue a
lot lately and I would be interested to
see perspectives on what is the "right
size" for Canada. The only way I can
see long term sustainability is matching
production to demand, but that is a very
simplistic approach in my mind. Maybe
we need to shrink back to domestic size
and then build forward from that point
with a different mindset. Anyway...

[kato]

I've been thinking the same things. I think that the way things are going right now, we're going to drop to a size that fits the domestic market whether we want to or not.

I was talking to both our trucker, and our neighbour who is an auctioneer, and they said they have heard nothing from producers this summer except how they are planning on dumping their cows in the fall. The auction is already booked way ahead with dispersals, and the cows are still in the pasture.

Six years of hardships have been enough, and no one has the appetite to carry on any more. There is no feed shortage here, and no pasture shortage, but guys are sick and tired of watching their equity disappear. Everyone's getting older, and retirement is looming for a lot of them, and it's not looking pretty. Land and cattle are basically the retirement savings for a lot of us. No company pensions to fall back on.

How we deal with a smaller supply of cattle will be interesting. How long will the likes of Cargill hang around if cattle are in short supply? Especially if the Americans are behind us in liquidation, they will get the cattle cheaper there.

So we could end up with a shortage of cattle, but only one packer of any large size. Not a pretty picture. But on the bright side, maybe this country needs the big international player out of the picture in order for domestic processors to get established.

So far we're planning on holding on, but I will say that there have been lots of mornings when we sat across the kitchen table and asked ourselves "Why we are doing this?"

[jensend]

when you see what cattle numbers have done and how prices have reacted you have to ask if the cattle cycle is dead. i believe it is at least as long as there is no competition at slaughter. right sizing might mean adjusting cattle numbers to where grass is the biggest feed resource and grain only comes into the picture at the end. it's been made plain to us that we're competing against the lowest cost producers in the world, whoever they are.

[vagabonddreamer]

Sean...i know the list of questions was kinda rhetorical...so some of my answers are rhetorical and some are devils advocate...not necessarily what i believe from an economics/global perspective....

the worry about holding out till the end...is if Carghill does leave Canada it will leave the "traditional" cow calf operator pretty much up the creek sans paddle...yes...smaller processors will move in...but how long...and how much pain until it happens??? i love the guys on the commodity side that preach free market...i LOVE the idea of free market...except...the free market operates slowly enough as a prophecy that many will be hurt SEVERLELY waiting for it to run its course...

ethanol seems like a dead issue at this point...i know its good for the environment...but it is very costly to produce even at a LARGE scale...and you have to remember...you need to get the raw material to the plant...or conversely make the plants where the raw materials are...but...the guys who build the plants..cant depend on a bunch of straw chewing johndeere hat wearing farmers to produce raw materials on a consistent basis...the farmers will always go to the highest bidder...

i think we are at the ONE processor for all intents and purposes right now...truly the collusion that exists in the cattle marketplace is astounding...

the problem with concentrating on the domestic market is that if you allow producer size to drop to that point...nobody will really be making any money...they will be subsisting...there will only be enough people drop out of the producer side until the ones left can eke out a living...ergo...the biggest problem is cowboy pride...

we cant control export...and we cant control foreign import...and we certainly cant move the people to the food...the last one is another "creep" economic function that will take more time than the natural movement of the freemarket...if you could move people OVERNIGHT...maybe...

the last one is more philosophy than practicality...its a don quixotie tilting at the windmills hope...unless everyone buys in...it will always defer to the lowest common denominator...

i appreciate your insight and the genuinity of your thoughts and questions...your last thought...is another one that takes time to naturally evolve...and in the meantime..people get hurt...badly..such is the scorn of the "woman" (its a metaphor kato..lol).. called free market...hell hath no fury...lol...

my biggest concern...and i have already asked you sean...is when you are the owner of one of the only THREE ranches in the entire country...and you are running...600,000 head...can i bring my two of my prettier mares and come work for you??? vs

[smcgrath76]

vagabond - I think would rather manage
one of those ranches for a competitive
salary and holidays, and yes you can
work for me.
I think we may just be looking at one
ranch though and I don't think that it
will be "owned" rather "controlled".
All that real estate and labour for free
would be tough to replace if the
industry was run as a real business. It
is far cheaper just to control the
cattle and not have to pay for the land
or labour.

[kato]

"It is far cheaper just to control the
cattle and not have to pay for the land or labour. "

If the philosophy behind the workings of the modern beef business could be written in one sentence that would be it. We should all have it posted on our kitchen walls, right beside the one that says "The banker is not your friend", and "Remember May 20th"

[smcgrath76]

Kato,some quick math. I tried to
lowball things to put it in perspective
and avoid arguments.
Census 2006 reports 61,000 beef
producers in Canada.
If they work on average 1 hour per day
at $15 per hour, that is just over 22
million hours of labour, valued at just
under $334 million.
If we refine this further to look just
at Saskatchewan there were 7.5% of the
acres in tame and 19.9% of the acres in
native (natural) pasture. This works
out to 4.82 million and 12.80 million
acres respectively. If we assume only
80% of that land is used for beef
production and don't include any crop
land, that works out to 3.86 and 10.24
million acres. If we lowball value them
at $100 and $75 per acre respectively
that works out to $1.154 billion. Even
if we just look at interest at 3% it
would cost $35 million per year to
finance that.
I think it is pretty clear that
investing a few measly million in a
packing plant is a much better way to
go...

[jensend]

kato has it pegged. the packers dont want equity or net worth. they want cash flow and profit. they have control of the land by controlling the price of production off the land. after attending the ssga meeting in june i thought maybe the cattle industry is doomed. it won't matter to anybody but the people on the land because the packers will just set up shop where they can control the flow of beef into north america.

[Sawbones]

Here's the 4 points that came out of the 2 days in Lloydminster for Border Beef
The strategy that has been put in place by representatives of the beef industry itself has not been effective and may actually be detrimental to the survival of the industry.
1) We need assistance in the development of a processing sector that is conducive to value added product development and that is a willing participant in the development of additional market access.
2) We need the removal of regulatory burden that is in excess of that which is required for meat that is imported into this country.
3) We need a change in the way our beef industry is represented as one voice is no longer applicable or desirable.
4) We appreciate the financial support of the governments but realize that the solutions must come from those within the industry.
You will note that there are needs but not necessarily financial but more in leveling the playing field. If true free market had been in place in 2003, the major packers would probably have folded, the feeding sector would have collapsed but primary producers would have filled the void after the initial hurt...similar to the New Zealand situation of 20 years ago.

[perfecho]

Sawbones, could you please elaborate on the seccond point, import. I am not quite following fully.
Thanks
Larry

[grassfarmer]

I don't know about "right sizing" but downsizing is going ahead full steam. Quote from Triple J Livestock auction report in Westlock yesterday "There is no premium on bred cows as more liquidations keep happening every week - just about 900 cows went for kill again this week! Where and when will it end?!"
This followed on from last week when they had 1000 cull cows.

[kato]

There was a story on our local news the other day about how the Interlake region of Manitoba is under water again. This makes two years in a row where the feed has all but been ruined by excess moisture. They showed a field of baled hay standing in at least a half a foot of water. I can't imagine a lot of cows not coming out of there this fall, because there's precious little money around to buy them feed. And no on is in the mood for more debt.

When will it end? I guess when there are so few cattle left that they become worth something. Talk about an endangered species....... (Two actually, the cows and us.)

And yet the governments are quite smugly patting themselves on the back about how much help they have given livestock producers in the form of cash advances (aka debt), loans, (aka debt), opening new markets (which helps who???), and money for research (which helps who???)

In the meantime, safety net programs designed to stop this kind of decimation have become nothing more than a bad joke. Sometimes I wonder if the programs are set up to fail, in order for the politicians to save money by making no payouts, and still be able to go to the public and try and get brownie points for supporting agriculture. It's a win win situation for someone looking to be able to appear to support food production in this country while not having to support it without actually writing a cheque.

I got a reply letter from G.Ritz to a letter I had written him, and it was absolutely filled with all the wonderful things they had done to support the beef producers, and by the time I got to the end of it, I couldn't find one item that had actually done anything concrete to put any money on the table down here on the farm. Just self congratulations and rhetoric, with no real substance.

I guess when Ottawa wakes up one morning and finds the country has lost the ability to feed itself, then maybe they will notice.

[Sawbones]

Perfecto...Meat that is imported from any other country does not have the same regulations as far as SRM removal or segregation. The surveillance in the US is far less than here and yet there is no problem with importing their products. If the Canadian public is asking for these procedures, then we should assume that product brought in from other countries should have the same regulations imposed on them.

[kato]

That's a very good point. Especially when the imports are from countries like the U.S. that have the exact same BSE status as we do.

[grassfarmer]

Problem is the Canadian public aren't and never were demanding the higher standards of SRM removal. We would have to educate them before we can play that card - still worth it probably.