livestock profitability

[cowman]

All our livestock operations rely on cheap feedgrains to make them viable. And yet the grain farmer needs to make a living too. If we are going to compete in an international marketplace we need cheap feed grains. Thus the cheap corn coming across the border this winter. Now the American farmer could not produce that corn at that price...he was getting the price topped up quite a bit. So the Canadian barley farmer saw his price kept down. What would have happened if the Canadian govt. had said okay we'll set the price guarantee at $4.50/bu. You sell it for whatever the market will dictate and we will top it up(this is basically what the US does). I suspect the price would have been around $3/bu. The feedlots would have been happy. The barley grower would have been happy. The retail trade would have good beef instead of this old yellow poor tasting stuff. The packing industry would have been happy to have an assured supply of cattle. How much would it have cost? I don't know but I suspect a lot less than what it will cost our economy when the pig and beef business moves south of the border.
And if the government invests in the country by giving the grain farmer some money is that such a bad thing? I mean the money stays in the economy, it circulates and comes back to the government in the form of more taxes. I doubt too many farmers will grab the money and head for the Cayman Islands? Maybe we need some politicians with some vision instead of the lightweights we now have?

[nakodo]

I disagree with the basic statement that value added = "keeping the price down".

We can show as Value added takes place in the province in actual fact the farm gate priced for raw materials RISES! and yes the producer makes more revenue.

Most of the "low input prices arise when producers all produce the same crop and beat each other down on price or they are producing a crop that is in decline ie 1CWRS wheat, prices are rising in non-pasta noodle varieties but who in Canada is growing them, while in Australia (without the hard red spring myth and no CWB) they are kicking our butts in Asia...

If you sell a product that does not meet the needs of the buyer or his customers, of course the price is going down...

[cowman]

Somehow you sort of lost me there. I'm not a fan of the CWB. And I'm not knocking "value adding". The feedlots and the packers are definitely "value added" industries. But what I was trying to say was if we want to compete in the American market(which is our main market for meat) you have to have feed grain as cheap as theirs. So if their feedlots were buying corn for $3/bu. Canadian this winter then our guys need to get it that cheap or barley at an equivalent price. We are dealing in a commodity here not a "niche market". So if I am a feeder in feedlot alley and I have to pay 20 cents a bushel to have corn shipped up here then I have a disadvantage built in. And then on top of that I basically have to pay the freight on that beef back to the US market. I am going to have trouble competing. But if the Canadian Government subsidized the barley grower then maybe I could compete with the American feeder. Yes, it would cost the Canadian taxpayer some money(just like it costs the American taxpayer money right now). But consider the alternative...I pack up my money and head to Kansas to feed cattle. No more Canadian feedlot jobs, no more Canadian packing house jobs, no more market for Canadian barley, no more market for Canadian calves. We are talking about a major loss to the Canadian economy. And this is a distinct possibility; probably already happening to some extent.
Are the Americans playing fair? Will the Canadian taxpayer level the playing field? I doubt it. But in the long term the Canadian taxpayer will be the real loser because all the "value adding" will be done in the States.

[pandiana]

Taking government handouts (or whatever subsidies are supposed to represent) is at best a temporary solution to the real problems involved in getting a fair price for primary production. In principle it makes me feel like a welfare recipient despite the fact that I work very hard at farming and have a large investment in capital.

Nonetheless, I can see that we are on this treadmill with no real way of doing anything different that the US and EU.

For one day at least the news was full of the plight of Canadian farmers. Jerry Page of statistics canada realeased the farm numbers gleaned from the last census. These numbers confirmed what we have been talking about in these threads for months. Larger corporate farms are winning out over small farms (Farms with $250,000 gross revenue spend 88% on input costs) This would leave then about $30,000 net income. Farms with $25,000 gross revenue spend $1.88 for every $1.00 earned. Obviously their income must be supplemented by off farm income. In general, he said farm gate prices are up 7% while operating costs are up 12%. Not exactly progress.

It seems to me that we have little room to move. If you believe the signals being sent we must get bigger or get out. On the other hand, I a convinced that bigger is not all that rosey an alternative as we have seen with many of the bigger corporations that are tumbling around us.
What to do!

[cakadu]

Aren't you already subsidized after a fashion when the barley producer isn't getting what he needs to make a decent dollar and you are getting your feedgrains expensively? Some of my grain producer friends tell me that the livestock guys have been getting subsidized for years because of the price of grain being so low.

How will a subsidy to the grain guys help you?

It would appear that there is a viscious circle going on as the feedlot guys want to have their input costs as low as they can, while the grain and forage guys want to get as much for their product as they can. Where will we find homostasis?

How much of an impact is this country of origin going to have? Aren't we looking at some serious ramifications here? The need for value-adding will become even more important, or so it seems to me.

[cowman]

The barley market really centers around feedlot alley. That is the only market we have that really makes any sense. Yes the CWB gives away barley at "sometimes" higher prices. When it costs over a dollar a bushel to get barley to an export position there is no other alternative. Why do the barley producers need a subsidy? Because if they don't get one they will stop growing barley! Think about when you were younger...barley was THE crop(at least in Central Alberta). Now we've got all these peas, birdseed, lentils, export timothy etc. The beef and pork industry add a lot of value to barley and a lot of jobs!
The feedlot industry took a bath this winter...enough to make any banker shudder. Now if they don't have cheap feedgrain they have to have cheaper feeders. Are you going to take a cut in calf prices? Say 25%? I think right now cow/calf producers are maybe breaking even? Will they take a reduction of 25%? I think not, although one should never underestimate how dense some people are.
I go to a cow sale yesterday and I see buyers buying cow calf pairs with the intent of pulling the calves off the cows and sending them to slaughter. Lots and lots of cows! Maybe people are finally wising up!
I wouldn't get all bent out of shape about the country of origin thing. There is about a 90% chance of it never happening...good info on this in this weeks Western Producer. It was necessary to get some people elected in cow country U.S.A.!

[ValueChainFX]

Well as long as you are dealing with the status quo then you are always going to have limited choices. Commodity markets are ruled by the big boys and any of you that deal in them know that. However, once you look into the future and see that we are tracking our food products more close, then the big boys start to quiver! This means they have to change their whole systems to do this. Finding solutions to these challenges will open our markets (in my opinion) and also help the rural folks level the playing field. Even so called commodity markets are moving more and more into specialty programs, value adding call it what you like. I guess my question is, are we so busy watching the big guys trying to follow them that we are not preparing for our own futures?

[cakadu]

Cowman, don't you think that the cattle industry as a whole should be at least keeping this country of origin thing on the radar screen? Sure it may never happen, however, I feel that it should be kept in mind.

How many of us thought that the recently passed Farm Bill would go as high or as far-reaching as it has? Sure there are going to be some challenges coming under the WTO with respect to this new Bill, but in the long term, what is the effect going to be? The bill likely has come into effect too late to do much for the U.S. farmer this year, but next year is a different story. What can we do over the next year to try and have some effect against the subsidies? Are we just going to stand and yell that we need more money in order to compete, or are we going to finally take a look at doing things differently? Ask yourself, how has what we've been doing for the last 20 years (pick your number) been working for us?

To me the point about the CWB is that the Aussies are growing varieties of wheat that are demanded by others to make their products. I can understand the rationale behind growing wheat - less input costs, more drought resistant etc., - so what if we were to grow a variety of wheat that would make Chinese noodles for example. There are a lot of folks that eat those - I happen to really like them. You'd still be able to grow wheat and maybe even make a little because it is a variety that has some potential.

[carebear300]

Cakado I just want to ask a small question. Is this wheat that is used to make chinese noodles worth more than regular hard spring wheat? Because if it isn't there isn't much point in growing it as far as I can see. But I stand to be corrected and hopefully can be. It is only to all our wheat growers benefit to change to something that will make more money. I had been led to believe that this type of wheat is worth less than milling wheat.

[cakadu]

Carebear, I'm not up on the prices for the various grains and it is a question we could ask in the commodity room, I'm sure they'd have the answer there. The point I was trying to make is that there are alternatives to the traditional wheat crops that are grown right now. Another example would be that the hard spring wheats do not make good frozen bread dough, but there are varieties that do. Frozen bread dough is used in the majority of bakeries now and there is very little bread baked from scratch the way it used to be.

The problem with most of the wheat varieties we are growing right now is that we are oversupplied on them (we're too efficient at production) and that is driving the price down. We should be looking at the potential of growing other varieties that are in demand, that could possibly lead to higher returns.

The trick is to not have everyone growing the same variety so that the price is forced downward. I don't have an answer as to how we can keep the supply of these things at the point where there is still money to be made. What I do know is that there are some varieties of specialty crops where growing contracts are allotted to people and then once the acreage is filled, no more contracts are given out. Upside is that the market is not glutted, forcing the price down. The downside is that if the market turns and not as much is required then contracts are not given for that year, which in turn can lead to producers having to fill land that they thought was going to be in production for a certain crop.

We have started to move towards growing what we can sell and not sell what we grow. The point was made in an earlier posting about the wheat grown in Australia versus the varieties we grow here. The Australians are out in the global marketplace finding out what will sell and then they grow it. How would you see us doing something like that here?

[charliep]

The Chinese will buy a mid quality wheat for their noodle market. They buy on the basis of price versus quality characturistics once a wheat class has met their minimum quality characturistics. This is changing somewhat as they move from state buying to individual mills but this will likely remain a commodity market.

The CWB has mainly sold lower protein 2CWRS and 3CWRS to this market in the early to mid 1990's when China was a major buyer (pretty much withdrawn in recent years). Prairie spring wheats do work in the noodle market but the older varieties have not had quality characturistics desired of the noodle market (too soft a wheat/low protein) - this is changing with new ones.

Our competition has mainly been Australian Standard wheat (ASW). This wheat has been mainly been of better quality than our prairie spring wheats for the noodle market (bred to satisfy this market specifically). The second competition would be US hard red winter wheat. As a note, the CWB priced off US HRW wheat for Chinese sales when I was there (this was the competition).

If you are looking at quality characturistics to satisfy this market, the direction of our wheat program would be to develop more white wheats (likely CPS white but the new white hard red springs may fit the need). Consumers want a nice crystal white noodle. With red wheats like CPS reds and CWRS, there tends to be some flecking (some bits of the hull as I rememember it) which puts the color of the noodle off slightly.

China is a market wild card this year with expectation they will return to the market. Internal inventories are coming down. This would result in larger export demand and higher prices.

[cowman]

Without a doubt we are in a pickle. The US is the only game in town in regard to just about all of our exports. They make the rules not us. That's just how it is. Our government has two choices: Play the game(match the subsidies) or get out of the export business. Our farmers have diversified into many different crops and it's still not working.
Now consider this: What would happen if the west joined the US? We sell just about all our product there anyway. American companies own our oil companies, lumber mills,packing houses, a large part of our grain companies. We could become part of the greatest nation that has ever existed. No more metric, no more French, no more stupid gun control laws. Less taxes, more money.We could be part of a country that cares about its primary producers. I have a lot more in common with the farmer/rancher in Montana than I do with a Frenchman!

[carebear300]

Cowman I agree with you but there is only about a dozen of us old contankerous individuals that think this way, every one I talk to is scared of that big mean neighbour to the south. The American government couldn't give a dam about their farmers either but they have to keep them in business to produce cheap raw materials for their industries(ethanol,feedlots, packers,and others)

[cakadu]

Thanks for the input Charlie. Carebear, what would make it worth your while to switch to growing some of the varieties of wheat that Charlie has mentioned? What would need to happen for you and for some of the rest of our contributors?

[carebear300]

Cadadu I will try any of those varieties but only if I am guaranteed 100 percent delivery of the crop by the end of July of that crop year. It would also have to be agronomically suited to my area and I would have to be fairly certain that the returns per acre would be at least as good as hard red spring wheat. I guess maybe would have to have a premium above the expected returns for regular wheat to pay me for the extra trouble and expense of separate storage and special attention required in rotations to preserve the varieties to keep them pure.