Belinda Stronach

[kpb]

cowman, I wish farmers son was around so we could debate the existence of a cattle cycle again. I still think that we are just at the start of the downward trend of the cycle. Last spring I said that I thought that calf prices would be lower this fall and would continue to get lower over the next three to four years.

I think you will see steer prices at .80 to .85 before this cycle is over (as we saw in the mid-90's) and I think prices next fall will be lower than those available now. I think the cattle cycle is alive and kicking and those who ignore it will get kicked.

kpb

[smcgrath76]

My personal belief is that the cattle cycle is alive and well (although slightly messed up by BSE).
Combine the cycle with the high $ and it does not look so good. Generally speaking it takes longer for input costs to drop as the dollar rises, versus the speed with which calf prices decline.
I also believe that over the long haul, our low dollar killed us in terms of being leading edge and competitive with our facilities, etc.
Our low $ relative to the US, led to high prices, which compensated for the declining infrastructure amongst our processing industry. Now that the dollar is higher, we really need leading edge efficiency in processing.
The discussion on who owns the processing is another topic altogether.

[grassfarmer]

Cowman, you say "I would suggest calves at $1.06 really is getting borderline to any kind of profit?" - really? and do you know my production costs? - do you know your own for that matter?
Personally I'm quite happy selling my off sort heifers at over $600 straight off their mothers. Their mothers cost $100 of purchased feed to overwinter last year and that was by far my biggest cost. That said these would be my lowest margin cattle, the main group that get sold after preconditioning and backgrounding will be my next lowest margin leaving my grassfed steers direct marketed as my highest margin cattle by a long way.
They are averaging $1390 a head after paying processing fees and beef delivery charges. Sold a year after weaning they work back to $1000 per calf at weaning even if you allow a $ a day feed cost for their second year.

There are so many opportunities in this country if people would just see them. You say "How many industries in the real world can afford to take prices we were getting in the 1980's?" - I would say how many of the coffee shop pontificators are bitching but haven't reviewed their production or marketing policies since the 1980s?

[cswilson]

GrassFarmer u crazy old coot don't you know were all gong to hell in a hand basket-I'm glad I can't charge rope at the Co-op or I might just take the plunge lol. Cows do great on grass and water not so well on whine and ponder. We made a bit of money on our fat cattle this summer and I suppose we'll make a bit on the next set.

[Cattleman]

kpb and smcgrath, I am on the other side of the cattle cycle arguement. For argument sake, do you believe the North American cattle industry operates on the same cycle? My understand from teh cattle cycle theorists is does? Then if so, isn't the American herd in rebuilding phase? Or is it done already? Also, it sounds like Canada is in the liquidation phase??
Maybe I have some of this wrong, but it appears to me that once something happens in the industry that resembles part of the cycle, we jump to say the cylce is working, such as a shift in calf prices.
In the theory of the cattle cycle production drives prices, and we react to these prices in our production decisions, but right now, grain is driving cattle prices, and this along with drought is driving production decisions. None of which relate to the cattle cycle theory.
To me it seems that trade uncertainty, weather uncertainty, price uncertainty, and demographics of agricultural producers is driving production decisions.
I would like to hear your thoughts, I think there are a couple holes to punch through! Thanks.

[kpb]

cattleman, all of the variables that you mentioned along with others such as currency movements will affect the short-term cattle prices. But the cattle cycle being 10 to 12 years long can be used to help predict the longer term movement of prices.

Also, it does not matter what the Canadian cattle herd is doing, expanding, shrinking or staying the same. Prices for fats are set in the U.S.,like it or not and the size of our herd has no bearing on prices. It may be hard to swallow but our prices are established by the U.S. market--there really is no such thing as a North American price--there is a U.S. price that is reflected, with the basis, in Canada.

I am always amazed at people who think that all commodities, including cattle, are not cyclical. This is not really mysterious-when prices are high commodity producers (cow-calf guys) expand their production to take advantage of the high prices. This, in turn, leads to more product, more supply to meet a limited demand and, therefore, prices decline. This forces producers to cut back, hence less production to meet demand, therefore higher prices. Therefore a cycle.

At the moment U.S. cattle producers are expanding to realize higher prices. This will result in more calves coming to market, hence more product and lower prices in the future as I stated in my previous post. It matters not at all what Canadian producers are doing in terms of liquidating or expanding their herds. Except that if you expand when the U.S. guys are expanding, you are going to be stuck with more calves when the prices slide.

The old saying is that no heifer calf kept to be bred when prices are high has been a profitable cow. Mainly because that heifer's calves are hitting the down side of the market. The best time to buy or keep heifers for breeding is when they are selling for .70 a pound and nobody wants them. Then that heifer's calves will hit the rising market.


kpb

[blackjack]

...i think kbp you should write in the cattleman's magazine...great insight...

[cswilson]

Don't you know that the U'S market will teeter at the brink and collapse if we send one too many potloads of calves there. I'm surprised old Willowcreek hasn't been on this board too expounding his R-Calf theory of economics. The cattle business sure is cyclical it's not too scientific but the old adage 'If your cryin' you shoul'd be buyin' works most time. Mind you there's a few posters o here have a tear in their eye 24/7-not sure what the solution for them is-we can't use them over here in Saskatchewan lol.

[canuck]

Willowcreep is probably down south building Georges new fenceline.No doubt good practice for the one he wants to build along the Canadian border.

[cowman]

Grassfarmer: I don't know your production costs but I like to think I have a fairly good grasp on my own costs? Some times it gets a little muddy because I'm running two different enterprizes here and the oil service business ends up paying a lot of the bills!
In my area grazing costs about $1 day. That is what it is worth. I graze close to 200 days a year on average...So $200? Feeding in winter about a dollar a day including fuel for tractor, repairs etc. So overall $365 a year for feed per cow?
Now that 2 year old heifer costs me $1200 and ten years later she brings me $700...so $50 a year depreciation?
My $1200 heifer investment costs me what per year? Borrowed or my own money has to be around 7% or $84?
I have always been adverse to working for nothing? So maybe I need a bit of return for my labor? I put that at $75 per cow?
And unfortunately cows don't get pregnant by immaculate conception so breeding costs at $30?
Basically here it is:
Feed(winter and summer) $365.00
Breeding $ 30.00
Cow depreciation $ 50.00
investment interest $ 84.00
salt and mineral $ 7.00
vet costs(inc. RFID tag) $ 10.00
fence & corral repair $ 10.00
labor $ 75.00
utilities $ 5.00
sales costs $ 20.00
trucking $ 10.00
land taxes $ 5.00
Office expenses $ 5.00
death loss 3% $ 20.00

TOTAL $716.00

I did not add in the cost of a truck/quad/whatever to run around in checking cows but did consider the time in my labor costs.
I guess my costs are a lot higher than most or something? I try to be realistic in what things actually cost me?

[whiteface]

Bang on Cowman. And then if the calf prices are at or near a dollar a pound we sure better be getting these calves at 800 lbs plus at weaning. How much damage are we doing to these cows asking that much of them year after year...and many of us demand these kinds of weights on just grass and from tiny cows that are not really genetically programmed to put out that much calf, just made to milk harder, milk harder but still put out decent muscle expression. No wonder some come in open, they just get exhausted putting out that much calf year in year out just to try and be let past the cull gate.
Not trying to convince anyone that mine are perfect...
far from it, in fact, I usually tell people mine are all pets that I just enjoy looking at and haveing a reason to get up in the morning that I actually enjoy. My grandpa used to say that and I never really understood it until now. Pretty tough for a cow to be anything other than a pet around here but admittedly I managed to make some pretty darn good and efficient cows in my hope of makeing them "profitable" for this area. There's a challenge all by itself.
And land just keeps going up, and taxes just keep going up. Gas is down for a while but that will be short lived. Cows can't keep up and really no point in asking them to try. Have a good day all!

[grassfarmer]

I see two nonsense figures in your calculation right away Cowman, "In my area grazing costs about $1 day. That is what it is worth" - which is it is that what it costs you or is that what other people charge? I thought there were lots of ungrazed pastures in your area, surely that should be bringing the rental rate down?
"Now that 2 year old heifer costs me $1200 and ten years later she brings me $700"...yeah if only every heifer lasted 10 years and sold for $700 as a cull!

[kpb]

grassfarmer, I think your comment about "nonsense" figures might be a little harsh. I agree with cowman that some pastures are idle but the fact also remains that if you try to rent some you will pay at least $30 per pair per month in central Alberta. And if you are renting your pasture you are fooling yourself if you don't charge that much.

In regards to depreciation, I agree with you that it is most unlikely in today's market to average $700 for your cull cow. So the depreciation figure should likely be higher, therefore adding to cowman's $716 annual cost.

I think cowman's costs are pretty darn close to being right on. You may quibble here or there but you asked him if he knew his costs and apparently he knows them pretty well. It reminds me of our discussion a while back about backgrounding calves--it almost always looks good on paper but the practice is not always so favorable when you consider both prevailing market conditions and total costs. I think the 8's will be quite a bit lower than today next March.

kpb

[kpb]

after looking at cowman's figures more closely I think there are a few things he left out that should be included.

I generally have some mechanical repairs during the course of a year that cost money. Sometimes lots of money. And what about fuel costs--even the swath grazers use fuel to move that electric fence I assume. If you have any land debt you'd have some interest payments to make. And before you sell those calves you are going to have to pay a check-off, maybe an auction market commission or insurance, brand inspection, etc.

I'm not tryin to nit pick here but any other business would add in everything into costs that was at all relevant. They wouldn't just say well I like looking at the cows so I won't charge gas money!!

If you don't believe me get a bill from a lawyer or accountant itemized and you'll see every phone call and photocopied piece of paper on the bill.

kpb

[grassfarmer]

kpb, I think my accountant must charge for quite a few items they don't actually use, their bills are ridiculous!
I guess I just get fed up with the guys that take off farm jobs because they can't make their farm pay and then insist that no-one else can make money on cows either.
There are 101 ways to evaluate your business but I think the way some people do it is set up to prove that agriculture can't pay. I prefer to add up all my actual income and actual costs and see how it tallies at year end before I decide to abandon the enterprise and go work for someone else. Case in point would be grazing cost - assumed to be a $1 a day in this case. Well if I own all my land and have no debt on it it doesn't cost me $1 a day to graze. The cost of harvesting that grass is my cost - fencing, salt minerals, water supply etc. Why should I say it is costing me a $1 a day just because guys that don't own enough land chose to rent pasture at that price? That is their business cost not mine. It's like feeding your cows with an old Cockshutt but charging your business the maintanence cost of a new JD.
I'm not saying I don't allocate a value to my land use rather I prefer to add up all my costs compare it to income and at year end decide if there has been sufficient return to reward my investment of time and capital. Into this calculation would also enter land cost appreciation as a return on my capital investment.