Canadian Calf Producers Face Tough Market

EDMONTON - Aug 26/04 - SNS -- Marketing this year's calf crop may be the most challenging decision process cow/calf producers have been faced with in many years, notes Alberta Agriculture economists.

The simplified summary is to look at the costs, read the markets, understand and utilize the Canadian Agricultural Income Stabilization (CAIS) program and evaluate the priorities of the operation.

"The first step in a normal year is to look at the cost of keeping the cow for the last year and establish the breakeven price for weaned calves," says Trevor Yurchak, beef specialist with Alberta Agriculture Food and Rural Development, Athabasca.

"Across (Alberta), production costs per cow over the past year, based on previous years' data, have ranged from $500 to $650 per cow wintered. When a 90 per cent weaning rate is included, the cost per calf weaned ranges from $550 to $720.

"Based on an average weaning weight of 550 pounds, across heifers and steers, the breakeven sale price for weaned calves would be $1.00 to $1.30 per pound. Obviously, this year is not normal, and other decision processes may apply. These numbers are only averages and producers are encouraged to calculate their own costs. In a competitive industry as we are in, knowing your exact costs is the key to survival."

The second step when marketing caves is to look at the markets and decide if the price for calves will give you a profit or loss. Markets during early August were such that 550- pound steers were worth $0.97 per pound and heifers were worth $0.91 per pound, suggesting that profit would not be possible.

Producers are encouraged to talk to local buyers, sellers and market experts to help form an opinion where markets could be in the next 30, 90 and 180 days. Today's loss would be between $50 and $200 per cow wintered, depending on the costs within an individual operation, but based on market forecast could be the better case scenario, depending on what your market forecasts suggest.

"As market forces change weekly, market evaluation should begin now and continue until weaning," adds Yurchak. "While marketing guides can help, they should not take the place of individual market analysis."

The third step is to evaluate retained ownership. Determine the cost of feeding calves for a period of time, and make a market prediction to decide if it will be profitable to do so. Using $25 per metric tons (MT) for a silage price, and $2.00 bushel for barley, and yardage at 35 cents per head per day, backgrounding calves to 850 pounds will cost, on average, $0.75 per pound gained. This suggests that adding 300 pound to your calves will add $225. If we use $500 as a value per head at weaning, breakeven on an 850-pound steer will be $0.85 pound.

"Rather than backgrounding at a lower rate of gain, producers may choose to finish cattle on a more aggressive program," says Yurchak. "Using the same feed prices, supplement at $250 per MT, and yardage at $0.30 per head day, cost of finishing will average about $0.57 per pound gain. The cost of adding the 750 pounds needed for finishing will be $425, resulting a breakeven sale price on fats of around $0.71 per pound. Once again, these numbers are for illustrative purposes only. Producers must calculate their own costs, and contact their own feedlots for current costs and prices.

"Using these numbers for backgrounding and finishing, producers can then do some market forecasting using local experts and market forces to determine the potential to reach these breakeven prices and make profit. Remember that there is a very distinct difference between forecasting, hedging, and speculating. Each one requires very specific cash flows and risk taking ability."

Step four, which may be the most important step for this year, is to evaluate the contribution the CAISP has on your operation. "The three previous steps may show a somewhat limited profit potential," says Yurchak, "but the CAIS program has great potential to make up this shortfall."

Many producers filled their CAISP forms, including the Equity Loss Interim payment, early and now are receiving very encouraging payments in the mail. Many producer have stated that CAISP Interim Equity Loss Payments will make up the shortfall they anticipate on their calves and, as one producer stated, will save the farm this year.

Producers are encouraged to contact AFSC, or look on www.afsc.ca for complete details, forms, and deadlines. Yurchak concludes, "The total market evaluation for this fall is not complete without analyzing CAISP's contribution to the operation."

Step five involves looking at the intrinsic values of an operation - the factors that affect a decision beyond the pure numbers and breakevens. These intrinsic factors are very unique for every operation and can include debt amounts, types, payment dates and interest and more importantly, creditor attitudes and willingness to back your decision.

Feeding programs, feed and facilities need to be looked and options for each operation considered. As well, family issues are also very important. Stress is running very high for most of the industry, so the entire family or farm unit must behind the decisions.

"These intrinsic factors can be more important than the economic factors," says Yurchak. "Operation managers need to sit down and decide on a management plan, update it as needed, and follow the plan. The plan may be to follow the course to maximum profit or to follow a plan that will result in the least economic loss and healthiest well being."