Greater risk | Cattle producers who expand or rebuild their herds need risk management tools
EDMONTON — High-priced cattle are making the industry buoyant, but they are also making it more challenging to line up financing when buying.
“We’re living in a very different world than we were two years ago,” said Ruth Sarin of Edson, Alta., who operates a background feeding operation.
“It’s sending us to seek more financing than we’re used to.”
The price of cattle has almost doubled in the past year.
“It’s taking quite a bit more money to fill your feedlots and maintain your inventory,” she said.
“The loans have increased with the financial institutions and we’re using more of our own money.”
Sarin buys calves at 400 to 500 pounds and feeds them to 900 to 950 lb.
“In this environment, it’s important to have flexible loans,” said Sarin, who is buying calves for next summer’s grazing season.
Tim Adams, general manager of Canadian Cattle Buyers Credit in Moose Jaw, Sask., said the cattle feeding industry is not overpriced.
“It is where it is right now. In my opinion it’s business as usual with more money on the hook and more skin in the game,” he said.
“When you have $1,000 invested in an animal, it is one thing. When you have $2,000 invested, it is twice the risk.”
Adams said producers should use some kind of risk management, either through the Western Livestock Price Insurance Program or another risk management tool.
David Nilsson of Cattlemens Financial Corp. said the increasing flexibility of cattle loans has helped give producers options when feeding cattle and expanding their herds.
“Guys are bigger now and they want to buy 200 head and sell 150, then buy 120, then sell 70. They’re buying and selling. They’re never going to zero. They’re never getting a chance to cash in their equity. They’re building their herd, but they need some of that money,” he said.
“These loans are moving up and down all the time. They start with $1,500 owing on a cow and then down to $500, then buy some more cows at $1,800 and any one time they have cows on the yard where they have $300 owing up to $1,500 owing.”
Nilsson said 20 years ago, cattle producers would borrow money to buy cattle, sell the cattle, pay out the loan and figure out how much profit was made.
Today’s cattle producers want more flexibility with their loans. They may want to buy cows, keep some, sell others and take equity from the herd before the animals are sold.
Nilsson said the challenge with high-priced cattle is ensuring the calves from those cows continue to bring in top dollar.
“If you’re trying to pay off a cow that costs you $2,500 and if you’re getting $1,500 to $1,800 for the calf, then that is not so bad,” he said.
“If you’re getting $1,110 to $1,400 for a smaller calf, that is going to be difficult to pay for that $2,500 cow. You’re still going to do it, but it will take longer.”
Cattlemens Financial Corp., and Canadian Cattle Buyers Credit are backed by Farm Credit Canada, which Nilsson and Adams said has not indicated it is getting close to a loan limit.
Ken Hamilton, manager of the livestock loan guarantee program in Saskatchewan, said the 58 feeder and breeder co-ops haven’t yet reached the financial cap.
About 44,000 cows and 50,000 feeders are under the program.
“Reaching the cap is not an issue with us,” he said.
Some cattle feeder associations in Alberta have reached their financial cap and can’t lend more money to members.
Ted Nibourg, a business management specialist with Alberta Agriculture, said he hasn’t received any calls this year from producers wanting to buy cattle. All his calls are from people wanting to sell their cattle.
“When even cull cows are two grand apiece, guys are saying, now is the time to pull the trigger,” said Nibourg.
“There are more people wanting to sell their cattle than buy them. I still can’t understand the logic of people entering the business at these high prices. The astute people are realizing these are not the times to get into it.”
Nilsson said most of the people looking for cow loans are existing producers or family members who want to expand their herds.
“There are not a lot of fresh people,” he said.
“It’s usually somebody’s sons coming in and taking it over or expanding it and making it bigger. Cattle are costing more, but producers are still going to try and achieve the same return and get the same profits they’re getting.”