Do the math and educate yourself on how all sectors are performing because they impact other sectors, says analyst
BROCK, Sask. — It used to be easy for producers to figure out the value of their cattle, but not any more, said market analyst Anne Wasko of Gateway Livestock of Taber, Alta.
“When I first started, you could simply look at supply and demand and you could come up with a pretty good estimate as to where you’re going to be, but today there’s so many more moving factors, especially beyond our own borders that have huge implications,” said Wasko, a cattle producer who lives near Eastend, Sask.
“You just can’t say, ‘I know it all’. So, we’ve got to keep learning.”
As part of Saskatchewan Cattlemen’s Association district meetings around the province this fall, Wasko conducted workshops called What are your cattle worth?
She went through the factors that attribute to cow-calf prices and what producers must know:
- Canadian prices are connected to the U.S.
- Know your numbers: lots of available websites and calculators to draw from.
- Health, feeding type, program cattle can draw out premiums.
- What are sector margins doing?
- Know the math: live cattle futures, Canadian dollar, local basis.
- Feed costs, steers versus heifers, weight slides.
Of these six factors, Wasko stressed that cow-calf producers must understand the performance of all sector margins, but specifically feeder cattle.
How each segment is doing fiscally, as far as margins are concerned, has a direct impact as to what the sector below them in the production chain is going to be receiving or considering.
“The closest one to us as cow-calf producers is the cattle feeder. Is he doing OK? Send him Christmas cards. He’s an important part of your life,” she said.
“This year, for example, cattle feeders in both the U.S. and Canada have had a very good year from a margin perspective and historically proved that correct again. When they’re making money they certainly turn around and spend those profits in the marketplace.
“And for the cattle feeder, he’s going to be watching the packer. If the packer is profitable, like he has been in 2017, he’s going to want to keep that factory running at full capacity. That’s been the case in the U.S. and Canada this year. The slaughter rates in both countries are up in 2016 again largely due to profits.”
However, last year at the same time, she said the discussion was the opposite. Packers were not wanting to process cattle because they were losing money, which had cattle feeders losing money and reluctant to sell. That in turn significantly dropped the calf price.
“It’s complicated. These last two years would be prime examples that no two years are the same.”
As part of the calculations to determine worth, Wasko instructed cow-calf producers to put themselves in their buyers’ shoes.
“When we sit down and do the math, we might as well do it from our buyer’s perspective, not our wish list. What’s he going to be looking at when he walks into that auction mart and how is he going to make that decision, and how much is he going to buy those calves for today,” she said.
Ron Shea said it was an exercise in thinking the reverse of what he usually does, which is helpful.
“If you do this and use the proper numbers, it’ll work for you, I’m quite sure,” he said.
Shea and his daughter, Joleen, run a commercial cow-calf operation near Kindersley.
Joleen said it’s important to understand currency fluctuations, short and long-term future’s markets and basis.
“In the spring or in July and August, maybe we should be looking at these numbers to figure out what can we expect or even watching what those basis levels are doing. You get all the reports but sometimes that doesn’t necessarily mean anything to you if you don’t understand what it means — what’s normal for a basis level and what’s not normal — that sort of thing,” she said.
Added Ron, “I watch the Canadian dollar a lot, but there’s a lot more to it. And it’s very hard to predict what that dollar is going to do.”
While they’ve forward contracted two-thirds of their herd for this year, the Sheas are analyzing and rethinking what to do with their remaining calves in 2018.
“You don’t always think what are the cattle feeders making or not making to how it’s going to influence what I’m going to end up with,” said Joleen.
“You’re usually focused on, what’s my calf worth and not what’s the finished product is worth…. As a cow-calf producer you don’t think about what the cattle feeder is doing or what the packer’s guy is looking at. And we should be.”