An Alberta Agriculture beef specialist says cattle producers are the worst business managers in all of farming.
“And you can quote me on that,” said Christoph Weder.
He said 97 percent of cow-calf producers have “absolutely no clue” what their cost of production is when they go to market their weaned calves in the fall.
That’s why he is purposely poking them by coming out with such a bold statement.
“I’m trying to get some guys pissed-off-mad at me so they actually go do it,” said Weder.
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Calculating a cost of production figure is particularly important this year, coming off a winter in which feed costs where astronomically high and heading into a fall where feeder prices are uncertain.
Worsening prices
Cattle prices have nose-dived since the discovery of bovine spongiform encephalopathy in Alberta halted trade with Canada’s largest buyer of beef and cattle. If the United States doesn’t open its border soon, it could have a disastrous effect on calf prices come fall.
“A lot of cow-calf producers, up until the last two weeks, have had their head in the sand figuring that (BSE) is not going to affect them,” said Weder.
But he warns their turn could be coming.
An average rancher would have spent about $695 per cow on feed, bedding and other costs this past winter. Assuming a 90 percent weaning rate, that makes the breakeven cost for a 550 pound calf $1.39 per pound.
Weder said there is a good possibility that same calf will fetch less than $1 a lb. come fall, due to the effects of BSE and a high Canadian dollar. At those prices the sale of a 550 lb. calf would result in a loss of at least $215. In a 150-cow operation, that means $32,000 worth of red ink.
Before the BSE ban, the Canada-U.S. basis was about $8, but it could be as high as $40 in fall if the border is still closed.
Weder did a calculation incorporating a $20 basis, a 75Ðcent US Canadian dollar and the Chicago feeder cattle September futures. He determined Alberta feeder calves would pay less than $1 a lb. under that scenario.
The losses could actually be a lot worse than $215 a head because Weder used conservative estimates to compute his breakeven figure. He assumed feed costs of $1.75 per day, but for some producers it was closer to $2.50.
“We tried to be nice and paint it pretty,” he said.
Producers have two options if that scenario materializes. They can either sell their calf crop and take their lumps, hoping for better times next year, or they can hold onto their calves and background or finish the animals, hoping prices rise in the meantime.
Weder encouraged producers to consider that second option because with the prospect of plenty of grain this fall, feed should cost half of what it did last year.
Incorporating those lower projected feed costs, he calculated the breakeven price for backgrounding a calf for 100 days at $1.06 per lb. and for finishing a calf or yearling at 87 cents a lb.
But the big potential benefit with backgrounding and finishing animals is that it delays the date by which cow-calf producers have to market their herd. Prices might have improved during that time.
Weder said backgrounding calves isn’t for everybody. Producers with heavier cattle or exotic cross calves may choose to send their animals to feedlots.
And he certainly doesn’t recommend that all cow-calf producers attempt to finish their calves because that process requires a knowledge base many do not possess. But retaining their calf crop is something most producers should at least consider this year.
Unfortunately 70 percent of them won’t even entertain the idea, said Weder.
“They’re going to do the same thing they’ve done for the last 10 years – take the market (price) the day they sell their calves and go home, go to the coffee shop and bitch about the price.”
He finds that attitude intensely frustrating.
“They’re not going to make any changes to their operation and I don’t feel one bit sorry for them any more.”
Too many cattle ranchers have bought into the idea that Canada produces the best cattle in the world and they expect to be rewarded for that.
“That’s hogwash,” said Weder.
He said countries such as Australia market beef of equal quality and it’s time for Canadian producers to stop focusing solely on what prices they get and start looking at the cost side of the equation.
“We’ve got to be smarter about the way we run these businesses,” said the beef specialist.
