New BSE aid programs will give market security to battered cattle producers for the first time in months, say Alberta feedlot operators.
In Alberta, producers will be able to set aside calves and fat cattle under a national BSE program announced Sept. 10. They will also be able to lock in a basis contract tied to the American market, to protect themselves from giant losses if markets crash.
“Before BSE, feedlots had a series of risk management tools to protect themselves against fluctuating markets. With the closed American border those tools disappeared,” said Jeff Ball, a southern Alberta feedlot operator.
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“What this announcement does today for us is that it gives us a little bit of stability,” said Ball, who operates a 10,000-head feedlot in Brant, Alta.
Under the program, producers who agree to set aside their fat cattle for the 90-day period will be able to lock in a basis contract to ensure they are not penalized for delaying the marketing.
The basis is the difference between the U.S. market price and the Canadian market price. Traditionally the basis between the two countries has ranged from $3-$6 a head. Since BSE, the basis has fluctuated between $30-$60, making it difficult for feedlots to know what finished prices will be or make a profit.
Under the Alberta program, if the basis is larger than the locked-in price, the provincial government will pay the difference. If the basis is smaller than the locked-in basis, the government doesn’t pay because the feeder has gotten a higher price for the animals through the market.
The basis will be set each time there is a call for cattle to be set aside.
“If we set aside the right number of animals and bring some rationalization and competitiveness to the marketplace, the basis guarantee will never have to kick in,” said Lloyd Andru-chow, director of the rural services division with Alberta Agriculture, which may administer the national fed cattle set-aside program.
Feedlot operator Walter Schmidt of Barrhead, Alta., said feedlots need stable prices after a year and a half of low prices and market uncertainty.
“Any program to give us a little better orderly marketing will sure help.”
Under the fat cattle set-aside program, a management committee will decide how many fat cattle need to be pulled from the market to stabilize prices. Feedlots will be able to submit bids on how many cattle they will be willing to set aside with that bid.
If the management committee calls for 25,000 head of cattle to be pulled off the market, feedlots submit bids based on how much money they would need to hold the fat cattle.
Some suggestions range from $1-$2 per head per day. The committee will take the lowest bids first until all the cattle spots are filled.
Central Alberta cattle feeder Rick Bonnett worries only large southern Alberta feedlots will benefit from the program because they’re able to feed cattle for less money.
“We’re in a wreck here and they’re making us compete and bid against each other,” said Bonnett. He said the unusually wet fall in central and northern Alberta has driven his feed costs higher than feedlots in southern Alberta.
“We’re not going to be able to compete with the southern guys,” said Bonnett, who calculated his minimum per head feed cost at $1.30.
He expects some feedlots will deliberately bid below their daily feed costs just to get needed cash flow.
Like the other programs, Bonnett anticipates a pile of paperwork and delays before he sees any BSE assistance money. He’s still waiting for government money from last year’s assistance programs.
“I’m totally frustrated.”
