Calf prices have bounced upward in the past couple months, but prices during the fall calf run were a huge disappointment. Any thoughts of a meaningful increase in the Canadian cattle herd have evaporated.
If you go back to 2013, calf prices were dismal throughout the year with prices for 500 to 600 pound steers in the range of $160 to $170 per hundredweight during the fall run.
Calf prices took off in 2014 with a steady upward trajectory through the year. They were $270 to $290 per cwt. for most of the fall run, and it was happy days and good profits for producers. Analysts believed the good times would continue to roll.
It sure looked like that through the first eight months of 2015 with prices often in the $320 range. However, prices slipped dramatically as the fall run approached. Most calves sold that fall for prices similar to the previous year at $270 to $290. It was still a great price, but not the level expected early in the year.
The decline that started in the second half of 2015 continued until late 2016. Last fall, most 500 to 600 lb. calves sold in the $170 to $190 per cwt. range, only marginally better than the dismal year of 2013.
Calves were worth $1,500 to $1,600 each in 2014 and 2015, but that dropped to about $1,000 last year. Good times were short lived. Efficient producers are still making money, but it isn’t an easy way to make a living.
At $1,000 for steers and with heifers worth a bit less, a producer would need to sell more than 250 calves in the fall to achieve a gross return of $250,000. That suggests a herd of around 300 cows, which is far higher than the average size.
By comparison, with average yields of wheat and canola at the prices prevailing after harvest, a grain producer could hit a gross return of $250,000 with only about 800 acres.
What’s more, the net return on the grain farm would probably be higher.
A cow herd of 300 is a significant operation. A grain farm with 800 acres is considered tiny.
A gross of $250,000 a year is the starting size for making a family living from the farm. A gross return of $500,000 is still a small grain farm — 1,600 acres — but a cow herd of 600 is far bigger than most.
Grain prices and returns won’t stay strong indefinitely, but growing crops looks far more enticing than raising calves.
The Manitoba government has a stated objective of increasing the provincial beef herd. Good luck with that.
There was no appreciable in-crease in the herd when calf prices were lucrative in 2014 and 2015. Yes, breeding stock prices were sky high, but that’s to be expected when an industry is profitable.
Bred cows and replacement heifers are much cheaper now. It might be a good time to invest if you have faith that calf prices will improve. Instead, the precipitous drop in 2015 and much of 2016 has probably shaken confidence.
Labour is another issue.
A 1,600-acre grain farm can get by with labour from a couple of family members. A cow herd of 600 is likely to require more people, who are also willing to do more manual work. And it’s a lot easier for grain farmers to have an off-farm winter job or to take a winter vacation.
As a grain producer, I admire my cattle farming neighbours, but I wouldn’t change places with them.