COLUMN - The Bottom Line

by Rick Wright

What a roller coaster ride the fall calf run has been! Lots of ups and downs, twists and turns. Prices have been very unpredictable and demand has been very selective. Order-Buyers are sticking tight to orders and there has been no speculation buying at all this year.

Usually the last week in October and the first week in November are the largest marketing volumes of the fall in Manitoba. This year, deliveries are slow compared with other years as producers hold on to their cattle hoping for better pricing. Most of the large auctions market report a decrease in the numbers sold from August 1 to now. Gladstone’s numbers are up slightly and the Killarney market has really increased its weekly numbers. Direct sales from the farm to buyers have also increased as producers try and cut marketing costs while looking for price guarantees on an unstable market.

The Prices improved on some classes and weights of cattle late in October. The drop in the value of the Canadian dollars helped offset the losses on the cattle futures markets, keeping the Americans interested in purchasing Canadian feeder cattle. The drop in the dollar also helped make the cost of backgrounding feeders for American investors at Manitoba feedlots more competitive.

The only reason the Americans are not jumping in the Canadian market with both feet is “COOL.” There are still too many unknowns as to how the packers will treat the Canadian origin cattle fed in the United States. It looks like there will be little to no discount on the cattle that will be slaughtered prior to April 1, 2009. That is why the prices for yearlings off the grass remained strong while the wet nosed calves were a tougher sale. Originally the majority of the major packers indicated that they would label all beef fed in the USA, category 2 (Product of USA/Canada). Immediately there was pressure from the American side that this plan would undermine the purpose of Country of Origin legislation. Packers were told if they did not have beef in category 1 (Product of USA) there could be changes to the rules on how category two and three products were handled in the food chain. These changes would be very burdensome and costly for the packers, wholesales and retailers. As I write this, we await word from the packing industry in the south as to what kind of discount, if any, there will be on non-American born cattle.

Cattle finished in Canada will face a bigger challenge. By the time you read this, JBS Swifts is expected to announce that they will no longer kill finished cattle from Canada at their plant in Greeley, Colorado. This means all finished cattle from Western Canada destined to the United States will have to be killed at Pasco, Washington (Tyson) or Hyrum, Utah (Swifts). The plant in Utah is approx. 1100 miles from Brandon, Manitoba. Rumours from the south are that the packing companies feel the Canadian government has not done enough to influence the USDA and American government to protect the Canadian cattle producers on the COOL issue. Maybe it is time the American packers and Canada’s trade department sat down together to develop a plan to present to the new President for consideration.

Despite the fear of the unknown, Alberta feedlots finally started to purchase from Manitoba markets in mid October. Prices in Alberta finally increased enough to have some of the bigger lots looking outside the province for inventory.
Quebec feeders got good news the last week of October. It looks like Smithfield’s plant (now JBS Swifts) in Pennsylvania is going to start purchasing cattle on the cash market and is looking at possible contracts in the future. Despite the high cost of transportation this year, feedlots there have a renewed interest in purchasing Manitoba calves.

I certainly do not see any major price increases in the calf prices for the remainder of 2008. The world economy is far from being stabilized and until that happens, the fundamentals that influence the cattle and meat markets will be very unpredictable.
The best advice that I can give today is cull your cowherd hard. Now is the time to get rid of the free loaders and poor producers. The cow market is decent and you cannot afford to feed those extra cows. Heifer prices are under pressure and in most cases you can get more money for your cull cow than your best heifer calf. If you are going to keep something back, the heifers look like they are worth the feed. There will be lots of seection at the bred cow sales and the majority of the breds sold so far this fall have gone for slaughter at market price.

If you do the math, most of those poor producing 1,500-pound cows will eat more feed this winter than their calf is worth this fall when you consider hay prices at 4 to 5 cents per pound delivered (most of the cows will eat $1.60 to $2.00 with off hay per day), plus straw for bedding, interest on your investment, corral cleaning costs, and depreciation on your equipment and facilities.

This is a good year to pay the preg checking bill and cull those free loaders.
Another bit of advice is: Age Verify your calves and any of your home raised cows. Regardless of what you have heard it does not cost you anything and if we want to develop more markets for our cattle in the future, age verification and traceability will be very a important part of the formula to moving beef into new markets. Today on cull cows, the premium is between $75 and $140 per cow if they can be exported to the U.S. With Alberta going to mandatory age verification on their calves in January 2009 and Quebec already there, it will just a matter of time before we will have do ours as well to market our calves to those feedlots.