COLUMN - Straight from the Hip

by Brenda Schoepp

n the feeder cattle market centers around the projected loss of inventory in the Canadian beef herd. Analysts are calling for the disappearance of nearly 1M head of beef cows in 2008. The Stats Canada report which will be released June 1, 2009 will put all the speculation to rest, but in the interim, cattle are being bought based on a projected inventory shortage and on the assumption that trade will continue to be liberalized.

In regards to beef cow inventory, we do know that in the United States the herd is back down to a size recorded in the 1950’s. Feedlot capacity is being utilized at a rate just shy of 60% and beef production from fed cattle is projected to decline. Packers have closed, downsized and consolidated at a staggering pace in the past five years. Commercial beef from dairy cows is projected to increase in 2009, but analysts insist this will not be enough to offset the sag in beef supply. Last month, US cattle feeders were suggesting the cow calf industry would need to “give up” some of their profits, but that is unlikely. To ease the pain, US buyers will seek feeder cattle from Mexico and Canada. The majority of Canadian cattle will flow through Saskatchewan, to fill American feedlot pens and kill hooks. Last year US buyers were able to accomplish this with an average basis of (CDN$17.00) cwt. on Canadian feeder cattle.

Feeder cattle exports to the US from the provinces, largely Saskatchewan, Manitoba and British Columbia will continue as long as the export and currency environment allows for it. With a cost of gain on steer calves of $140.00 per head less than last year, Canadian feedlots will also have a deep interest in securing supply. Some are already lining up fall inventory. Does this mean that calf prices will go through the roof – and stay there? Perhaps. First, there is the question of the cow kill vs. cow movement. I am quite certain that more cows and bred females will show up in Saskatchewan, very much alive. And a shortage of supply does not always mean a shortage of beef. As cost of gain decreases, cattle are historically held to heavier weights, thus producing more beef. As well, a shortage of supply only enhances prices for the long term if there is a continued or increased demand. There has not been enough demand to support beef value and beef value has declined for the past three years.

- Brenda Schoepp is a market analyst who ranches near Rimbey, Alberta. Read more!

COLUMN - Straight from the Hip

The Value of a Marketing Relationship

by Brenda Schoepp

The term “dumping” has been used by livestock producers for years in reference to selling their calves and feeders. In a heartbeat, the years production is loaded up and “dumped” into a nearby market. The seller has not given the buyer or the representative of the cattle any support in finding value in the livestock. A marketing relationship does not exist.

Regardless of how you sell your calves and feeders, there must be a relationship in place in order to best represent the cattle. The local auction market needs to know ahead of time when the cattle are coming in, how many there are, what health protocols have been administered, if the cattle can be age verified and have copy of the supporting documentation. Without this communication, your cattle risk falling into below or average pricing. These simple basics are of value to the buyer, in auction, electronic, direct, contract and consolidated sales. The act of communicating this information is the basis of forming a marketing relationship.

Remarkably, the majority of the calves and feeders on offer still fall into two categories: under managed and consequently under priced cattle and average cattle that are sold on an average price. There is a value to the buyer in procuring cattle at or below the average only in terms of price. The realized potential in the cattle is completely lost without a prior relationship with the seller. Often, sellers of cattle “do all the right things” and may have significant numbers to drive a decent floor price, but walk away disappointed because their work was not rewarded in the marketplace. But then again, who knew?

It takes effort on the sellers’ behalf to expose themselves to the buying market and discover the needs of their client. The client of the cow calf producer is the feeding industry. As the feeding industry evolves and their markets change, so do their inventory needs. Most cattle on feed are now individually tracked, tested and managed. Today, your cattle placed in a feedlot, will likely have individual health and performance data. That information is of value to the cattle feeder and to you. Building a relationship with your client allows for you to compare your cattle and together with the feedlot to establish value, so that it moves up and down the chain. It also gives the feedlot an opportunity to know who you are and approach you with a value proposition. This may be based on age verification, overall health, exceptional conversion, tenderness, carcass qualities or other targets that they may wish to meet in house. Through the relationship, you have the opportunity to create value for the client and be rewarded for this effort.

The value loop is a wide one, and in order for the concept to work, each player must be rewarded. The cattle feeder has to meet the ever-changing needs of their client – the packer. Certainly, cattle feeders still purchase second cut cattle at drastically reduced prices and pick up the profit on the buy side, but increasingly they directly procure predictable cattle that have value within their marketing systems. The door is wide open for cow calf producers to engage with the feeding industry and to form lasting relationships that share technical information for the establishment and reward of value.

- Brenda Schoepp is a market analyst and the owner and author of BEEFLINK, a national beef cattle market newsletter.
She ranches near Rimbey, Alberta. Read more!