High prices and continued market strength augur well for the cattle industry
Tuesday, August 5, 2014
Continued drought in some key U.S. regions, recent reversals in commodity market trends and new U.S. dollar strength against other currencies may have begun to favour Canadian livestock. But some producers still remain cautious about expansion
by JIM ALGIE
One bright, hot day in early May when yearling cattle were going for more money than anybody had ever seen, a veteran seller walked out of the Keady sales barn near Owen Sound and nodded with a quiet smile to a companion in the doorway. "Didn't do too badly that round," the man said to his buddy.
He had offered a group of 800- and 900-pound Charolais-cross steers and heifers. Some of the steers went for $195 a hundredweight. It must have been a good payday, for the seller offered to buy lunch.
Buyers at the same sale may have left wondering, however, if retail beef prices would hold long enough to justify the investment. Some light stockers sold as high as $250 a hundredweight.
"There's some unheard of pricing," veteran cow-calf operator Carl Spencer agreed later in the sales barn's parking lot. "We bought some for a buyer in March and we thought they were pretty expensive, but now they don't look quite so expensive," he said, referring to historically high-priced spring sales.
With 45 years raising cattle near Owen Sound, Carl Spencer, his wife, Shirley, and three sons – all involved to some extent – feed more cows than ever. They manage between 300 and 350 cows, raise their own calves and supplement them with western and Ontario stock, marketing as many as 750 cattle off autumn pasture. There are fewer people in Ontario these days with such large cow herds. And those who do own cows seem well-placed for what most observers expect will be sustained record cattle prices as North American beef farmers rebuild after years of trouble.
But Spencer won't take credit for foresight. "We've always been livestock people and I just decided to stick with it," he says, in explaining how he avoided the lure of recent high corn, wheat and soybean prices that convinced many neighbours to plow up hay land and pasture for cash crops. "My feeling was that, by the time I got to thinking 'this cropping's looking pretty good,' I'd just get in on it in time for it to go down."
Even so, lots of others either switched to field crops as prices boomed in 2008 and subsequent years or left farming altogether following the 2003 BSE disaster.
"I just see pasture farms and hay farms that have been plowed up, plus people who have always had cattle and who have now sold their cattle land . . . The cash croppers have gotten bigger and bigger and bigger and they're handling a lot of land," Spencer says.
Now profitability is on the beef side of the farming ledger.
Ken Schaus has spent the past 30 years working in one of Ontario's most active cattle trading enterprises. "It's the biggest lift (in prices) I've ever seen since I've been around," Schaus said from the Bruce County office of his family's Schaus Land and Cattle Co.
"There's been lots of money made," Schaus said after that early May sale in Keady. It remains to be seen, however, whether current profitability can continue as high cattle prices reach retailers. Some analysts believe the retail squeeze began already in 2013.
"The break-evens are $1.60 a pound live and I don't know if we're going to have that kind of market or not," Schaus said in May of the prospects for sustained prices throughout the current cattle-rearing round. "Whether it's resiliency that has paid off, I don't know. To me, it's good to see some money coming back because a lot of people were about ready to pack it in," Schaus said.
Not everyone is as enthusiastic. "Never seen anything like it," Port Elgin-area cattleman Harry Thede said, shaking his head as he walked away from that May Keady sale without buying.
Now in his sixth decade of farming, Thede has cut back on cattle numbers in recent years as did many of his neighbours in Bruce County, long home to Ontario's largest beef herd. Still, he put 100 cattle to grass this spring and was looking for more until he couldn't justify the cost.
Record and near-record prices
Relatively strong heifer prices suggest "the possibility of the beginning of increases in cow inventories over the next few years," economist Kenneth Matthews said in his 2014 spring market analysis, part of the U.S. Department of Agriculture's quarterly Livestock, Dairy and Poultry Outlook. Matthews relied on "record and near-record prices for all weights of feeder cattle" to predict continued cattle market strength as he reported U.S. beef cattle population at its lowest point since 1951.
Drought in traditional cattle-growing regions of both Mexico and the United States on top of grain market economics that favoured cash crops over livestock led to heavy culling in recent years. Continued drought in some key U.S. regions this growing season, recent reversals in commodity market trends and new U.S. dollar strength against other currencies may actually have begun to favour Canadian livestock. Field moisture conditions have remained comparatively favourable in Canada, although attrition over the past 10 years, particularly among retirement-aged cattle farmers, is widely reported.
As of May 1, Ontario's 18 feeder finance co-operatives held loans on inventory of 67,500 cattle worth about $72 million among about 600 members, not counting pending purchase orders at the time. It's the largest investment in the co-operatives' 22-year history, says supervisor Cheryl Russwurm. Partly because of it, co-op board members submitted a request last year to the provincial government seeking to double individual loan guarantees from $250,000 to $500,000.
There are also indications that Ontario's beef sector is preparing for stronger expansion here than elsewhere on the continent. In May, Beef Farmers of Ontario (BFO) announced that it will begin to consult with farmers this summer about a new policy for herd expansion on relatively inexpensive land in northern Ontario. Hints of the plan found their way into the recent Ontario election campaign after the Liberal platform indicated the party's willingness to allow new agricultural development on crown land.
In a May 24 mid-campaign statement, BFO President Bob Gordanier acknowledged the need for herd expansion and new investment, and gave a nod to Liberal platform references to northern development. The organization has developed preliminary models "for assessment by beef farmers" beginning in July, he said. The plan could "provide a limited risk approach for young and beginning farmers to establish farms with a focus on beef production," said Gordanier, an Orangeville-based cow-calf producer.
Considering recent demand, the demonstrated strength of the Ontario Cattle Feeders' Association's Corn Fed Beef program (which now accounts for as much as half the cattle processed in the province) and willing expansion by existing cow-calf producers, there are new opportunities for beef production, the association's executive director Jim Clark said in an interview.
Clark acknowledged feeders and backgrounders have "had a good go" for about a year. Some of that income has found its way into new barns and feeding capacity in southern Ontario, but Clark also expresses concerns about where Ontario feedlots will find calves and yearlings. As it stands, the province imports as many as 300,000 feeder cattle annually from other jurisdictions.
"One of the things that keeps me awake at night is where are the numbers going to come from to sustain our industry," Clark said. "Where are we going to get the replacement cattle to fill the pens as the program gains steam? We need more cattle." He notes that there is new potential for the feeding of surplus Holstein bull and heifer calves from eastern Canada's active dairy sector.
Clark and others also see signs of an easterly shift in cattle feeding activity in North America. He figures the cattle are following feed and water supplies eastward with Ontario and Quebec likely beneficiaries.
Cautious about expansion costs
"Cattle feeding is shifting back to the corn belt," Ken Schaus said about the recent market turn. A dealer, order buyer and farmer, his family business moves as many as 500 cattle weekly, operates two feedlots and a network of pasture farms from a base in central Bruce County.
"The West has always been dominant and they've taken market share away from Ontario and the East," Schaus said. "Quebec's taken market share away from Ontario and the West, but now that's shifted on both fronts."
High markets for grains, beans and canola created competition for growing land and drove up land prices. But it has also boosted ethanol production in Ontario and new byproduct feeds "that most people are using," Schaus said. Even so, he remains cautious about expansion costs.
"Nothing cures high prices like high prices," he said. "It just got too cheap for too long and now it's going back to where a profit can be made," he said. "I think people should just maintain their numbers, maintain what they're doing and don't get too wrapped up in expansion."
Owen Sound-area backgrounder and cow-calf operator Rob Lipsett figures this spring's prices were too high to permit much expansion just yet. A new board member this year with Beef Farmers of Ontario, Lipsett sees nothing but "optimism for the next five to 10 years" based on low cattle supplies.
"If the herd size increases in Canada, we may see a decline in prices. But it's hard to predict an increase in herd size because heifer calves are worth too much money to retain for breeding," Lipsett says. The latest to lead a family farming enterprise active in northern Grey Country since 1841 (before there was a Grey County), Lipsett came home to farm in 1996 after studying business at Georgian College. He and his wife, Lauren, married in 2000, began having children and renovated the family homestead as cattle markets began showing strength, only to watch it crash in 2003 with the BSE crisis.
In response to 2003 market pressure and in consultation with his father, Ron, and grandfather Frank, both of whom remain involved in the business, Rob converted what had been an entirely registered, pure-bred Charolais cow herd to commercial production. He combined Red Angus with Charolais breeding for the purely practical purpose of working as a solo operator because of the self-sufficient maternal traits of Angus cows. These days, Rob and brother-in-law Richard Suchow manage 150 cows on 1,300 acres of mostly pasture and forage with 75 acres in soybeans and 180 acres in cash crop oats. He recently acquired a 100-acre farm he rented previously and has begun thinking about expansion.
"My intention is to increase our backgrounding operation and perhaps buy more calves to supplement those we raise ourselves," Lipsett says. "There's always a risk we may see some consumer backlash," he says.
"But as long as the consumer is educated about what a healthy product it is and they're getting high quality, they should be satisfied that they may have to pay a little more," Lipsett says. "Somewhere along the line, with high prices people are going to embrace expansion and you'll see people ignore the high price of keeping a replacement heifer to get the long-term gain."
Calvin Anstett grew up in the cattle business. Now 32, a dealer in the family-owned Cargill Auction Market in central Bruce County and a cattle backgrounder in his own right, Anstett can't remember when he bought his first calf.
"When I was 16, I probably had 50 head of cattle and now I guess I have 400 head myself," Anstett says. Buying calves at prevailing prices this spring and last fall seemed a little "scary," he admits, but his autumn purchases worked well financially and he's looking for the same off this year's pasture.
"You do the best you can when you're buying them, and you go from there," Anstett says. "Last year, if I hadn't bought cattle we thought were too dear, it would be really hard to buy now because at least I'm coming off a good year," he says. "I still think there's a little money in there. Say you buy 500-pound grass cattle and sell at 850 (pounds), there's still a little margin there. I'm fairly optimistic about the cattle business and agriculture as a whole, really."
He'd like to see this market grow and says that "we do need these higher-priced animals to give us enough margin to be competitive with cash croppers and dairy farmers." Asked if cattle parity with agriculture's income leaders is his expectation, Anstett replies: "I would never have told you we would see steers bring more than $2.40 (per pound), but we did. So anything's possible." BF
Downward trend in Canada's cattle inventory continues
by JIM ALGIE
The U.S. Department of Agriculture spring outlook for 2014 cited higher cattle prices and the decline in value of Canadian currency against the U.S. dollar as factors behind a 26 per cent increase in stocker cattle imports, mainly from Canada.
At the same time, U.S. beef exports to Canada dropped by 30 per cent in the first quarter even as American beef exports to other parts of the world expanded by five per cent, primarily to Japan, Hong Kong and Mexico.
As of Jan. 1 this year, Statistics Canada's Canadian cattle population estimate was 12.215 million head, down 9.8 per cent from July 1, 2013. Inventory data showed a slight decline in the cow herd by about 0.8 per cent to just over 3.9 million head. It continued a downward trend in cow numbers that began in January of 2006. The number of breeding heifers edged up 0.1 per cent to 542,000, however, following three consecutive year-over-year increases, the Statscan report says.
Ontario data shows a total cattle inventory of 1.682 million head, down 3.3 per cent from 2013. By comparison, Saskatchewan's cattle population was down 17 per cent as of January. Manitoba and Alberta numbers were down 11.8 per cent and 8.1 per cent respectively. The agency estimated Ontario's January cow herd at 288,400 head. That's still much smaller than remaining cow herds in Alberta, Saskatchewan and Manitoba. The Alberta cow herd adds up to about 1.591 million head, Statscan data show.
Cattle prosperity shows up in sharply higher farm cash receipts for the first quarter of 2014. Cattle and calf receipts increased 23.2 per cent compared with the first quarter of 2013, judging by Statscan data published May 27. Increased receipts followed a 23.1 per cent increase in prices compared with the first quarter of 2013.
Cattle and calf prices are at record or near-record levels, Statscan reported. Canada's beef cow herd was at its lowest level since 1992 while the U.S. beef cow herd is lower than it has been in more than 60 years, Statscan analysts reported. BF
Helping the Ottawa Food Bank – a win-win for local producers
by JIM ALGIE
When the Ottawa Food Bank began buying and processing cull cows for ground beef for their clients back in 2005, it made a lot of sense for the capital city office of the Canadian Cattlemen's Association (CCA) to get involved.
Canadian beef producers were still reeling from border closings that followed discovery in 2003 of an aged, Alberta cow with BSE. Export markets slammed shut to Canadian beef and the price of cows went "ridiculously low," according to CCA government relations director John Masswohl.
Things have changed dramatically since then. The virtual disappearance of BSE and re-establishment of Canadian beef exports, combined with a North America-wide reduction in cattle population, drove cash market prices this spring to historically high levels. Cull cow prices have tripled since 2005. Even so, it makes sense for cattle farmers to stay involved with the food bank's ground beef program, Masswohl says.
Originally the brainchild of Ottawa-area farmer Wyatt McWilliams, the food bank's Food Aid Day has grown in each of the past 10 years. A radio-a-thon pledge drive together with a $10-a-burger barbecue at the Ottawa City Hall and Agriculture Canada's suburban headquarters building raised $160,000 in 2013.
"Unfortunately, to run the program for a year, it was close to $290,000 because of the cost of the animals," Masswohl says of the food bank's broader beef acquisition program. "We need to do a bit better or the food bank is not going to be able to continue the program" at the level of existing demand.
"When we got involved, we thought this is a really good idea," Masswohl says, particularly if it "could be rolled out across the country." In those days, with cull cows at rock-bottom prices, farmers needed as many bidders as they could find. "The idea was to increase the price of cattle a little bit," Masswohl says.
Wyatt McWilliams is the Navan farmer who – with his father, Willard – spearheaded the Hay-West drive in 2002 to ship eastern Canadian hay to drought-stricken areas of Western Canada. He subsequently suggested his local food bank buy cull cows at a time when trucking expenses occasionally exceeded the cost of livestock. The program grew from there.
"It was kind of a win, win, win for cattle producers," Masswohl says. Initially part of a fund-raising call-in event on radio station CFRA, the project expanded to include a public barbecue in partnership with Ontario-based gourmet burger chain The Works. In 2013, sales of 2,200 burgers at Ottawa city hall and another 700 at Agriculture Canada's suburban headquarters building, at a cost of $10 for lunch, yielded revenue of $29,000. Plans for this year's June 6 event included a pancake breakfast and timing to coincide with a larger showcase of rural life in the Ottawa area, co-hosted by Mayor Jim Watson and food bank executive director Michael Maidment.
The popularity of the resulting beef supply among food bank clients and the public profile generated by barbecue events, at least, warrant continuation of the program, Masswohl says. Since 2005, cattle producers have donated more than 200 cows. Funds raised by the program helped purchase 1,626 cows to generate more than 289,246 pounds of ground beef for distribution to Ottawa families, food banks and shelters.
"We're involved partly in terms of telling the story of what's going on in agriculture and how does that translate," Masswohl says. He and other Ottawa-based CCA employees work their contact lists for participation and volunteer themselves in food bank fund-raising.
"It works well in Ottawa," Masswohl says. "I can see it working well in places like Kitchener or London, where there's a large agricultural community and a city that's large enough to have a program like this," he says.
"The inclusion of beef in a healthy diet is something that's important to have and we continue to support it from that point of view," Masswohl says of CCA's continued participation in food bank fund-raisers. BF
Ontario's Corn Fed Beef program is on a roll
by JIM ALGIE
After a slow start 14 years ago, the Ontario Corn Fed Beef program (OCFB) grew by 2013 to include more than three-quarters of the cattle slaughtered in Ontario, according to recently published research.
That's good news for the Ontario Cattle Feeders' Association (OCFA), which administers the program, and reflects high-profile participation by major packing plants and retailers. However, association CEO Jim Clark has other worries these days about how to encourage expansion by Ontario's cow-calf producers in the face of dramatic declines in cattle population.
A beef-branding exercise, cornfed beef labelling seeks to assure consumers of consistent, quality products. It includes training for enrolled cattle feeders and requires annual health and feeding records, specified feed regimes, testing and farm inspections.
Begun in 2001 with 29 producers and one beef processor – provincially-inspected Norwich Packers – the program has grown since then. It now includes all three federally inspected packing plants in Ontario and about half the provincially-inspected plants, judging by a report prepared for the program by George Morris Centre researchers Kevin Grier and Al Mussell. The report was published in May on the Guelph-based consultancy's website.
The research was commissioned to assess beef feeder and processing industry participation and to measure the program's impact on pricing. In a complex analysis of Ontario's place in North America's beef marketplace, the report argues that by segregating cattle and generating demand for its brand, OCFB boosts the Ontario market by as much as $26 per head.
Buy-in by cattle farmers, meat packers and retailers is impressive, but coincides with a significant reduction in cattle breeding activity both here and across North America. Cattle volume for OCFB jumped dramatically in 2011 to just under 150,000 head, with further growth to 280,000 by 2013. The report highlights a decision by Loblaw stores to market and merchandise OCFB in its Ontario stores.
"In 2011, there were 157 Loblaw, YIGs (Your Independent Grocer), Zehrs and Value-mart stores on the program," the report says. "In 2013, producers participants represented close to 80 per cent of the cattle fed in Ontario," it says.
The report declares Ontario Corn Fed Beef a "recognizable brand and logo" which assures consumers of "a product consistently produced in accordance with established quality standards."
The challenge now, OCFA's Clark says, is to convince Ontario cow-calf producers to get involved. His group has begun seriously considering an established trend in nearby U.S. states of feeding surplus dairy cattle to fit the needs of beef feeders.
"They've always had a strong, calf-fed Holstein industry," Clark says of production in Ohio and Michigan. "Due to the level of feeders, we're going to be forced to look at that as well. What that does, too, is open up opportunities to get more involved in starting these calves. Our feedlots aren't set up to start these Holstein calves; we're used to bringing in yearlings and feeders that are ready to go."
New emphasis on northern Ontario development is a possible new source of feeder cattle, but Clark says new incentives for existing cow-calf operators would produce quicker results. It may involve co-operative arrangements within the industry to reduce market risks.
"That core group that are already producing, how do we entice them to put a few more cows in, even if it's five or 10 more cows. That means the following year I've got five or 10 more calves from each one of them," Clark says. "They already have the infrastructure and they have the knowledge," he said. The challenge is to mitigate some of the market risk.
"Can we work as an industry and cover each other off?" asks Clark, who has cows and calves at his own family farm near Dutton. He suggests potential for options and contracts to assure cow-calf producers are "covered off."
He adds: "More and more I need that cow-calf producers and backgrounders are part of what we're doing because, without them, we've got nothing." BF