Yet we do not appear as an industry to have the courage to introduce a model for fear of alienating one or two buyers.
In the first half of this year, there was a lot of excitement about the reduction in live cattle inventory. So much so, that against better judgment, buyers went out and filled pastures and pens with cattle priced above their potential in the cash market. Many could not be hedged – it was all about inventory. But as I have stated before, markets are much more complex and human nature is part of that complexity. Let’s take a snapshot of the market and do a year-to-year comparison to build on this discussion.
If it was just about inventory then we should have robust pricing. Rather, with a huge reduction in the calf crop, an increase in the cow kill, a reduction in heifer retention and adequate packer capacity we are taking less money than this time last year.
As of June 12, 2009 American fed cattle prices averaged US$81.88 cwt compared to US$93.11 cwt during the same period last year. Feeder cattle futures (FC) on 700-800 lbs. averaged $110.49 cwt in June of 2008 compared to $102.06 cwt during the same time in 2009. And the kicker is that corn was US$6.75 bushel as of June 12, 2008 compared to US$4.14 at the same time this year.
In Western Canada, fed cattle during the week of June 12, 2008 were the same price as that time in 2009. Fed cattle on the cash market traded at $88 cwt in both years. They should not have been mirror images considering that the Canadian dollar for this time period in 2008 had tipped $.9775 compared to $.9092 in 2009. Seven-weight feeder steers averaged $110 cwt in 2008 while the same steers in 2009 traded on an average of $105.
SO WHAT HAPPENED?
Comparatively to 2008, in June of 2009, we had lower feed costs, a lower dollar, fewer cattle and have not gained one cent on fed cattle pricing. What does this mean?
First, the Canada/U.S. decrease in inventory has been offset by the slump in American demand. We have repeatedly talked about demand-driven marketing models and value-based pricing systems. If you ever needed proof of that concept, look no further than this simple price comparison.
In real terms, the difference in currency value alone based on the cash market of the day is $9 cwt That would have put fed cattle to $97 cwt with feeder cattle at a $15 cwt advantage based on the reduction in cost of gain alone. It also speaks to the frustration regarding packer concentration and the complete lack of value-based marketing. It serves us well to remember that packer-created grids and formulas were not designed to be value based to the producer. The golden rule of “Ye whom has the gold makes the rule” is very true. And the gold is the carcass performance data and the ability to interpret it.
If we had two things in Canada, those being mandatory price reporting and a value-based marketing system based on the demand pull, we could achieve the appropriate levels of pricing. Yet we do not appear as an industry to have the courage to introduce a model for fear of alienating one or two buyers.
I often think of the words of Rollo May, who said, “The opposite of courage in our society is not cowardice, it is conformity.” This speaks to us on many levels but it really drives a dagger in the heart of the beef cattle industry. Clearly, the real opportunity lies beyond the current system and we are individually and collectively responsible to make it happen, rather than conform to American standardization of commodity product in production and in our marketing.
Brenda Schoepp is a market analyst and the owner and author of BEEFLINK TM, a national beef cattle market newsletter. A professional speaker and industry market and research consultant, she ranches near Rimbey, Alberta.[email protected]