High grain prices make for a tough time for livestock feeders

Shrinking Already at the lowest since 1973, the U.S. cattle herd will decline again this year

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The U.S. drought may not have extended north to Canada, but the financial squeeze on Canadian feeders has.

“The North American beef industry was built on $2 or $3 corn,” says Herb Lock of Farm$ense Marketing in Edmonton. “Eight-dollar or $9 corn sure takes the sexiness out of slogging through the mud and feeding it.”

“We’re very concerned about feed costs,” says Bill Jameson, chairman of the National Cattle Feeders Association. “We’re probably looking at a minimum of probably $100 more to finish a steer in Canada than we had anticipated.”

The pork industry, already faltering due to low pork prices, will be especially hurt by high feed prices. “If you don’t have feed booked months in advance, you’re really getting hit hard by these rising feed prices,” says Darcy Fitzgerald, executive director of Alberta Pork. “Combining low price and high feed costs, it’ll drive a lot of producers out of business. You can’t blame them.”

On the positive side, excellent growing conditions, combined with the fact that few American cattle feedlots are equipped to feed barley, means there may be lots of Canadian barley available to livestock feeders.

However, ideal conditions make ideal grain, not necessarily feed grain. “Usually we have something going on weather-wise during the growing year that makes for some silage. But this year, we’re pretty close to saying it’s a perfect crop. Give us another couple or three weeks and we’ll have barley. It’s a lot easier to truck something off the farm than to walk it off. If they can sell it as barley, they’re not going to be feeding it,” says Lock.

The high grain prices also may work against feedlot operators simply because grain growers may be able to afford to store their grain.

“In the past, grain producers might have felt the need to sell to make their payments. But recently, the grain side of the industry has made such good money that they can afford to sit on their grain and wait to sell,” says Fitzgerald. “We’re stuck every day needing to buy feed. Our product can’t be stored; it’s something that has to be fed every day and the selling dates are pretty much written in stone.”

U.S. feeder demand slows

In addition to pushing feed costs up, the U.S. drought is decreasing demand for Canadian livestock south of the border. Lock says U.S. cattle are pooling in northern feeding areas which are suffering the least from the drought. That means feedlot space near the border is and will continue to be very limited, greatly decreasing space for Canadian cattle. “We fully expected that there would be quite a few cattle exported to the States this fall but that obviously won’t happen. Actually, we may be in an import situation with feeder cattle; the jury is still out on that,” says Jameson.

Lock says small feedlots may have the toughest time if high feed prices continue. Many of the 3,000- to 5,000-head lots don’t grow their own feed but instead truck in silage they buy from big lots nearby. “If the big lots switch to hay, the little guys can’t buy. They can’t truck it, they don’t have the bunkers for it,” says Lock.

Feed hay, not grain

Unlike the U.S., Canadian producers have excellent pasture conditions, good hay carry-over from last year, and what is gearing up to be an outstanding hay crop. Lock says this means that cow-calf producers will have the opportunity to add weight at a cost well below that of the feedlots. “If a guy can move the unfinished product up the value chain, he certainly stands to benefit.”

“Normally they come in at six or seven weight,” says Bryan Walton, CEO of the Alberta Cattle Feeders Association. “This year, some might get held over to a nine weight; each guy is going to need to make his own decisions on what works best for his operation.”

The U.S. cattle herd is at its lowest since 1973 and going lower as drought forces cow-calf operations to send heifers to slaughter rather than keeping them for replacements. Jameson says that in the long run, that may spell good news for Canadian producers.

“The U.S. calf crop is the smallest since 1942,” says Jameson. “This drought in the States, if there’s another round of liquidation of cows, is eventually going to work into a positive situation for the Canadian rancher. I can see a major shortage of protein in this country in the next two to three years.”

At this point, of course, the Canadian crop is not yet harvested, and as all farmers know, you can’t count on a crop until it hits the bin. “It boils down to what happens at harvest,” says Walton. It’s all speculative right now.”

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