“Right now, our dollar is going up and, to make that worse, fats are going down. So calves are going down too.”
If you’re looking for good news on cattle prices, don’t call prominent southern Alberta cattle feeder Rick Paskal. He says that generally, low feed prices are good news for cow-calf producers selling spring calves, but this year may be different.
“There’s lots of cattle around relative to demand, and, barley is down to $150 a tonne. DDG (distillers dried grains, a byproduct of ethanol manufacture), is coming in pretty cheap from the U.S. – and that price is going down as the Canadian dollar gets closer to the American dollar.”
Low prices for feed generally mean good prices for yearlings and calves, but not this year. “That high Canadian dollar has a bad side too,” Paskal said in an interview. “Our fed cattle price is tied to the U.S. fat steer price. Right now, our dollar is going up and, to make that worse, fats are going down. So calves are going down too.”
Many market watchers believe the loonie is headed for parity with the U.S. dollar – a sign of weakness in the American economy rather than strength in Canada’s situation.
The high dollar is not the only problem Paskal sees facing cattlemen in all sectors of the industry. The current wholesale price of beef is down $18 compared to this time last year, he says.
Cattle feeders have other challenges. “Feedlot operators are experiencing huge equity challenges,” said Paskal. “Things haven’t been good. We had two months this spring when we had positive margins on feeding cattle. Before that and since then we’ve had nothing but negative margins. That makes for huge, huge equity challenges for the feedlot sector.”
Cattle feeders constantly recalculate their cost of gain and compare it to futures prices for fed cattle. If they think they can sell fed cattle at those prices they start looking for cattle at a price that fits their figures. “If you think you can feed cattle and make something on them, as a feedlot operator, the first thing you do is get some cattle,” says Paskal. If you can cover your cost of gain, you fill up the lot.”
“Equity challenges,” as Paskal calls them, mean cattle feeders don’t have as much cash available to them. Many feeders have gone out of the business and there’s been a lot of consolidation of the industry. That comes on top of a dramatic shrinking of the backgrounding sector of the industry.
Look around, says Paskal. Places that had 20 or 30 backgrounding operations 15 or 20 years ago, now have none, and, feeder cattle aren’t exported to U.S. feedlots as in the past. It all adds up to a lot less competition for calves and a much less active market. It’s bad news for cattlemen and for other parts of the economy.
“I hate to say it,” Paskal said. “But I don’t see much prosperity or good calf prices coming. It won’t be good for feeders, cow-calf guys or any other sector that relies directly or indirectly on the cattle business.
“Cattle feeding has a big impact on the local economy. Cattle feeders buy calves, feed grain, buy and maintain equipment, and hire workers for the feedlots and we help maintain the businesses in our local community. It all adds up to jobs, schools, stores – and they’ll all be affected,” he said.
Paskal doesn’t have much advice, although he does have regrets he can’t help mentioning. He believes the beef industry would be in better shape if every animal slaughtered in the last seven years had been tested for BSE. Now, he says, all cattlemen can do is, “Hold on, watch your costs, be as efficient as possible and weather the storm as best we can. Hope we can enter new marketplaces.”