Strong prices are signalling that it’s time to start retaining heifers and build the cattle herd — but rising capital costs could cause some producers to hold off.
“There’s lots of opportunities, but it’s costly,” said Rick Dehod, farm financial specialist with Alberta Agriculture and Rural Development.
A decade of pain and low prices means many producers have other priorities than expanding at the moment, he said.
“A lot of those ladies and gentlemen for the last 13 years have kept their cost of production down, and they’ve really managed their farms well and survived,” he said. “But they’re behind on some of their working capital and some of the things that need to be done.
“I’m sure they’re going to take their profit and meet some personal goals and some farm goals prior to keeping those cows back.”
- More from the Alberta Farmer Express: Cattle leader says it’s time to rebuild the herd
That’s the plan on Jake Meyer’s farm south of Lethbridge.
“We came to the conclusion that it just doesn’t pay to retain them right now,” said Meyer, who farms with his wife and three young sons.
“The chance of prices coming down is better than prices going up. They’re at an all-time ridiculous record high, so the chance of them coming back down is pretty good.”
Right now, the Meyers sell everything in the fall and “play the game a little bit in the springtime,” buying up bred heifers.
“Most of the time you can find a better deal,” he said. “There’s usually a producer out there who has somehow figured out how to feed cheaper or had extra feed left over from the year before. A lot of times, producers like us can capitalize on that.”
Some producers are taking advantage of strong prices to “become better established in a shorter amount of time,” said Meyer.
“A lot of guys are saying they can pay their cows off sooner now. They’re able to take a whole extra year off their payments just from this year’s calf crop.”
Others are improving infrastructure so that they’re “a little more comfortable” when prices come down.
“Anything can happen,” he said. “You might as well get yourself comfortable right now while there’s money to be made. That way, you’re still comfortable if something happens.”
Land prices key
Expansion will ultimately be “an individual decision” for each operation, said Dehod.
“Everybody’s got a different resource base, different labour base, and different capital base,” he said. “It’s different for each farm in each different location in Alberta.”
In the brown soil zones of southeastern Alberta, for instance, herds have been expanding for the past couple of years because of lower land prices.
“Those people have made those choices because those lands were available and those ranchers were able to expand because they had access to cheaper pasture land,” he said. “Will the cow numbers come back in the black soil zone or grey soil zone? Time will tell.”
Land is in short supply in the grey soil zones, especially in central Alberta, said Dehod.
“There’s a lot of demand, and there’s a lot of people looking at buying farmland.”
In southern Alberta where Meyer farms, irrigated land has been selling for $8,000 to $10,000 per acre near Lethbridge, with dryland prices increasing to $3,000 per acre and grassland approaching the $1,000 to $1,500 range.
“You can see that land prices have pushed up, and with the amount of land required to run cattle, for hay, feed, and pasture, you need quite a bit of capital to purchase those lands,” said Dehod.
“If you take a look at a quarter of pasture land, you’re looking at, at least $160,000.”
Those costs are a growing barrier to new entrants in the industry.
“With the cost of capital and cost of farmland, for young guys to get in, it’s insurmountable.”
Meyer chose the slow expansion route when he began farming full time five years ago.
“You had to have the capital to invest to get started, and we were lucky to have the capital from a previous career that I had,” said Meyer, who worked as an oilfield manager in South America.
He invested a portion of his capital in buying a quarter section — “you need a base to get started” — and another portion in his herd.
- More from the Alberta Farmer Express: Thinking of expanding your herd? Here’s a to-do checklist
“When we first started out, we owned 30 head and financed another 30 head. We’ve slowly been building, buying more bred heifers, up to 150 today,” he said.
And though the Meyers have no plans to start retaining heifers in the foreseeable future, they want to expand every year “as much as (they) can.”
“We want to be large enough so that when our children are old enough to decide what they want to do, our operation is big enough to support them and their families,” he said, adding that he’d like to expand to 500 to 1,000 head in the next 15 years.
“To be able to do that, obviously we need to expand, but with prices right now and from a business standpoint, a lot of guys right now are tempted to just make money while there’s money to be made.”
Some producers may choose “just to ride this out,” said Dehod, but with cow numbers dropping and demand for beef rising, it’s a good time to start thinking about expanding — however slowly.
“If you keep heifers back, that comes out of your cash flow,” he said. “But with all your other calves worth a little more, maybe you can keep more heifers back. Maybe you can retain cows a little bit longer because there’s an opportunity to put a calf on the ground.
“Hopefully, we have a few risk-takers and people who see that opportunity.”