Canada’s cattle herd has been poised for expansion for the last two years, but declining cattle prices have put those expansion plans on hold.
“The July 1 inventory showed that we were completely steady with beef cow numbers,” said Brenna Grant, manager of Canfax Research Services.
“We did have an increase in beef heifers for breeding purposes — so retention numbers — but we’re still well below the long-term average.
“There’s no indication that producers are gung-ho to expand.”
Canada’s cattle herd is currently sitting around 13,205,000 animals, up slightly from 2015’s count of 13,035,000. For many producers, last year’s drought conditions during breeding season put a halt to any expansion plans, said Grant.
“Some of them who were planning on rebuilding their herds figured they weren’t going to have feed that winter.”
Around the same time, cattle prices peaked and have since been declining steadily.
“We’re now down 30 per cent from the peak in May of 2015, which is a dramatic drop over 18 months,” she said. “We’re still falling, and we’re seeing that the U.S. market continues to fall as well. That’s obviously had an impact on the price signals to cow-calf producers, as calf prices have gone from a high of about $325 down to about $200 per hundredweight.
“Producers are looking at profitability for the signal to expand being back in line with what we saw in 2012.”
Cow-calf producers are still profitable today — but not nearly as profitable as they were a year or two ago, she added.
“Producers are very aware that prices are declining. The question that everyone is asking right now is, ‘How low can prices go, and when are we going to get there?’”
In previous cycles, it typically took almost two years for prices to bottom out.
“We’re looking at probably mid-2017 or early 2018 before prices bottom out,” said Grant. “For many producers, they need prices to bottom tomorrow.”
Riding the downturn
Falling prices may drive some producers out of the industry altogether — particularly older ones nearing the end of their farming careers.
“Our demographics are older producers who are looking at slowing down and getting semi-retired,” said Grant. “They’re going in a different direction than a young producer who really sees a future for the beef industry in Canada and sees the potential and opportunities of trade agreements that are coming in.
“Given the demographics of our industry, we definitely need young people who see the opportunities not just in the coming cattle cycle but in future cattle cycles as well.”
And young producers need to start building their herds with those future cycles in mind.
“If they’re going to get in, they have to say, ‘OK, I’m going to expand my herd, but it’s going to be a slow and steady expansion over the next 10 years, because the next time the peak comes, I’m going to be ready.’”
But in order to ride the downturn, young producers need a solid business plan.
“It’s not impossible,” said Grant. “Sometimes we can talk in the industry like it’s impossible, but there are definitely success stories out there from young producers who have done it.”
The key is knowing per-unit costs.
“Know what it costs you and know what your profitability and your margins are in your operation. A low-cost producer is definitely still seeing profits and still seeing a good signal to expand even now. As prices decline, they need to know the point when they’re not going to be profitable anymore.”
That’s what Clay and Jesse Williams have done on their cow-calf operation near Hanna.
“Prices are lower than they were in 2014, but I think if you manage your operation right and keep your costs of production down, it’s not unprofitable — it’s just less profitable,” said Clay Williams.
The Williams started operating Whiskey Creek Ranch in 2012, right at the start of the upturn, and have since grown their operation “pretty aggressively” by about 40 head a year.
“This year, the prices have come down pretty hard, but in the years leading up to this, the market has been pretty strong and working in our favour, and that allowed us to keep back enough animals to grow our cow-calf herd,” said Clay.
A lot of that was luck, he admitted, but the couple also “analyzes things quite intensively.”
“We made some smart decisions, and we made some lucky decisions,” he said.
For instance, the Williams didn’t expect yearlings to do well this year and decided not to buy any.
“That educated guess turned out to be a profitable one,” Clay said.
The couple also keeps detailed records of their per-unit cost of production so they can take advantage of any potential savings that come up.
“We try to analyze everything,” said Jesse. “You can’t manage what you don’t measure. We have pretty extensive — probably obnoxious — records so that we can make those decisions on where we can cut and where we can’t.”
For some things — like bulls — the Williams “do spend more money than other people,” but only if they know that investment will pay off.
“We know exactly where we’re spending our money, rather than just assuming cost of production, which I find a lot of ranchers do,” said Clay. “We know exactly how many dollars are put into each cow in order to get a certain dollar. We’ll do the math on it to prove it. If we can’t prove it on paper, we’re not going to do it.”
That helps the couple make herd decisions as well, added Jesse.
“If we have a cow that’s constantly needing treatment or that’s constantly costing us money in one way or another, we can get rid of the more expensive cows and know which ones make us more money.”
By keeping their costs low and tracking their exact cost of production, the couple has started to work toward a “pretty aggressive” five-year plan. Over the next two years, the Williams will be building their yard, corrals, and pens so they can start backgrounding 150 replacement heifers every winter.
“We’re planning on using that to grow our cow-calf production ultimately to 500 head of cow-calf,” said Clay. “We’ll pretty much be growing as fast as we can find grass for it.”
And in some ways, the downturn will help with that, he added.
“As a starting-out cow-calf producer, this downturn will be tough, but it’s also an opportunity for us growing our herd, as there will be some cheaper, good-quality animals that a person can get a hold of that can build your herd,” he said.
“We’ve made the decision that we wanted to grow our herd for the long term,” added Jesse. “We’re in it for the long term, not the short haul.”