From the hip Those who prosper in the future will excel in risk management, understand the consumer, and provide detailed data on how their cattle were raised
Recent events in the beef sector feel like a raw deal for cattle producers, although there are ways to not only cope but excel in these situations.
Year to date, the fed beef cattle industry in Canada has not seen any marked improvement despite volatile action on the live cattle futures and a perceived shortage of inventory. In fact, cash fed cattle prices are only a few cents off of the highs. Large carcasses have made up for the inventory deficit and the Canadian dollar took care of the upside potential on Canadian cattle. Packers have dragged their heels when pricing cash cattle. Cull cows enjoyed good prices as packers needed the commercial beef for the grind. Feeder cattle and cull cows remained strong until October when prices were pressured by uncertainty in the fed cattle markets due to the closure of XL Foods, which processes 40 per cent of the nation’s beef.
The immediate changes we could expect to see will be “muscling” by packer and feeder cattle buyers as prices are falsely held down. This problem will be short in duration. The cull cow market will not recover until after the plant is well into production and this will be a handicap to those who were dependent on cull sales. The fed cattle market is unlikely to be robust unless we can gain beef delivery from XL into the United States. The carcass breaks are higher in the U.S. and we can expect feedlots to play the heavy weights and try to sell on cash or contract into the U.S., thus relieving pressure on the Canadian side. This is already happening with trucks of Canadian live cattle headed south. Boxed beef prices will continue to follow overall demand and are independent of the packing issues at this time.
Retail prices will remain high (relatively unchanged) as this is an opportune time to increase retail margin. Consumer confidence will waiver this time. This is not BSE with a hypothesized health threat — it is E. coli, which is very real and the effects are immediate in victims. The original press releases urging consumers to cook meat longer were indicative of an industry that does not appreciate food transparency, nor consumer knowledge and the fact that they have protein options that are both food and non-food animal. Any hope of converting the ethnic population, which in some areas of Canada reaches 45 per cent, has been generationally lost. There is no escaping the fact that the biggest change in the beef industry will be in the need to mature to appreciating and understanding and supporting the consumer and that includes her trading partners.
The future of the profitable beef farm is no longer in cash bids on fed cattle or live auction bids on feeder cattle. Those days are long gone. Fed cattle margins on the production side are in feeds and feeding, while the margins on the sale side are in the implementation of risk management. We used to call it a paper trade but today it is more important than the actual animal itself. It sounds easy to protect your investment through a live or basis contract, hedge or options, but the reality is that this is a new skill for most farmers. FCC holds workshops that are excellent but we need more exposure and information to make informed choices. The day-to-day pricing is readily available through the Internet, but it takes time to understand market fundamentals. This is where our schools play an important role.
The lack of business education in school is concerning enough, but college and university students need a broad understanding of the food industry both domestically and internationally as well as consumer preferences, needs, and their future expectations. They need an appreciation of food production systems that include sanitary and biosecurity training as well as food storage and presentation. This allows for a positive look at the industry from a systems approach that embraces all points of food production.
More importantly, they need a firm and practised approach to risk management and risk management strategies so they become a part of everyday business. Those producers who had protected their investment through advanced risk management strategies in the last few years did not suffer marketing losses and were confident buyers of feed grains and feeder cattle.
Feeder cattle are now more data sets than breed and type. There is an array of contract options and methods of electronic selling which supports animal welfare initiatives. There is also a growing interest in information regarding feeder cattle history such as hormone free, organic, vaccinations, past performance history, dam and sire information, feeds and full disclosure of ownerships and antibiotic use. As the feeding industry aligns to the food industry, feeder cattle and calves — the original inventory — will be bought on their data and that includes animal welfare and treatment history. We have seen substantial premiums paid in direct sales for calves and feeders that accompany data sets (not the other way around).
It is a changing world and future farmers will execute advanced risk management strategies and have access to a qualified mentor. They will also benefit from a full understanding of food production systems. We owe it to them and to ourselves to ensure that our educational system encourages the introduction and usage of tools to build better products that have an end-user interest.
Are you a female future farmer? Please fill out our survey at www.brendaschoepp.com.