The study drew information from 17 farms registered with the council’s cow-calf production network from Western Canada and northern Ontario, said Brenna Grant, executive director of CanFax. It then modelled the farms’ recovery, based on a projected cull level (ranging from no extra culls to a 25, 50 or 75 per cent herd loss) and recovery strategy (purchased replacement stock versus replacement heifers).

“The overall objective that we wanted to answer with this study was: How do you minimize the equity drain on the operation?” Grant said.

A farm’s circumstances are rarely cut and dried, she said. Choices might hinge on availability of local feed or how strongly the producer wants to preserve herd genetics or level of concern about biosecurity when bringing in new stock. Cash flow also affects a producer’s ability to buy replacements.

“One of the reasons we wanted to ask this is we know that, with the economies of scale being a major driver (of profitability), that the impact of cost structure — the longer it takes to get back to your ideal herd size for your operation — you end up with high per-cow costs and you’re not able to necessarily cover them,” Grant said during a recent webinar.

Early results from the cow-calf production network found economies of scale as one of the main profitability drivers in the sector, along with a smaller mature cow size.

About 89 per cent of monitored farms that had 200 to 300 head and 75 per cent of farms with more than 300 head turned a profit in the last two years, but less than half of the operations with fewer than 200 cows made a profit in that same time.

Results

“If you were culling 25 to 50 per cent, rebuilding with your own heifers within the herd was the most profitable option for the majority of the farms, and if you were culling 75 per cent, purchasing heifers was the most ideal to rebuild in a timely fashion,” Grant said.

Buying new breeding females has the advantage of a quicker recovery, assuming the producer could afford it or absorb added debt.

The study assumed that producers would buy enough bred stock in fall 2022 to be back at pre-drought numbers by the 2023 calving season.

However, interest costs are a factor. Most ranchers would likely have to get loans to buy replacements, Grant said, and researchers found that cash flow deficits were more severe when rebuilding from the sales ring rather than holding back heifers.

“It was definitely a more risky strategy, but for the scenarios that were higher culling rates of, like, 75 per cent, it actually was more profitable and had less of an equity drain in the long run because of that ability to regain economies of scale faster,” she said.

Replacing solely from the herd takes time and is borrowed against the market revenue those heifers would otherwise have provided.

“One of the main challenges we had with a regular retention rate was that we were unable to rebuild to the original herd size within a 10-year period, and that resulted in a prolonged period of lost economies of scale with that lower herd size number,” Grant said.

Instead, the study projected an aggressive retention rate to shorten the recovery window, “recognizing that there would be less revenue in those early years, negatively impacting cash flow,” she said.

Grant acknowledged that farms will aim somewhere in between the extremes of buying all replacement stock immediately or aggressively retaining heifers.

– This article was originally published at the Manitoba Co-operator.

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Beef Farmers of Ontario’s board on Thursday published a memo to beef and dairy cattle producers, asking them to help “prevent a further surge in cull cows in the market” — especially of animals in poor health or condition.

“We saw a significant and very concerning surge of cull cows enter the market over the last two weeks — particularly on the dairy side. It’s putting a ton of pressure on an already stressed area,” BFO executive director Richard Horne said in an interview with Farmtario.

Processing backlogs have “plagued” Eastern Canada’s beef sector for months, BFO said, due to insufficient processing capacity and plant closures.

Ontario has just three federally inspected beef plants, including Cargill’s facility at Guelph, Toronto-based St. Helens Meat Packers and Apple Meadows Premium Beef at Mount Forest.

Another Toronto packer, Ryding-Regency, handled up to 15 per cent of the province’s beef processing until it lost its federal licenses in December.

“The beef sector was already facing a shortage (of processing plants) before the Ryding-Regency shutdown,” Horne said. “We have seen a wave of additional loss of capacity, both pre-COVID-19 and after.”

Added pressure on Eastern Canada’s processors comes from recent temporary shutdowns at beef plants in the U.S. due to outbreaks of COVID-19, BFO said Thursday.

Those shutdowns include JBS beef plants in Colorado and Pennsylvania, National Beef’s plant in Iowa and, reportedly, the Aurora Packing plant at Aurora, Illinois.

“Once JBS in Souderton, Pennsylvania, resumes operations, it will provide an outlet to Ontario and Quebec,” Horne said. “We are expecting it to happen next week, provided there are no other disruptions.”

Also, Cargill’s other Canadian slaughter plant, at High River, Alta., announced Monday it would idle its second shift effective immediately.

“Supply surges, like the one we are seeing right now, put pressure on all segments of the industry, and threaten the health and welfare of animals,” BFO said.

Furthermore, BFO has advised producers to consult with their transporter and the auction centre the day before shipping. Auction and sale protocols are in a fluid state and subject to change depending on the auction market.

In a separate letter April 8 to federal Agriculture Minister Marie-Claude Bibeau, the heads of BFO and four other cattle producer groups in Eastern Canada said COVID-19-related shutdowns in the beef, pork and poultry sectors “give serious pause for concern about the impact of a potential disruption at the Cargill Guelph plant, where three of every four head of cattle in Eastern Canada are processed.”

Recent curbs in milk production “have further exacerbated the current backlog” in beef processing by creating an influx of cull cows, the beef groups added.

BFO last week reported 3,213 cull cows sold through auction markets, up by 932 on the week. Of those 3,213 head, 91 per cent were dairy breeds.

On average, BFO said, cull cow prices last week were at $57.02 per hundredweight, down 14.6 per cent on the week. Beef cow prices on average were at $62.54/cwt last week, while dairy breeds averaged $54.46.

In its market report for the week ending April 8, BFO said processing volumes for the week ending April 4 were up around 1,300 head from the previous week.

“Packers are working hard to process the cattle, but also must take precautions to ensure safety and health of their employees in order to keep the plants operational,” the organization said.

In their April 8 letter to Bibeau, the five eastern cattle producer groups called for direct financial support, either through existing business risk management programs, ad-hoc programs or both, to help beef operations in the region against mounting financial losses.

They also called for new “set-aside” programs for feeder/fed cattle and cull cattle, similar to those offered during the BSE crisis. Such programs are meant to help stabilize markets by compensating producers to maintain cattle for agreed-upon periods of time, keeping the animals out of the beef supply chain.

— With files from Jennifer Glenney of Farmtario.

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Beef economist Kathy Larson of the Western Beef Development Centre doesn’t always recommend feeding open cows.

“It’s a costly venture, particularly when we have tight feed supplies,” she said. “In Saskatchewan, we’re paying 5-1/2 or six cents for hay, and so I wouldn’t see that keeping open cows would make sense.”

Most calves and the bulk of cows hit the market in the fall, pushing down prices. But prices usually rise during the winter.

“There’s some thought that if you held on to them, and maybe put a little more condition or weight on them, the price the following spring would more than make up the cost that you incurred to overwinter them,” she said.

Using price data from the past 10 years, Canfax Research Services recently applied price trends and put those into an online calculator developed by the Beef Cattle Research Council. That allowed it to estimate the financial benefits of three options; culling open cows in the fall; preg checking and feeding them separately; and skipping the pregnancy check and giving every cow similar rations. It then broke the prices down further to consider four feeding systems; dry lot, swathed barley, bale grazing, and corn grazing, and calculated average daily gain in each.

Larson advises producers to use the online calculator to put their own numbers in.

“Over the last 10 years, we have seen prices typically drop 15 per cent from the summer high to November,” she said. “We have the slump in the market because producers were preg checking and then there are a lot of open cows coming to the market.”

The Canfax study found producers would be significantly further ahead if they don’t preg check and feed cows all winter. But the prices estimated in the blog post, published on Aug. 31, have already changed, said Larson.

“They talk about how prices will be 95 cents (per pound) this fall and it’s already 90 cents,” Larson said on Sept. 13. “It changes so fast.”

One of the things producers can do is get some current pricing information. There are free sources available, or people who have a subscription to Canfax can go and see historical data as well.

“I am a huge proponent of getting producers to start getting comfortable with their numbers, and using calculators that are there,” said Larson.

(If they see shortfalls of these calculators, they can always give their feedback to the Western Beef Development Centre, Canfax, or the Beef Cattle Research Council, so they can improve on the tools available, she added.)

In its study, Canfax assumed prices would increase 27 per cent from November to March, which has been the average of the past 10 years. But that jump didn’t happen in 2016, said Larson.

“It was only 15 per cent,” she said. “They do say near the end of the article that if prices only increase five per cent, then you see that it doesn’t really pay, or it pays very little.”

Everyone’s situation is different, and producers need to put in their own numbers, she said.

The calculator accounts for either feeding cattle separately or as a group, but not bale grazing, swath grazing, or feeding them with standing corn.

“That’s not built into this little online calculator,” she said.

The Beef Cattle Research Council calculator (called the ‘Economics of Pregnancy Testing Beef Cattle’ model) allows users to enter their own overwintering costs, average daily gain, length of winter feeding period, and other variables. It can be found at on the BCRC website via the Resources pull-down menu and Decision Making Tools.

The Western Beef Development Centre has an online cost-of-production calculator. It can be found at www.wbdc.sk.ca.

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That decision is based on factors such as expected price changes, feeding costs versus potential weight gain, grade improvement potential, and available facilities and time, says Neil Blue, market specialist with Alberta Agriculture and Rural Development in Vermilion.

But producers should also consider seasonal patterns in the marketing of slaughter cows, said Blue.

“November and December cull cow marketings are much higher than the numbers marketed in July and August,” he said. “Marketings continue to be high in January as many producers delay sales into a new tax year. Marketing volumes typically remain stable from April through August as producers sell open cows or cows that have lost a calf.”

That rise and fall in marketings affects prices.

“Cull cow prices are usually the lowest in November and December when marketing volumes are the highest,” he said. “Prices typically begin to improve in February, and from April through August, the cull cow price tends to be seasonally high.

“During this period, cull numbers are lower and demand for hamburger, the primary use of slaughter cow meat, is higher. This usually is the best time to sell cows that have failed to calve, have lost their calf, or for any fall-calving cows that are open.

The long-term annual beef cow culling rate averages about 11 per cent of the herd. Compared to 2013, cow slaughter was down about nine per cent in Canada last year and down about 14 per cent in the U.S. Despite the drop in cow slaughter from 2013, Canfax estimates that the 2014 Canadian beef cow culling rate was still about 13 per cent.

“Because of reduced U.S. cow slaughter, the weak Canadian dollar and continued strong demand for ground beef, cull cow prices are likely to remain historically high near term,” said Blue. “However, it is prudent to keep the seasonal supply-and-demand factors in mind when making the culling decisions.”

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Years of low cattle supplies have kept U.S. beef import prices near a record high of around $3 per pound hit last September, according to agricultural data provider AgriHQ.

New Zealand is the third-largest exporter of the meat to the U.S., helping satisfy a surge in demand for ground beef from both long-established outlets such as McDonald’s and trendier “fast-casual” chains such as Shake Shack.

Farmers have cut back on milk production and sent aging cattle to the slaughterhouse, seizing on the demand for beef as global dairy prices have plunged to a five-year low.

Last month, Andrew Hoggard reduced the 550-strong milking herd on his farm in the North Island town of Fielding by 22, taking some of the cattle out of production so they need less feed but sending four less-than-prime cows to slaughter.

“There was one cow we got NZ$1,300 (C$1,188) for. She was big, but normally if you get $500-$600 you’re quite happy and $700 is a big deal,” Hoggard said.

Unfavourable summer weather has added to the dairy farmers’ woes, leaving the normally lush landscape so vital to the sector as dry as a crisp.

“If there’s one positive thing (about this season), it’s that those cows are getting good money,” Hoggard said, adding that he expected his milking herd to fall to 500 by the end of the season in May.

Meat accounted for 12 per cent of New Zealand’s total global exports in 2014, less than half of the 29 per cent contributed by dairy products, the country’s top export earner.

The country’s beef exports usually rise around February or March and stay high through May, when dairy production winds down for the season.

But frozen beef exports have been climbing since November as cash-strapped farmers have cut production and started culling herds earlier in the season than normal.

As a result, beef exports to the U.S. hit NZ$160.5 million (C$146.7 million) in December, Statistics New Zealand says, more than double the value of a year before.

Insatiable Americans

Demand for ground beef continues to rise in the U.S., where nine billion servings of burgers were ordered at restaurants and food outlets last year, up three per cent from 2013, according to U.S. market research group NPD.

Gourmet burger chains such as Shake Shack and Habit Restaurants are luring both hungry punters and investors away from the old fast-food chains. Shares in Shake Shack more than doubled on their debut on Jan. 30.

In New Zealand, older cows and those not expected to produce much the following season are sent to slaughter and processed into frozen lean beef cuts. Much of this is shipped to the United States, where it is minced and plumped up with additional fat to be made into hamburger patties for burger chains.

The drop in herd numbers has reduced dairy production in New Zealand, prompting dairy cooperative Fonterra to cut its milk collection forecast for the 12 months to May to 1.5 billion kg of milk solids, down 3.3 per cent from last season’s record high. It has also slashed its farmgate price forecast.

The culling will not pose a problem if milk demand picks up: farmers can lose up to 20 per cent of their cattle even in a normal year and have to replenish herds, and they can simply feed their cows more to push up output rapidly if needed.

For now, though, meat processors say business has been brisk since last month, with the latest weekly cattle cull numbers up 72 per cent in the South Island from a year before and nearly 27 per cent higher in the North Island.

“The low dairy payout, coupled with the dry weather conditions, has resulted in a dramatic increase in the number of cows being processed,” said Murray Behrent, general manager for livestock at processor Alliance Group Ltd.

“All processors are experiencing a backlog, and this will continue through May.”

— Naomi Tajitsu is a Reuters correspondent based in Wellington, New Zealand.

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