Only as Strong as its Weakest Link

For more than 10 years now, my work has given me the opportunity to meet with cattle farmers and feedlot owners on a daily basis. But their daily experience is sometimes quite different, and on occasion, completely contradictory. In fact, 2004 was a case in point. Although revenues from slaughter steer and calves reached historic heights and are giving us the impression that businesses are highly profitable, such is not the case for all involved.
Cattle production is set up as a chain in which each link provides additional value to the previous one. On one end there are farmers raising purebred animals while on the other end are supermarket chains. And in between are commercial breeders, feedlots, slaughter houses and distributors.

Profit expectations for cattle farmers is intimately linked to the price of meat and will vary according to supply and demand, but that of feedlots and slaughter houses is based on gross margin ($/steer), which, on average, is pretty constant, even if staggering fluctuations occasionally require attention.

In other words, combine the fact that cattle herds in North America are now at their lowest level in 50 years with all of the issues affecting the pork industry over the past 12 months and what you get is that the supply of beef and veal is not enough to fulfill demand and prices have risen significantly since January. Cattle producers have never had such high gross margins per calf. Meanwhile, gross margins have remained unchanged for slaughter steer. At first glance this seems great, or at least very good, but…

To achieve this same margin per head, the feedlot has to finance animals whose cost of acquisition has risen more than 25% since 2013. Lenders have since become very cautious. Considering that a 1% mortality rate today is the equivalent of 2% some two years ago and that the financing cost per animal has basically exploded, the feedlot no longer has any room for error. This is where the whole beef industry can stand together and organize to help this highly important link in the chain. But how?

A Special Kind of Fox Trot…
In the short term, feedlots need to use every means at their disposal to add maximum weight to every slaughter steer they buy. As for commercial breeders, they need to deliver the best prepared calves possible as early as this fall: calves with standard regulatory inoculations, adjusted to feed concentrates and having gained lean fat in the two months preceding their sale. In fact, cattle and calf farmers should be able to deliver the best calves they ever produced this year! And preconditioning is one of the best ways to increase the profitability of each link in this industry's chain.

In the medium term, the focus should be on improving genetics and the reproductive outcome: shorter intervals between calvings, high gestation rate, fewer bulls required per herd, and improvements in the required and desired genetic criteria. Obviously, an abundance of calves on the market would not have produced current price levels. Between us, I would rather see abundance than shortage! The former is usually easier to deal with.

And finally, in the long term, Quebec's cattle industry should focus on the next generation. Not future generations of herds, but the next generation of breeders.

Oddly enough, all of these factors have one thing in common: the expertise found at La Coop network. It will never replace your hard work and determination, but it can be a great complement.

Stay strong!

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