Have you ever seen a business that is influenced by emotions as much as the cattle business? I don’t mean just emotions like anger and frustration when you go to load or sort cattle at home with poor or antiquated facilities. In these cases, I have heard of emotions erupting, people leaving the corral, the dog is hiding under the truck and the loudest person out there is left standing lonelier than the Maytag repairman. Time spent designing and building a more efficient corral system has saved more than one man half of his assets.
I am talking about the emotions that influence the cattle market and the commodity futures. One would think that supply and demand would be the regulating factor.
I am talking about the finding of a B.S.E. cow in Alberta last May [note: May 2003]. I am not going to bore you with what I was doing on May 20 [note: May 2003] so it is safe to read on. If I have to read any more stories about a day in the life of one more person on May 20 [note: May 2003] I may puke.
This was a very serious situation of course. Some people thought it would be over before it affected them. Optimism is good but it didn’t last. It affected us all.
Some people over reacted and went galloping off to the federal government for help. To my surprise they got it too. I believe four hundred and sixty million dollars worth. The plan wasn’t thought out very carefully. For one thing it was implemented too quickly. No one was going to go into receivership in the first six months unless they were headed there regardless. Sure government involvement was necessary, but lets make sure that we are not using their help to distort the cattle market.
The plan was misunderstood. Many cattle feeders thought that the subsidy would compensate them for any difference in the price that they got, and what it was before May 20 [note: May 2003]. It was said that as soon as the border opened for fats the compensation would cease.
Panic. Sheer panic selling of fat cattle, not marketing took place. No matter what the packers offered them they accepted it because they thought that they would be compensated for the difference. Greed. They wanted to get theirs sold before the money ran out or the border opened.
As it turned out the money did run out long before the border opened. In the meantime the compensation (that is a more politically correct term than subsidy or hand out) distorted the market so badly, that even the outfits that receive the money would be better off if they had maintained orderly marketing. Most businesses will never see any benefit from that four hundred and sixty million.
The price of fats, which had already dropped thirty cents and had leveled out before the compensation announcement, dropped another forty cents or so. That would be another $520.00 on a 1300-pound steer. The finger pointing started. The packers (every one of them in Canada) were scoundrels.
The packers defend themselves by saying “what could we do? There were far more cattle coming in than we could handle. We tried to slow it down by dropping the bids but no matter how fast we dropped the price they came anyway”. “It was like throwing a drowning man a rock”. Said one packer. We can be envious, even angered if the packers made money during this time of turmoil. However, the fact remains that if compensation mania had not set in, and normal orderly marketing had taken place we wouldn’t have seen the free fall in the market. We wouldn’t have seen normal business people shipping fat cattle on a thirty-five cent bid. One can hardly blame anyone for offering it thinking no one would be dumb enough to accept it.
In a crisis situation there is supposed to be five emotions. Denial. Bargaining. Anger. Depression. Acceptance. I skipped two of them and went straight to anger, (that is the Irish way), when I saw the results of the so-called bail out program. I went quickly to depression when it became clear that no one I know would ever benefit from this.
I was just reaching acceptance when they announced that a B.S.E cow had been found in the U.S. We are into another crises.
More emotion. Panic through out the land and the news media. Most of the people the media interviewed skipped the first three emotions and went directly to depression.
Didn’t everyone know another B.S.E. cow would likely show up? Scientists had told us that it is possible that B.S.E. happens spontaneously in one out of every million cows. If that is true, it stands to reason that we should find another fourteen head here in Canada and another one hundred and twenty nine head in the U.S. It would be reasonable to assume that every country in the world either has it, or has the potential for it to happen spontaneously. We will just have to learn to handle it. The bright side is that safeguards like S.R.M. removal (for example) have been put in place in the U.S. and in Canada.
The best news is that Canada and the United States are working more closely now on a North American approach to managing the risk of B.S.E. There is not much news coverage on this though, because it is far too positive.
One of the biggest problems with these situations is that everyone has their own agenda. If we all stayed focused on the big picture we would all make out better in the end. We hear news stories about some guy’s opinion that the cattle market will drop by forty percent because of another B.S.E. sighting. I automatically thought that this guy is on a mission to buy some cattle this week. “Everything is going to hell but I’ll buy your cattle anyway. I just can’t pay much because I know I am going to lose money”.
Some cattle producers and even feedlot operators had unreasonable expectations too. Some were sure that that border would snap open in January. Where did they get that idea? Most of them got it from some speaker at some meeting or convention. The news media interviewed some industry people that were considered to be in the know. Some no doubt gave their best guess, but it was still a guess. Some told us what they thought we wanted to hear, or what served their agenda best. The fact is no one knows. Not even George Bush or Ann Veneman.
When it does open it will never be the same as before May 20 [note: May 2003]. I heard an interview on the radio a few days ago. The commentator asked the cattleman when he thought the border would open. He replied, “Only a fool would try to guess at that now” The commentator pressed him and he finally said his best guess would be March.
My best guess is that when it finally does open it will do so in stages. Maybe some fat cattle will be allowed to go to “designated” packing plants in sealed trucks for a few months. Then if all is well, some feeder steers will be allowed to go to “designated” feedlots for a few months. These will be feedlots that can substantiate that all of the cattle leaving their lot go directly to the packing plants, not for resale to grasser people or other feedlots. Then maybe some spayed heifers will be allowed down to “designated” feedlots.
What I am saying is that if you have feeder cattle to sell it is wishful thinking that the border will open to them anytime soon. It may be too late but I am trying to word this carefully so that I don’t fall into that fool category.
There is something else that too many people did not figure into the equation. That is the rising Canadian dollar. I suggested it several times over the air during the fall run but it was largely ignored. Luckily, I have been married for twenty-seven years. I am used to being ignored.
The December 19/03 issue of the Canfax Weekly Summary mentioned, ” October and November prices converted to U.S. dollars were 12% and 19% higher than last year respectively”. That indicates to me that those 600-pound steer calves that we sold in November for $1.20, would have brought $1.43 if the dollar was the same this year as last year. If the border had been open would we have got more than that for them?
Unless there is a significant decline in the dollar exchange rate why panic about the border opening? If the Canadian dollar continues to get stronger, any perceived profits that we are waiting for may get eroded away before the border opens. It is sad but true that the cattle industry here in Canada receives prices denominated in U.S. dollars and pays expenses in Canadian dollars. Of course it wasn’t so sad when we had a sixty-two cent dollar.
What to do? Should we tear up the land and go grain farming? Grain farmers have been really hit with the rising dollar and the drought too. One farmer told me that his gross pay back was about a hundred dollars per acre. His inputs were about two hundred dollars per acre. He farms over five thousand acres. You do the math. They did not have a B.S.E. crisis in grain farming. I hope the C.A.I.S.P. program will help him. It should help the ranchers and feedlot operators too. I doubt if the program is perfect but at least it doesn’t distort the markets. Ask your accountant about it.
We don’t hear much about the grain farmers in the media this year. I have been around for a long time. This is the first time I can remember that the uproar from livestock sector has drowned out the depressed grain-farming sector. You can’t even hear them. It is like listening for crocus’ to bloom beside a 747 readying for take off.
Lets just move to acceptance and work our way through this mess. All of us with a little gray over our ears have seen tougher times. If we live long enough we will see them again.
Now do you want to hear what I was doing on May 20/03?
Roy Rutledge is a self-opinionated, semi-literate old cowboy who ranches north of Kayville, Saskatchewan on the road to Avonlea. His opinions are often asked for but not always appreciated and never paid for.