Source: Saskatchewan Agriculture and Food
As agricultural producers weigh the issues surrounding their quest for prosperity, a number of them have been calling Saskatchewan Agriculture and Food (SAF) Livestock Development Specialist Bill Kowalenko in Outlook to ask him some pretty tough questions.
“Returns from grain crops over the past number of years have not been sufficient to cover the cost of production," explains Kowalenko. "Cattle producers have fared somewhat better, now that the BSE issue has become more settled. Markets are opening. Things are looking up, and they are wondering if more can be done.”
“Keep in mind the fact that cattle producers had to change the way they marketed cattle during the time the border was closed,” he says.
Many cattle producers found that the market was more selective. Some calves would bring good returns, while others were being discounted, particularly during the usual fall market run.
“Many producers opted to keep their lighter calves and background feed them until the market offered higher prices for the grown-out calves. We also saw that more cattle were finished in our province during this time. Several producers indicated that they were able to feed those cattle, either as backgrounded or finished cattle, and make a profit doing it," he says.
Kowalenko says he and his colleagues are being approached by producers who are considering seeding their cultivated land to forage crops to provide grazing for beef cattle.
“Some are looking to increase their cow herds; some are new entrants looking to invest in a cattle operation, while others are looking at either providing a custom grazing service or grassing their own cattle.”
Before embarking on any new venture, it is important to do a thorough and detailed analysis to see if it is a viable option, warns Kowalenko.
“The first step in changing a farm operation ought to be to develop a comprehensive business plan," he says. "If a feedlot or other cattle feeding operation is planned for the business, it is important to develop a formal, written plan. It should include a description of the feeding operation, the major operation—either backgrounding or finishing—and its size, and it should include the results of a SWOT analysis—strengths, weaknesses, opportunities and threats—of the current enterprise.”
The business plan should include an operational plan, a financial plan, a human resources plan and a marketing plan.
“Assuming that an operator has determined he has the skills and appropriate financing in place to undertake some form of cattle feeding operation, the next most important aspect is marketing," says Kowalenko. "Marketing involves making decisions about where to sell, when to sell and what type of product to sell. Additionally, the purchase price of the cattle and the cost to feed the cattle need to be known and incorporated into the calculations to make an appropriate feeding decision.”
Before any cattle are purchased, Kowalenko recommends a breakeven analysis that would evaluate the purchase and sell decisions, compare different marketing options and reflect the current state of the market and projected market prices.
Another major factor is the cost of livestock feed. Will the feed be grown on the farm or will it be brought in? It is important to use realistic and accurate costs in establishing the cost per pound of feed used to background or finish the cattle. Yardage and a daily cost per head also need to be calculated and established.
“Yardage is the cost of the facilities and equipment," explains Kowalenko, "as well as those other costs such as electricity, natural gas, propane or heating fuel, equipment fuel, repairs on facilities and equipment, corral cleaning, hired and operator labour, insurance and interest. Veterinary and medical cost can be included or may be charged out as a separate item.”
Next, he says, a producer needs to carry out a projected breakeven analysis. This assists in estimating the profit potential and is used to calculate anticipated net returns to the feeding operation. This analysis only accounts for variable costs, and is used along with price projections.
Before a final price for those finished cattle can be projected, another adjustment needs to be made for the basis.
“The basis is the difference between the local cash price and the nearby futures price," he explains. "Basis risk refers to how closely the cash price and futures price track. Canadian cattle basis fluctuates more widely than U.S. cattle basis. The basis spread does not stay constant, and can fluctuate higher or lower during different times of the year. Knowing how to determine this finished market pricing will enable one to evaluate buying decisions that will indicate if there is potential to break even, make a profit or incur a loss.”
For more information, contact:
Bill Kowalenko
Livestock Development Specialist
Saskatchewan Agriculture and Food
(306) 867-5559
As agricultural producers weigh the issues surrounding their quest for prosperity, a number of them have been calling Saskatchewan Agriculture and Food (SAF) Livestock Development Specialist Bill Kowalenko in Outlook to ask him some pretty tough questions.
“Returns from grain crops over the past number of years have not been sufficient to cover the cost of production," explains Kowalenko. "Cattle producers have fared somewhat better, now that the BSE issue has become more settled. Markets are opening. Things are looking up, and they are wondering if more can be done.”
“Keep in mind the fact that cattle producers had to change the way they marketed cattle during the time the border was closed,” he says.
Many cattle producers found that the market was more selective. Some calves would bring good returns, while others were being discounted, particularly during the usual fall market run.
“Many producers opted to keep their lighter calves and background feed them until the market offered higher prices for the grown-out calves. We also saw that more cattle were finished in our province during this time. Several producers indicated that they were able to feed those cattle, either as backgrounded or finished cattle, and make a profit doing it," he says.
Kowalenko says he and his colleagues are being approached by producers who are considering seeding their cultivated land to forage crops to provide grazing for beef cattle.
“Some are looking to increase their cow herds; some are new entrants looking to invest in a cattle operation, while others are looking at either providing a custom grazing service or grassing their own cattle.”
Before embarking on any new venture, it is important to do a thorough and detailed analysis to see if it is a viable option, warns Kowalenko.
“The first step in changing a farm operation ought to be to develop a comprehensive business plan," he says. "If a feedlot or other cattle feeding operation is planned for the business, it is important to develop a formal, written plan. It should include a description of the feeding operation, the major operation—either backgrounding or finishing—and its size, and it should include the results of a SWOT analysis—strengths, weaknesses, opportunities and threats—of the current enterprise.”
The business plan should include an operational plan, a financial plan, a human resources plan and a marketing plan.
“Assuming that an operator has determined he has the skills and appropriate financing in place to undertake some form of cattle feeding operation, the next most important aspect is marketing," says Kowalenko. "Marketing involves making decisions about where to sell, when to sell and what type of product to sell. Additionally, the purchase price of the cattle and the cost to feed the cattle need to be known and incorporated into the calculations to make an appropriate feeding decision.”
Before any cattle are purchased, Kowalenko recommends a breakeven analysis that would evaluate the purchase and sell decisions, compare different marketing options and reflect the current state of the market and projected market prices.
Another major factor is the cost of livestock feed. Will the feed be grown on the farm or will it be brought in? It is important to use realistic and accurate costs in establishing the cost per pound of feed used to background or finish the cattle. Yardage and a daily cost per head also need to be calculated and established.
“Yardage is the cost of the facilities and equipment," explains Kowalenko, "as well as those other costs such as electricity, natural gas, propane or heating fuel, equipment fuel, repairs on facilities and equipment, corral cleaning, hired and operator labour, insurance and interest. Veterinary and medical cost can be included or may be charged out as a separate item.”
Next, he says, a producer needs to carry out a projected breakeven analysis. This assists in estimating the profit potential and is used to calculate anticipated net returns to the feeding operation. This analysis only accounts for variable costs, and is used along with price projections.
Before a final price for those finished cattle can be projected, another adjustment needs to be made for the basis.
“The basis is the difference between the local cash price and the nearby futures price," he explains. "Basis risk refers to how closely the cash price and futures price track. Canadian cattle basis fluctuates more widely than U.S. cattle basis. The basis spread does not stay constant, and can fluctuate higher or lower during different times of the year. Knowing how to determine this finished market pricing will enable one to evaluate buying decisions that will indicate if there is potential to break even, make a profit or incur a loss.”
For more information, contact:
Bill Kowalenko
Livestock Development Specialist
Saskatchewan Agriculture and Food
(306) 867-5559
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