The prosperity gap between grain farmers and cow-calf producers has widened considerably over the past year. Gradually, more cattle producers are selling off their cows. Land at all suitable for annual crop production is being taken out of hay and pasture.
The price for everything continues to increase – machinery, fertilizer, diesel, fencing supplies and labour. In the grain sector, those cost increases hurt, but they have been offset by a huge increase in cereal, oilseed, pulse and specialty crop values.
The situation is different in the beef sector. Calf prices have not seen any major appreciation. Profit margins already slim have evaporated. Producers scrounged feed last summer and fall in the most widespread prairie drought in decades. Some also bought expensive U.S. corn to help bridge their feed supply gap.
Another strategy was the purchase of processors to make low quality feed more palatable. Overall, it’s been an admirable job of maintaining the beef breeding herd in the face of adversity. The massive sell-off many expected last summer never materialized.
Beef producers are hardy and resilient and for the most part love what they do. Over time, however, the tough economics is taking a toll.
Producers that own or lease land that can only be harvested through the mouth of a cow don’t feel the pinch as badly as those more reliant on tame hay and green feed. On land that can be used for annual crops, growing feed for your cattle comes with a large opportunity cost.
On any ground that will grow a crop, the most common cash rent is somewhere between $40 and $80 an acre. So, a cattle producer can seed and harvest a green feed crop for overwintering cows to perhaps break even or perhaps lose money or that producer can rent the land for a guaranteed return without any work or stress.
Statistics show beef producers on average earn less money than the other sectors of agriculture and they are more likely to rely on off-farm income to make ends meet. Cost of production analysis over many years shows that when all production costs are included, in a good year a cow-calf producer might make $150 per cow, but there are also years of red ink.
If you have 300 cows and you’re an astute, low-cost efficient producer making $100 per cow, that’s a whopping profit of $30,000. It isn’t much of a return on labour, management and investment.
Prices may change by the fall calf run, but 550 weight steers are currently selling for about $2.30 a pound with heifers of that weight around $2.05. Assuming an equal mix of steers and heifers for sale, a cow-calf operation needs to sell over 400 calves to gross $500,000.
Let’s compare that to a grain producer growing canola and wheat. Let’s assume an average yield of only 30 bushels an acre on both crops. New crop prices look to be at least $23 a bushel on canola and $14 a bushel on wheat. To gross $500,000, that grain farm needs only 900 acres.
Raising 400 calves to sell in the fall is a hell of a lot of work and worry. A grain farm of 900 acres is a much smaller commitment. As well, the grain farm probably has a much larger net profit.
This sort of simple arithmetic shows the economic difficulty of using grain land to feed cattle. Many cow-calf producers are fighting an uphill battle.