Your Reading List

The End Of Cheap Feed And Why It’s Good To Own Land

First off, my wife Pat and I want to wish you a happy and prosperous new year. As I hear fromGrainews readers around the country, 2010 was “one of the best” or “one of the worst” in living memory.

It was one of the best in the area around Lloydminster and west where crops were great and quality was not perfect but still worth something. The good crop sort of helped to make up for the drought years. The area around Saskatchewan’s Regina and Yorkton and Manitoba’s Interlake was one of the worst. The same story east of Winnipeg. This was the third year of ruts and being stuck for some farmers.

New stiff regulations in Manitoba have caused many hog producers to shut down and many cattle herds have been sold off as producers either got tired of losing money or cows were back to $1,000 each and worth selling.

For the hog industry, this is sad. Many jobs have been lost, much money has gone down the tube and much long-term effort on the part of farmers and industry has been destroyed. Most of the regulation has been done in the name of cutting so-called pollution into lakes north of Winnipeg. I personally think most of the pollution was not caused by farmers, but you are taking the fall for the “team” so to speak. The team being voters who live along the lakes and environmentalists who did not like hog barns.

COMPARATIVE ADVANTAGE

For the cattle business, I wrote some time last winter that the areas and producers who have a comparative advantage are the ones who should keep beef herds. I didn’t go to the Grazing School in Brandon in early December, but I know Doug Wray spoke there and I visited with him when he was kind enough to pick me up in Calgary and put me up for the night before I spoke in High River. Doug now has a system where his cows graze pretty well most of the year. He gives them a helping of hay when they need it but mostly those cows eat feed he did not have to put up mechanically. That sure cuts costs.

I was at his place in late February and his 200-plus cows seemed quite content out there eating swaths. Nearly year-round grazing lets him share equipment which cuts costs and work.

Doug also lets some forages go to seed every few years, and then lets the cows graze the field. They chew off the seeds which travel through the cow’s stomachs and come out the other end. The seed ends up on the ground in a nice warm puddle of poop which offers a good starting spot for new plants. Back in my extension days we often talked and wrote about how cattle producers can and do mix some forage seed like bird’s-foot trefoil with loose salt and minerals and again cows seed the pastures as they walk around.

Another area that has had a comparative advantage for years is the Boyd Anderson country — southern Saskatchewan and southern Alberta. From what cattle producers tell me if they feed six weeks a year they feel they are being generous. Mostly cows eat what they can findl

The cattle business looks like it might finally be back to where it might at least encourage a cattle producer to get up in the morning even if the profits aren’t huge. I know a lot of older producers who figured their cow herd was their retirement plan and now that cows are selling for $1,000 or so each maybe there’s hope. I’m quite sure a lot of herds have left the farm. But then I know more and more producers are heading for 400 cows which looks like it might be a critical mass size.

I do wonder what you and other readers would say if I had written for the last seven years that my stocks lost money, like the cattle business has. I do wonder.

THE CHINA INFLUENCE

Anyone who heard me speak across Western Canada the past few years has heard me say that the China influence will raise grain prices. And it has. Add in biodiesel and ethanol and you have three new markets for crops grown in North America. To a large extent this is a one-way street that will not reverse until nuclear energy is used almost everywhere. And that is years away.

If I recall my numbers correctly, take 400 million families in China, which has 1.3 billion people. If they eat just the equivalent of one loaf of bread per week, they will need 12 million tonnes of wheat. Wheat used to be cheap; now it will not be cheap. Add in demand for protein, such as soybeans, and up goes the price. Likewise for canola.

So many things have changed in the crops/livestock department. Sometimes change is an improvement, but not always.

Generally, all this means that the guys and gals who can grow a decent crop at a decent cost likely can look forward to better times. But any hog or beef producer who raised animals for an industry based on cheap grain likely is going to hurt. We all know that the end users, the finishers will still need some grain to put some marbling in steaks. But they will be using waste from ethanol plants to replace ordinary grain. Research proves this. Grain is going to be too expensive to shove into a steer.

Mind you, the cull cows held over from BSE are gone. And the cattle herd across North America has shrunk so there will be fewer and fewer cull cows in the years ahead. That is the good news for the folks who survived seven years of poor cattle prices. You might finally get paid a decent price for your calves.

Still cheap grain for the past 30 years or so moved the cattle industry towards using more grain in a ration. That likely is over. Now the industry has to adjust to expensive grain which in many cases means a lot less grain in the overall ration of a steer.

Plus, costs are going up. The critical mass of cattle herds will be more important than ever. My guess is that some cattle producers will head to 400 cows. Before BSE, a 100-head cow herd with little debt was a great business. Not anymore. Still cattle lovers could manage with 50 cows and a job. But then one reader said, “Hey, there are lots of good paying jobs out there in Western Canada. Why would anyone want to keep 50 cows?” My answer is that it would still let a person qualify as a farmer for tax purposes and that can be worth a lot. And some people just love cows.

NEW FUNDAMENTALS ARE HERE TO STAY

Is the China influence reversible? I don’t think so. Odds are feed grains will be fairly expensive. Off-setting that I think the cow herd could shrink so much in Canada that we might just end up having no beef to export.

The middle class in China will grow and grow and anytime soon time there will be more people in the middle class in China than there are Americans altogether. Those millions of new buyers will put a lot of upward pressure on meat prices, some grains, copper, iron ore, coal and of course, silver and gold.

My investment strategy for the past two years has been to own stocks that sell stuff to China and I learned to sell covered calls on those stocks to bring in significant cash whether stocks go up or not. This China effect may slow down for iron ore and copper and coal but I doubt it will slow down for silver and gold.

I think the price of farmland is going to go up and up. I hear Chinese money is buying farmland in Africa and Africans are buying farmland in Canada. So any farmer who plans to retire might be wise to own some land at least land that is grandfathered for capital gain.

Big-time investor Jimmy Rogers was quoted some time ago to say that agriculture was the industry to be in for the next few decades. I think the article suggested farmers would be driving the BMWs. But then I heard that for years farmers in France drove Mercedes while doctors drove Chevys.

Mind you, at the price of some half ton trucks maybe we are already there. About time farmers were at or near the top of the economic heap. Although with the cost and irreversible risk farmers face I think many don’t feel like they are at the top of the economic heap.

In the next issue ofGrainews,I will report how our stocks have done the past few years, my goof ups and what worked well.

Andyismostlyretired.Hewritesfrom Winnipegaboutwhathedoeswithhisstocks. Healsopublishesanewsletterwherehetells whathedoesadayortwoafterhedoesit. Andy’smethodologyincludesararestrategy calledsellingcoveredcallsonstockwhere hecanbringincashflowonhisstocksmonth aftermonth.Andcollectthedividendstoo. Ifyouwanttoreaditfreeforamonthgoto Googleandtypein StocksTalk.net, gotofree month,filloutafewlinesandsubmit.

About the author

Freelance Writer

Andy was a former Grainews editor and long-time Grainews columnist. He passed away in February 2017.

Andy Sirski's recent articles

Comments

explore

Stories from our other publications