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Ethanol could make BSE look like a cake walk

"There's a tremendous amount of opportunity in the beef industry right now. Maybe what we need is a little broader perspective. . . Maybe the Arabs have it right.
Brenda Schoepp, Market Sstrategist and owner and publisher of the weekly BEEFLINK newsletter, addressed cattle producers Feb. 8 in Arcola.

"There's a tremendous amount of opportunity in the beef industry right now. Maybe what we need is a little broader perspective. . . Maybe the Arabs have it right. There's a massive land grab as governments around the world hit the panic button and try to solve the food security question as our global population is supposed to hit nine billion by 2020. Globally, we're depleting agricultural resources, and over all beef production in the world has gone down six per cent; remember, the political instability in Egypt started with a food riot."

Brenda Schoepp, Market Strategist and owner and publisher of the weekly BEEFLINK newsletter, startled a semi-somnolent crowd at Moose Mountain Ag Day February 8 into wakefulness with her opening statement.

Schoepp proposed that to meet the needs of nine billion people in less than ten years, the global population will require "40 per cent more food, and 50 per cent more oil."

What does this have to do with the price of calves in Saskatchewan?

The answer, according to Schoepp, is two-fold. Firstly, a clear understanding of where the beef market is headed will better help individual producers try to ensure they will still be a part of it in the years to come. Secondly, grasping how the price of beef is tied to the price of corn might better help you decide when and what to sell.

"Understanding trends-consumer trends-helps us determine how to handle our cattle here," continued Schoepp.

Schoepp said that according to recent surveys, all of the conflicting marketing strategies in the beef market had resulted in one thing; confusion.

"Thirty years ago the cow-calf industry held 35 per cent of the beef dollar. Today it holds six per cent. What went wrong?" Scheopp asked.

"The original purpose of the cow was that she would be a low-cost, low-input harvester of tract land and trash. Today, she is a high-cost, high-input occupant of expensive land. That's what's wrong with the cow-calf industry. Your only opportunity lies in production efficiency. The cow-calf industry has tried to serve too many masters; the auction mart, the packer, the consumer . . .There are times, and this is one of those historical moments, when you are in the driver's seat."

"93% of women buying beef say they're confused," by labelling in the supermarket, Schoepp continued.

"It's boiled down to one clear message from the consumer," Schoepp said. "Give it to me hormone free. The rest I don't understand."

As the relationship between packers and retailers becomes ever more intimate, Schoepp warned those gathered to expect "more and more dictation from the retail market."

Americans traditionally eat more beef than Canadians. Continuing economic instability in that country has led to weird consumer trends, with sudden surges and ebbs in the demand for beef. Schoepp described the trend; "I got paid today, so I'm going to celebrate with steak and a bottle of wine . . . then we'll slum it on grind for the next two weeks."

What complicates matters further for Canadian beef producers (cow-calf guys, feeders, and packers) is that our dollar is tied to the weakened US economy, and to oil.

"As oil gathers speed, so will the Canadian dollar," predicted Schoepp.

"That doesn't make us a very sexy trading partner."

So why are prices so hot?

It's not supply and demand, said Schoepp.

Demand for chicken continues to rise, while the demand for beef in the US is at the same level it was in 1955, and demand in Canada equal to that of 1960.

Although there has been plenty of talk the past few years of an "inventory shortage" in the beef industry, that doesn't actually translate into a supply shortage. It actually means there's an increase in supply, as heifers and cull cows go under the gun. There's no herd retention, and as ranchers cull their herds with increasing ruthlessness, the packers are seeing plenty of four- and six-year-old cows that would have stayed in the herd in easier times.

Of course, international food inflation plays a role in pricing, as does the weather; for the first time in a long time, Australia is unable to meet export demand. However, it's interesting to note that although Canada produces more beef than our country can consume, American beef exports into Canada rose 25 per cent last year.

We ask ourselves again; Why are the prices so hot?

According to Schoepp, it has a lot to do with a turf war.

Never before in the history of the Canadian beef industry, Schoepp explained, have packers been so intimate with retailers. And now, she said, "the two big boys are duking it out. There's only the two of them left, really, and they're each trying to establish territory and commitment. They're trying to break each other."

Since a reliable supply of product is of primary concern to the retailer, it's become of primary concern to the packers. And although there is currently a surplus of beef on the market, with all of the heifers and cows going to slaughter we all know that surplus won't last forever, especially with the rise in global demand for food and fuel, and fewer acres globally dedicated to agriculture. The buyers are using today's laden table to bicker over tomorrow's scraps.

"The entire risk in the Canadian beef industry today is the loss of a packer," Schoepp explained to the silent crowd. "If we lose a packer it will make a significant difference to the western beef industry. It could kill the market; if the Ontario packer goes down, it would wipe out Quebec and the Maritimes. It would wipe them out."

"The one thing we have to watch on the market is corn," Schoepp continued.

"Argentina has produced its lowest corn crop in history. 18 per cent of the world's grain area is in drought," never mind the areas in flood.

"We're going to see ten dollar corn. And ten dollar corn means six dollar barley. Barley acreage has been on the decline in Canada for 20 years. These grain prices are going to pressure decisions in the cattle industry," Schoepp pronounced.

"What feeds the packers?" Schoepp asked rhetorically of those gathered. "Feedlots. And as grain prices go up, margins narrow. Ethanol, at the end of the day, could make BSE look like a cake walk."

In 2001, five percent of corn grown went to producing ethanol. In 2011, 40 percent of corn grown is dedicated to ethanol.

"It's going to boil down to this," Schoepp stated. "Who eats first? You? Your cattle? Or your car?"

A partner in an Albertan feedlot herself, Schoepp's voice had a ring of pride when she said, "The feeding industry doesn't give up easy. It's got more brass than a band-if they believe there's a market."

Finally, with a smile and a shrug, Schoepp turned her back on the Arabs and Obama's ethanol policy, and applied her 'broad perspective' to the problem eating away at most of the cattle producers in the room; what to sell when?

"Feeder cattle," she announced with a hand clap. "Sell now. Don't get caught up in the idea that this feeder price is going to keep going up. It can't. It can't because of the price of corn, it can't because of the Canadian dollar, and it can't because of the loss that's already built into the price of cattle; you can't own your way out of a production loss.

"Where are yearlings going to be in the fall? Well, if I knew that, I'd be God. But where do I think they'll be? Exactly where they are today. What do I think you'll get? No more than you'll get today. But my advice in the fall is always to hang on to your females.

"Sell your calves when your tummy tells you to sell. What if you miss the market? Well, what if you do? As long as you're comfortable with the margin, sell. . . We`re going to have a pile of beef to chew through in the beginning of 2011; there will be lots of ups and downs. There are going to be some really disappointing days. Don`t watch the price, watch the chart; cattle futures. Cattle futures have only crossed the one dollar line three times in the last thirty years until now; historically, they can`t hold it.

"Whenever calves are 65 per cent or greater than a finished steer, sell.

"Whenever feeders are 65 per cent or greater than a finished steer, sell.

"When cows are selling for $1,400 or $1,500, but calves are selling for $1,000, that's a sell market.

"What are we looking at for calves?" Schoepp grinned at the crowd.

"Well, I think they're going to be pretty hot. And I think we're going to start to see a retention of heifers.

"Hang on to your fall heifers if they're trailing," she advised

"Just last week fed heifers sold for two dollars more than fed steers. Don't give away your money makers."

Despite the mixed bag of tricks Schoepp had offered those gathered, she ended her presentation on a positive note-for Saskatchewan.

"Canada has the second largest reserve of oil in the world. Where is it? Saskatchewan. Potash? Saskatchewan. Water? Saskatchewan. Uranium? Again, Saskatchewan.

"We're going to be short of food and fuel. Most of our remaining agricultural land (globally) is depleted and nitrogen poor. People are looking for a magic pill. You have the magic pill; here, in Saskatchewan.

"In all honesty, if I had a dollar to spend, I'd spend it here, in Saskatchewan."

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