Ranches Only Newsletter
JANUARY 2008
Food No Longer Cheap
Food prices, of late, have risen so sharply in Russia and Venzuala that the countries have imposed price controls. These were political moves to get people elected, and, they got elected. Mexico had riots because of the high price of Tortillas.
The world price of wheat rose from $200. Per tonne in May to $400 per tonne in September. Corn reached a high of $175. per tonne, a new record high. A magazine called "The Economist" tracks the food price index and report it is the highest ever since they starting tracking it in 1845.
High food prices are usually caused by crop failures in major feed grain producing countries, but, that is not the case this time. Record prices are being achieved at a time of abundance. The "International Grains Council" reports that this years total cereals crops will be 1.66 billion tonne – 89 million tonne higher than last years. This is the biggest grain harvest the world has ever seen, and yet prices have risen at an alarming rate.
What Then is Causing this Rise?
Two things
The increasing wealth of China and India. There is a population increase where it had previously stable for years and the increasing wealth in these countries has made hundreds of millions of people capable of affording meat. The Chinese consumer in 1985 ate 20 KG of meat and that has now risen to 50 KG.
The Rapid Demand for Feed Grains for Ethanol. American farmers have increased their corn production this year by 25% - taking land out of production of wheat and soybeans. Even during this time stockpiles of all cereals was drecreased by 53 million tons. In 2000, 15 million tonnes of corn went to Ethanol production – this year 85 million tonnes. Political support for the American Ethanol subsidies (1.90 per gallon) seems stable amid America's fuel appetite.
It is likely that the program in the U.S. where farmers are being paid to leave ground idle will be suspended and the land put back into production. Europe has already suspended it's "Set Aside Policy".
For the Future:
Global warming could cut world farm output by one-sixth by the year 2020.
High oil prices can depress the use of oil based fertilizers.
How Does This Affect Us:
Obviously the rising grain price has driven down the price of cattle because of the cost of gain is higher than the feedlot can afford and still sell their beef at world market levels. Eventually doesn't the increase meat demand have to reflect in higher beef prices to the producer? How far away can it be?
Once the industry adjusts there should be more value given in weight gains created by grazing wild grasses instead of grain fed weight gains. Should we find the price of 900 lb steers rise in value to the feedlot instead of 550 lb steers? How long will the market take to adjust? I think we will find the rancher will get more value from his range, may run fewer head for longer, and profit by selling the feedlot more "short stay" cattle.
Ranchesonly Team News – Growing Again!
Looking forwarded into this New Year, we can expect another busy "ranching real estate" year. Once again, we added to our sales force on the Ranchesonly team. We welcome Charlie McClary with RE/MAX Bulkley Valley to our team. Charlie lives and works in the Smithers area and focuses on ranches and some commerical real estate.
Looking forward to seeing everyone at the 2008 Cowboy Festival in March. Please drop by and say "hello". We are located in the same place as last year – look for the Ranchesonly banner.
J. Barrie Cline, Ranch Sales
MARCH 2007
We all seem quite aware that the reason that cattle prices are low is because barley and other feed grain prices are high - Had lunch with John McCurrach of Purity Feeds to find out why. Barley, one year ago at $1.60 to $1.80 a bushel, now brings $3.20 to $3.60. We know that grains are being used to produce to ethanol plants, but, barley is not their favorite. It is affecting the prices but, an even bigger reason for the barley shortage is the fact that Australia, after a 10 year drought, has been using its barley locally. While they were the major supplier of barley to the Pacific Rim, those users have shown up in Canada buying barley.
Let's take a look at ethanol. Knowledgeable people, on more than one occasion, have expressed concern that producing ethanol, the way we do it, creates so much greenhouse gas that they wonder if it helps the environment at all. While environmentalists are quick to jump on the ethanol band wagon, when they have full knowledge they may revise their position. Sugar cane ethanol can be produced at 10% of the cost, and, significantly more environmentally friendly than corn and the other products we use. Brazil has been using it for 30 years, but because of trade sanctions placed by the U.S., has not been allowed to export it.
While ethanol production still needs technical advances in North America, there is no doubt that any protein food stuff is going up in value.
Have you ever noticed how some people always seem to make money even in a diminishing market with numbers that theoretically don't work? I have concluded they are gifted business people that think ahead, and, do whatever is necessary to find their way to profit. One of these guys made a move the other day. He concluded that a premium will be paid for 800-900 lb calves (yearlings). His rationale is that the feedlots won't want to use feed grains to put weight on calves from 500- 800 lbs., wild forage is the most economical weight gain, and our ranges are about to be even a larger contributor to the viability of our ranches. This rancher has a ranch long on hay and short on grass. He bought a ranch long on grass, short on hay. He will endeavor to sell larger calves or yearlings.
In a world of uncertainty of one thing we can be sure: protein of any source is about to take a huge jump in value.
Farm Rollovers. On this topic, I am not an expert but have been consulted recently and was shocked by the enormity of the problem. Recently a rancher in his seventies called, he had pnuemonia and wanted the son to takeover the ranch. It was about 2 weeks to calving season, and, he wanted it done by calving.
Through this it become apparent to me the enormity of the task. I contacted FCC and was directed to their website www.fcc.ca. You can then find your way to their section on estate planning. The Kelown office, 1-800-387-3232 looks after the interior. They can help with estate planning and many other farm management strategies. If I was ranching today, I would certainly be in touch. They have so much to offer, and so inexpensive.
J. Barrie Cline
Re/Max Barrie Cline