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Comment: Preparing for the death of NAFTA

After the rumble in Virginia last month it is tempting to rail on about the possible loss of the North American Free Trade Agreement (NAFTA). But to be honest I’m NAFTAed out. President Trump will do what he wants. If he wants to shut down NAFTA the U.S. auto and ag industries will suffer, as will ours, but the rural community in the U.S. will swallow it.

Trump has already neutered the Environmental Protection Agency, and gained a better deal for U.S. beef in China than Canada enjoys. His treasury department has eased up on estate taxes, and Trump has promised to repeal the death tax, downsize the tax code, and repeal the hated Waters of the United States rule.

In short Trump is their guy, so if he doesn’t listen to American agriculture on NAFTA, they will swallow the cost and make do — as will we.

If NAFTA falls it will almost certainly have some influence on your bottom line. So perhaps this would be a good time to look around and think about what you can do to make your place as efficient as it can be.

Along that line Canfax Research Services recently put out a fact sheet on ways to drive profitability in the cow-calf sector. Outside of 2014 and 2015 raising calves has been a tight-margin business. Even so surveys show as much as a $100 per cow spread in the cost of production between herds based mainly on their management.

When Canfax set out to learn the secrets of these top managers here’s what they found they had in common:

1. Good records and benchmarking. Production records track the age of the cow, inventories, reproductive efficiency, growth performance, pasture or feed usage, animal health, etc. Operational records track overhead, unpaid labour hours and so on, while financial reports track expenses, revenue, overall profitability and per unit cost of production by commodity.

The real value is found in the decisions you make based on your own history, by identifying the key factors that influence profit and keying on those.

The next step is to compare your operation to others by benchmarking to find better ways of doing things. In a University of Saskatchewan study those who benchmarked their herds gained 60 pounds per exposed female, which at $2.10 per pound added $12,600 to the books of a 100-cow herd.

Perhaps this is a good time to plug the second Western Canadian Cow-Calf Survey that benchmarks herds.

2. Manage your costs. Feed, as you already know, is the big one. From 2012 to 2016 feed accounted for 64 per cent of all costs in Western cow-calf herds. Low-cost producers tend to pay more attention to the feed/nutritional needs of various groups such as first calvers and mature cows. That makes the most efficient use of the feed, assuming you know what you are feeding. Forage testing allows you to match forage quality to needs of different groups.

3. Get the most from your labour. Labour efficiency varies wildly from one place to another. One study based on AgriProfit$ data found 26 per cent of the variation in profit in a cow-calf enterprise can be related to labour hours. International agri benchmark data found Canadian wages among the highest on beef farms around the world at $18-$30 per hour. So to be competitive you need to produce more beef per hour or use fewer hours to produce the same amount by increasing production or herd size.

Physical labour productivity in Canada ranged from 29 to 64 kg live weight per hour compared to 26 to 49 in the U.S. and 41 to 174 in Australia.

4. Review your marketing strategy. Using average calf prices from 2012 to 2016 at a 90 per cent calving rate there was a $3,000 difference in profit between 100-cow herds that sold at the annual top of the market versus the low. A marketing strategy identifies break-even prices for every group of cattle and encourages you to be disciplined is selling them depending on market trends, and the opportunity cost of holding them or selling them.

Another part of the strategy is to choose the market most suitable and profitable to your cattle, and then to produce the animals that fit that target, particularly when going after niche markets where the costs of meeting the specifications are generally higher.

Risk management tools should be part of a management strategy to protect your equity whether it be price insurance, futures, or forward contracting.

5. Reproductive efficiency has a major impact on cow-calf profits. AgriProfit$ 2011 data showed low-cost producers have higher conception rates (90.9% versus 88%), calving rates (98.3% versus 97.7%), weaning rates (97.3% versus 96.2%) and calf crop percentages (86.7% versus 82.5%) than their competitors.

One way to do that is to assess the productivity of your cows going into winter by body condition scoring. In the cow-calf survey of 2014 only 19 per cent of producers scored their cows for body fat.

Up to 46 per cent of cows in Western Canada may be copper deficient, so a year-round mineral program is one way to improve reproductive efficiency.

Using records to cull defective, low-producing cows, paying particular attention to the growth and breeding of first-calf heifers and selecting bulls for traits like material characteristics and calving ease that drive profitability are all good ways to raise the reproductive rates of your herd.

Add a strong vaccination program and animal health plan which includes parasite control and you have most of the major points identified in the Canfax top gun survey.

None of this is new, or surprising, but it never hurts to be reminded that most herds can be made more efficient.

It’s something you can do that may just ensure that you survive the death of NAFTA, should it ever happen.

About the author

Editor

Gren Winslow is editor of Canadian Cattlemen.

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