The bovine influenza A virus has infected one person so far but the risk to people and cattle seems low, says Brian Perillat, agribusiness specialist at Bullseye Feeds. However, it has introduced unwanted risk to a red-hot cattle market.

“Some of these people have bought very expensive calves anticipating much higher prices. And now there’s some question as to whether those high prices will actually be attained or not.”

The question is whether fears around bovine influenza will affect demand, Perillat adds. The old saying is that supply determines the price trend, but demand drives the magnitude of the price change, he says.

At these price levels, “mistakes or market shifts become that much more costly.”

Perillat says people buying calves should have a plan and know their break-evens. Though the markets have dropped, producers could still lock in a break-even on a grasser program using price insurance.

Some might have locked in profits but without knowing break-evens, it’s “pretty hard to build a risk management plan.”

Price insurance is similar to a put option, in that both protect the downside, says Perillat. Some people buy put options on feeder cattle futures directly from the Chicago Mercantile Exchange.

Puts have to be bought in 50,000-pound increments and can still be fairly costly. But they do provide flexibility because they can be sold during the feeding period as market or risk management strategies change.

Producers also have all the risk around the Canadian dollar and basis with puts, Perillat notes.

Feeders can sell yearlings immediately, if the risk exceeds their tolerance, and “rent the grass,” Perillat says. Or they can forward sell, although that means they’re locked into the market.

If people want to capitalize on rising markets, they can buy call options. They could also sell their calves and buy futures, although Perillat notes few people do that, and it’s not necessarily something he recommends.

“You’re just transferring the risk from the cattle ownership to a futures position,” he says, adding he hesitates to even bring it up. But it is a technical option for those who follow basis levels and understand the ins and outs of the market.

Those running yearlings don’t necessarily need to commit to one option, either, especially if they have big numbers. They can, for example, buy price insurance, forward sell some calves and buy a put option, or any other combination of those.

Cow-calf producers have fewer risk management options than most stockers or feedlots.

It’s a challenging time to forward-sell calves, but cow-calf producers could consider that, Perillat says.

Ideally, a producer would have an even, large group of similar calves to sell, or perhaps a neighbour with similar cattle to team up with and attract interest. However, if the market recovers, producers are locked in at the weaker price.

The good news is that cow-calf producers are still in a strong position. Though price insurance coverage has dropped due to bovine flu, cow-calf producers can still lock in a profit, Perillat says. He often suggests buying price insurance in small bites, 10 or 20 per cent at a time.

“You may not like this price today, this coverage. But if you have 20 per cent locked in and it does get worse, you at least have some locked in.”

If there is a market bump in the next month, producers can lock in more, at a better price. Put options can also work for cow-calf producers, he adds.

Perillat, former senior analyst and manager of Canfax, remains a big supporter of that organization, which provides “great market information.” It’s also helpful to follow the futures markets.

Don’t start hedging right away, he advises. Perillat recommends that producers initially follow the trend and see how it compares to the previous month, how much the futures move day to day and how they look in 2025 compared to today.

Given the stakes, some beef producers might consider hiring a cattle market advisor, Perillat says, or finding a peer group focused on marketing.

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Reg’s leadership and passion for our industry will be missed around the board table and at industry meetings and events. He cared about issues and worked hard for the betterment of our industry. His goal was to leave a vibrant industry for generations to come. His legacy and contributions will be felt for many years.

I chatted daily with Reg about CCA priorities and life on our home operations. I learned a lot from Reg, and his gentle demeanour and strong character are qualities that I admired. I never imagined that this is how I would become CCA president. But I share the same passion as Reg for our cattle industry and it is an honour for me to lead an organization with such a strong and rich history. It’s important to me and our entire board that we move forward on the important work that CCA undertakes on behalf of cattle producers across Canada. We will be a strong voice on the issues that matter the most. Our board members and staff are committed to making positive things happen for our industry.

As we move into 2023, there are bright spots for our industry. We are experiencing high calf prices and we have a strong trade position with exports of Canadian beef at record levels for the sixth year in a row. The challenge now is having enough beef to meet the demand. Simply put: the world needs more Canadian beef.

Last November saw the announcement of the Indo-Pacific Strategy, which is good news for the Canadian beef industry. It prioritizes trade and agriculture and includes key recommendations shared by CCA. The investment in minister-led trade missions will help facilitate long-term trade and investment opportunities, while the opening of an agricultural office in the region will help prevent and resolve non-tariff barriers proactively and quickly.

The Indo-Pacific region holds the greatest potential for market growth and diversification for our indus- try, with a growing middle class, GDP and food consumption. About 20 per cent of Canada’s beef exports are destined for the Indo-Pacific market, with the top five markets being Japan, mainland China, South Korea, Vietnam and Hong Kong. Diversifying our trade supports our producers’ futures. CCA continues to collaborate with the government in seeking new market opportunities for Canadian beef in the Indo-Pacific.

The release of the next federal budget is around the corner and with the winter session of Parliament set to resume on January 30, 2023, CCA will keep up advocacy efforts on our key budget recommendations which will help ensure growth and innovation in our sector.

These recommendations include:

Foot-and-mouth vaccine bank: The threat of foot-and-mouth disease (FMD) is serious and would have devastating consequences on the Canadian beef industry and our economy. FMD is a highly contagious viral infection of cloven-hoofed animals including cattle, pigs and sheep. Canada remains FMD-free, but as an industry, we cannot be complacent.

An investment by the Canadian government in a Canadian FMD vaccine bank is critical to preventing catastrophic losses to the sector and broader Canadian economy should FMD occur in our country. The projected annual cost to maintain the vaccine bank is $3.2 million-$4 million including potency and licensing testing. The potential impact of an FMD outbreak in Canada is estimated at $50 to $60 billion. Together, with our provincial counterparts across the country, we continue to call on the federal government to invest in this critical infrastructure.

Economic resilience: Cattle farmers and ranchers need tools to help mitigate market-driven and extreme weather risks. We have recommended two actions to help foster economic resilience in our sector: funding Livestock Price Insurance (LPI) and amending the livestock tax deferral (LTD) provision under the Income Tax Act.

LPI allows cattle producers to reduce market downside for their cattle, helping manage uncertainty and risk. This is especially important for our young cattle producers who haven’t yet built equity to access loans. With lending institutions recognizing this program, it puts young people in a better position to borrow the money they need to maintain and grow their operations. The program can also be enhanced through government partnerships on the cost-sharing of premiums. This would boost enrolment levels and establish program equity with other commodities and our American counterparts. Last, we are still pushing to make this program available to more producers across Canada.

We have seen our fair share of extreme weather in recent years. Being able to access the LTD provision gives producers in designated regions who sell part of their breeding herd due to extreme weather the ability to defer a portion of those proceeds to the following year. To increase the provision’s impact, CCA recommends that producers be allowed to self-elect rather than rely on a geographic determination. This would help producers make difficult decisions during urgent times of need. We are also requesting an amendment to the definition of “breeding animals,” cited in the act, so it includes all classes of cattle.

I wish you all the best for a healthy and successful year.

Nathan Phinney is president of the Canadian Cattle Association and ranches at Sackville, N.B.

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Saskatchewan Crop Insurance Corp. (SCIC), which administers the program in that province, announced Tuesday the WLPIP premium rebate is extended to Dec. 31, from its previous end date of Sept. 1.

The province in mid-May budgeted $5 million to help offset WLPIP premiums, which under COVID-19-related pressure rose from $15-$20 per head up to around $70 in mid-April, slipping in May to a still-high relatively “more reasonable” range.

“If the livestock market remains stable during this time, the premium rebate will not be offered,” SCIC said in the extension announcement.

The rebate plan set up by the province would provide rebates for up to 40 per cent of the increases in premiums above pre-COVID levels. The Saskatchewan Cattlemen’s Association put up an additional $1 million, for a further eight per cent offset.

Premium tables and rebate amounts are updated each Tuesday, Wednesday and Thursday on the SCIC website.

As of Wednesday (Sept. 2), however, SCIC’s tables for WLPIP-Fed and WLPIP-Feeder price insurance premiums had no rebate amounts listed.

WLPIP-Fed premiums for Sept. 2 ran from as low as 60 cents per hundredweight (cwt) for a 12-week coverage period (to Nov. 30, 2020) at an insured index of $100/cwt, to as high as $4.54/cwt for a 36-week coverage period (to May 17, 2021) at an insured index of $144/cwt.

Premiums for the same coverage on the WLPIP website were up slightly the following day (Sept. 3), at 61 cents/cwt and $4.58/cwt respectively.

The settlement index for the WLPIP-Fed product is based on the weekly Alberta fed cattle price, using Canfax data, while the WLPIP-Feeder index is based on the average price of an 850-lb. steer.

An expansion of an Alberta program set up in 2009, WLPIP launched across the four western provinces in 2014 to help producers manage price, currency and basis risk against market volatility.

A participating producer pays premiums for forward price coverage, and if the market price drops below the coverage price in the chosen time frame selected, the producer gets a payment. — Glacier FarmMedia Network

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During the Commons standing committee on agriculture and agri-food’s online meeting Wednesday, representatives of the Canadian Mushrooms Growers’ Association raised “grave concerns” over the support CMGA members have received.

CEO Ryan Koeslag explained how additional measures put in place by Ottawa to assist farmers are not reaching mushroom growers, citing the $50 million in funding made available to help support temporary foreign workers.

The federal government offered $1,500 per temporary foreign worker to help cover costs associated with putting measures in place to lower the risk of the virus among the employees.

“Not a penny has been received by our farms,” Koeslag said, telling MPs that workers on mushroom farms were already in Canada and therefore their employers were ineligible to qualify for the program, despite still having to spend money on additional housing and other measures to maintain social distancing and other pandemic mitigation efforts.

The federal government is unlikely to be purchasing food surpluses from mushroom growers, he added, because their production was not altered until week four of the pandemic and the program is only available to manage oversupply beginning in May.

Other programs, such as a fund to help ensure personal protective equipment is in place, are prioritizing other sectors — meat processors, for example — or have not yet been rolled out.

“We don’t care where our funds come from, but as of now nothing has been received and we are going to enter into a territory of too little, too late,” Koeslag said during his virtual testimony to the committee.

Mushroom farmers are implementing costly measures to mitigate the virus’ spread out of their own pockets, at a collective cost of $250,000 per week amongst the association’s 52 members, he said.

While exports to the U.S. have increased, Koeslag said that is unlikely to be long-lived.

He echoed complaints from other commodity groups that currently business risk management programs are ineffective.

‘Direct support’

The Saskatchewan Association of Rural Municipalities (SARM) filed a written submission to the committee outlining its thoughts on the government’s response to the pandemic.

“Further immediate measures are required for many agricultural producers to address cash flow issues and continue their operations,” SARM said. “The federal initiatives announced to date are a good start, but we are very disappointed more wasn’t provided to ensure immediate food sustainability by providing direct support to those producing our food.”

It also called for a more affordable livestock price insurance program, saying it is “critical” for new producers lacking the equity needed to borrow enough money.

SARM also called for changes to business risk management programs, particularly AgriStability, arguing it does not provide adequate support.

The organization called on the federal government to ensure the food supply chain remains operational.

“We would also encourage the federal government to focus efforts on developing federal health-based best practices specifically designed for the agriculture sector to use to prevent the spread of COVID-19 in their operations so they can continue to operate during a pandemic,” the submission read.

A need for broadband connectivity and the further exemptions from the carbon tax were also requested.

— D.C. Fraser reports for Glacier FarmMedia from Ottawa.

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The Prairies’ Crown ag insurance corporations announced Thursday that the deadline to buy WLPIP calf price insurance for 2020 has been extended to June 18.

The new deadline, reset from May 28, gives eligible cattle producers “an additional three weeks to monitor premiums and purchase calf price insurance policies,” Manitoba Agricultural Services Corp. (MASC) said in a notice.

However, Alberta’s Agriculture Financial Services Corp. (AFSC), in a separate release Thursday, noted the extension gives producers just nine extra purchasing days, as available coverage options are published only on Tuesdays, Wednesdays and Thursdays.

The extension only applies to this spring’s purchasing period, AFSC noted. All calf price insurance fall settlement dates remain the same.

Typically, the calf program insures calves born in the spring and sold in the fall; cow-calf producers buy price insurance from February to the end of May, for their intended marketings from September to December.

Available policy lengths range from 16 to 36 weeks, and for each policy length, a range of coverage levels is offered, typically from 75 to 95 per cent of the expected forward price, each corresponding with a premium.

Coverage levels and premiums change daily based on market factors including CME feeder cattle futures, currency exchange rates, barley prices, basis and feeder-to-calf price spread.

The deadline extension was granted “in response to the ever-changing circumstances surrounding the COVID-19 pandemic,” AFSC said Thursday.

The “initial reaction” to COVID-19 negatively impacted beef sales through its direct link to the food services industry, AFSC said, and the pandemic has since led to “increased volatility in cattle prices, due to fear of the unknown.”

The extended deadline “will allow cattle producers more time to evaluate and make decisions based on their risk tolerance and their operation,” interim AFSC CEO Jerry Bouma said in Thursday’s release.

“The market is moving in the right direction and should offer the affordability that producers depend on, and give them the opportunity to participate in the calf insurance program.” — Glacier FarmMedia Network

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The province on Thursday announced it will provide $5 million to “partially offset” WLPIP premiums, which it noted have risen “significantly” since the end of February this year on COVID-19-induced market uncertainty and volatility.

The province said it will cover 40 per cent of increased WLPIP premium costs dating back to Feb. 25. The premium adjustments will be in place until Sept. 1, 2020, “at which time the provincial government will review and reassess.”

The province also announced it would extend the 2020 deadline to buy WLPIP calf price insurance to June 18, from the previous deadline of May 28.

Saskatchewan Stock Growers Association president Bill Huber, in the province’s release, described WLPIP as “a valuable tool to help producers manage risk, particularly as we navigate market volatility due to COVID-19,” but the province’s announcements “will help make premiums more affordable and allow additional time to enroll in the program.”

An expansion of an Alberta program set up in 2009, WLPIP launched across the four western provinces in 2014 to help producers manage price, currency and basis risk against market volatility. A producer pays premiums for forward price coverage, and if the market price drops below the coverage price in the chosen time frame selected, the producer gets a payment.

However, COVID-19-related pressures have pushed WLPIP premiums to the point where coverage that previously cost $15-$20 per head ran about $70 in mid-April, the Canadian Cattlemen’s Association said at the time.

Premium prices earlier this month were noted to have slipped into a still-high but relatively “more reasonable” range.

The Saskatchewan government said Thursday it “continues to encourage the federal government to support the sector by contributing the remaining 60 per cent of the increase in premium costs.”

Set-aside funding

The Saskatchewan government on Thursday also announced a separate $5 million contribution covering its 40 per cent share of the federal government’s previously announced AgriRecovery plan for new livestock set-asides.

Under the set-aside program — which in Saskatchewan will be delivered by Saskatchewan Crop Insurance Corp. — this means the province’s eligible livestock producers will be able to access up to $12.5 million in total.

“Participation in the AgriRecovery set-aside program will compensate producers for the cost of temporarily holding cattle back from market until supply more evenly matches demand and processing capacity,” provincial Agriculture Minister David Marit said in Thursday’s release.

From Saskatchewan, about 3,500 fed cattle per week would typically be shipped to packing plants in Alberta at this time of year, the province said Thursday. In recent weeks, though, that number has dropped to fewer than 400.

“It is already costing the cattle industry $400,000 per day to feed cattle that normally would have been processed by now, and that number is growing every day as more animals go unprocessed,” SSGA’s Huber said in a separate release.

SSGA members, he said, “are concerned because negative margins in the feeding sector and a backlog of cattle will wreak havoc with calf prices in the fall.”

The province said Thursday it will work with industry, the federal government and “other western provinces” on details for the set-aside plan.

Saskatchewan Cattlemen’s Association chair Arnold Balicki on Thursday also hailed the province’s announcements, which together he said “will help with the backlog and make it more affordable for producers to participate in price insurance, injecting some certainty into the coming months.” — Glacier FarmMedia Network

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“We’re having unprecedented volatility for markets. Having tools in place for farmers and ranchers has never been more important,” executive vice-president Dennis Laycraft said during a telephone town hall Thursday.

Premiums for the insurance program, which used to cost $15-$20 per head, are now about $70, CCA officials said.

“Some of our risk management tools that we have historically used, such as price insurance, have become too expensive to use,” said Fawn Jackson, director of government and international relations. “High premiums have been caused by market volatility. We’re essentially seeing stalled participation in the program when it is really needed most.”

The CCA wants Ottawa to pay for part of the premium.

“We think that’s an example that can be adapted to COVID-19 times,” Jackson said. “Addressing these unaffordable premiums would balance the risk management uptake in the beef sector and get some confidence in the market, when large numbers of backgrounding cattle are coming to market this spring.”

Eastern Canada is still operating without a price insurance program and CCA would like to see one developed there quickly.

The association also wants a set-aside program for both Eastern and Western Canada, similar to one used during the BSE crisis, in case there is a major disruption such as a packing plant closure.

Such a program would match the number of cattle coming to market to processing capacity. Government would provide financial assistance for the cost of feeding cattle held back from the market.

The CCA also wants several changes to AgriStability, including removing the $3 million cap on payouts and removing reference margin limits.

Uncertainty in markets and short-term interruptions could last well into 2021, Laycraft said.

— Alexis Kienlen reports for Alberta Farmer from Edmonton.

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At the time of writing this article, steers averaging 1,000 pounds were readily trading from $163 to $165 across the prairies while 950-pounders were quoted from $168 to $172. The market has dropped about $10 to $15 from earlier in February. This has occurred for two main reasons. First, I mentioned in the previous articles that barley stocks at the end of the 2017-18 crop year will drop to historically low levels. We’ve also seen imported corn prices percolate higher due to the drought in Argentina, the weaker Canadian dollar, along with the tightening of the U.S. corn fundamental structure. Export basis levels out of the U.S. are at historically high levels despite the rising corn futures. It’s not only the rising feed grain prices; grain merchants have struggled to deliver on time due to adverse weather and rail delays.

Second, the USDA made some serious changes on their March WASDE report. First-quarter beef production was decreased by 90 million pounds from their February estimate. Beef production during March is coming in below earlier projections which is keeping the nearby basis level rather strong. Looking toward the second quarter, the USDA increased production by 50 million pounds from their February estimate. It now looks like second-quarter beef production has potential to experience a year-over-year increase of 800 million pounds. This has caused the June and August live cattle futures to trade lower in an effort to encourage demand.

During the fall of 2017, feeder cattle prices were quite strong due to the healthy margin structure throughout the previous year. Feedlots had higher income levels which caused the feeder market to trade abnormally high. It now looks like the calves bought last fall will be under water when marketed as fed cattle in the summer. Therefore, feedlots are buying feeder cattle based on the current value of the August live cattle futures.

The lighter calves are contending with a totally different market fundamental structure. The official data from the USDA shows that feeder cattle outside feedlots as of January 1, 2018, were 26.105 million head, down 2.27 per cent from 26.552 million head last year. Despite the year-over-year increase in the calf crops the past two years, available feeder cattle supplies for January through June will be down from last year. The drier conditions in the U.S. Southern Plains has resulted in feeder cattle being placed sooner than normal. The USDA January cattle-on-feed report also showed a year-over year increase in placements; however, at some point over the next couple of months, placements could be down from last year. The September and November feeder cattle futures have been trading at a $6 premium to the nearby May contract. Yearling numbers in August and September have potential to be down from year-ago levels; therefore, calves and grassers this spring will remain rather strong. Don’t expect much price slippage in the lighter weight categories.

In Canada, the 2017 calf crop was estimated at 4.411 million head, up 155,000 head from the 2016 crop. Placements in Alberta and Saskatchewan from August through December 2017 were 1.048 million head, up 128,000 head from the same time frame in 2016. One can make the argument that Canada is in a similar situation as the U.S. Despite the year-over-year increase in the calf crop, available yearling supplies will be down from last year during the fall period.

I want to remind producers that sometimes the futures market leads the cash market and other times it is the opposite. The futures market exhibits behaviour known as the “constellation of prices.” This is when the deferred futures trade in a similar fashion as the nearby contract or also referred to when the feeder market behaves like the nearby live cattle contract. This can sometimes be misleading for cow-calf producers when they are trying to buy price insurance on their calves because the market is not behaving as per the fundamentals when the feeder cattle will be sold.

The post Feeder cattle outlook appeared first on Canadian Cattlemen.

First, I want readers to consider the closing prices on the live and feeder cattle futures as of December 1, 2017. Remember that the feeder cattle futures are actually the live cattle five to seven months forward, depending on the weight. The feeder cattle purchased in March will be sold in August through October for slaughter. Notice the March and September feeder cattle are relatively the same price; however, the October live cattle futures are trading at $10.525 discount to the April contract. Notice the sharp inverse between the April and October live cattle futures but the feeder cattle futures are relatively flat. The March corn futures are at $3.58 and the December corn futures are at $3.90 so the feeder cattle prices seem out of line relative to the live cattle futures.

Feedlots in Canada and the U.S. have experienced a prolonged period of healthy margins from February through September of 2017. To simplify the situation, consider this analogy. If there are three cattle feeders feeding 100 head each and margins are $200, each cattle feeder will want to feed 125 cattle on the next round. Therefore, in Canada we have stronger demand but relatively the same amount of feeder cattle which causes prices to strengthen. To a lesser extent, we’ve seen the same situation in the U.S., although the 2016 calf crop was 1.3 million head above 2015. A similar year-over-year increase is expected in 2017. In any case, the nearby feeder cattle market is quite strong because of the recent period of healthy margins for backgrounding and finishing operations.

Given the current live cattle futures market, feedlots will experience profitable margins during the first quarter of 2018. This will keep the nearby feeder cattle market quite strong for the reason mentioned in the previous paragraph. This bodes well for backgrounding operators. Given the price of calves in Western Canada during November 2017 and the March feeder cattle futures, it appears that backgrounding operators should have a margin of $50 to $80 per head. In the spring of 2018, if backgrounding operators buy grassers or calves, they’ll want to be very aggressive on their hedges or when buying their price insurance.

Finishing operators are facing a different story. Feeding margins will be profitable in the first quarter of 2018 but fed cattle prices will start to drop in the second quarter so that feeding margins move into negative territory. Feedlot margins in the latter half of 2018 will be in negative territory by $150 to $200 per head based on the current cash market for feeder cattle and the August and October live cattle futures.

In October of 2018, finishing feedlots will have experienced about six months of negative margins. At the same time, the U.S. will be contending with a sizeable year-over-year increase in the calf crop. This will result in sharp drop in feeder cattle prices for the fall period. In the final quarter of 2018, the price of a 600-pound calf could be about $30 below current levels.

Notice the April 2019 cattle futures are only at $114.250 while the November feeder cattle are at $147.15. The November feeder cattle are too high priced. One has to consider after a prolonged period of negative margins, a sizable year-over-year increase in the calf crop and finally a flat live cattle futures market from October 2018 through April 2019.

In conclusion, the feeder cattle futures appear to be overvalued relative to the October 2018 through April 2019 live cattle futures market. This is an opportunity for backgrounding operators, or those buying grass cattle in the spring, to take price insurance on their fall 2018 yearling marketings. Finishing feedlots need to be aware of the risks because it appears there will be a prolonged period of negative margins from May 2018 through December 2018.

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That’s to be expected given the volatility in today’s market, says Bruce Viney, a risk management specialist with Alberta Agriculture and Forestry.

“Volatility is simply a statistical measure of risk and relates to the severity of market price swings,” he says. “These up and down movements largely reflect the uncertainty that market participants have in their forecast of future prices.”

In the current global environment, changing economic conditions around the world can have an instantaneous impact on the perceived future demand for our products, he says.

Recent wild market swings in commodity contracts offered on the Chicago Mercantile Exchange have only added to that uncertainty but making futures markets a less effective and more expensive method of managing price risk.

To remain sustainable, Viney says the market-driven WLPIP must charge higher premiums to offset the higher levels of risk.

Calf contracts can be purchased up until May 31.

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