Outlook mixed for calf rearers this season

01-08-2008 | Paul Muir

After several years of poor returns calf rearers are looking for some respite.

For the past two years rearers have paid over $100 a calf in the expectation of getting $380 at weaning (talked up by industry commentators).

But these prices have not eventuated and according to Meat and Wool New Zealand survey figures, the average Friesian bull calf from the 2007 rearing only sold for $315.

This meant that the average rearer had a margin of $30 a calf to cover labour and profit; a poor return for the risk and capital involved not to mention the long hours feeding and dealing with sick calves.

So why have returns been so poor?

Quite simply, calf rearers buy retail and sell wholesale. There is early season competition for calves, with calf rearers and stock agents trying to get the early calves which are easy to sell later on.

This competition drives the calf price up and sets price expectations in the minds of dairy farmers.

But when it comes to marketing their three month old calves, many rearers are at the mercy of the market.

There is usually a good sale price for early calves, those hitting the market in October/November, but as more numbers hit the market the price falls.

As calf rearers often have limited land they have to sell their calves and if there is an over-supply the calf price falls.

In the past two years the widespread drought conditions and movement of drystock farmers to dairy support has led to a low demand for calves and the price plummeted in late spring.

When we surveyed calf rearers in 2005, we found that the average specialist bull calf-rearer only stayed in the industry for five years.

Reasons rearers gave for exiting the industry were that it was too hard, they had had enough of dealing with sick calves and lack of profitability.

This meant that every year, 20% of calf rearers dropped out.

Of course others were stepping up to have a go because it is seen as a way of turning some extra profit from a small block of land.

But from comments I have heard over the past two years it would appear that the number of rearers who have exited the industry or downsized their operation has increased.

There is certainly a suspicion that fewer calves have been reared over the past two years but until these calves hit the processing chains at around two years of age we have no real way of knowing just how many bulls there are in the system.

Those rearers left in the industry are looking to reduce risk.

Some larger rearers have repeat orders for bulls that they fill year after year and many are looking to rear dairy heifer replacements on contract for dairy farmers.

There are still bright prospects for NZ beef.

Corn prices have been driven to an all-time high by subsidised bio-fuel plants and feedlots are becoming unprofitable.

The response of the feedlot owners has been to reduce the time cattle spend on the feedlots but it seems inevitable that the beef price must continue to rise.

Grinding beef is already at an all-time high in the United States but a weak US dollar/strong NZ dollar is preventing these high prices from flowing back to NZ farmers.

The irony of this is that tough economic conditions drive consumers away from restaurant meals to takeaways and this is where our bull and cow beef finishes up.

Somewhat surprisingly, calf milk powders are actually down in price this year to just under $80 a bag.

The drop in price has occurred at the same time as the dairy payout has gone up by 43%.

For the first time I can recall, the price of milk powder is now below that of vat milk.

At a payout of $7.90/kg MS, Friesian milk is worth 63c/L as compared to curding milk powders which are worth 50c/L and whey milk powders worth 40c/L.

At these prices, I expect to see some dairy farmers finishing their heifers off on whey powders instead of vat milk.

Overall however, calf rearing costs have increased from 2007.

Our indicator price in this year's calf rearing newsletter has increased from $265 to $285 per calf and this doesn't include the cost of the calf, transport or any commissions.

Part of this is due to increases in prices for calf meal which have been driven up by the general increase in cereal price and the demand put on all feedstuffs by widespread drought.

Other rearing cost increases have come from the cost of grazing, fuel, power and rearer margin.

The increases in cost and risk may again combine to see fewer calves reared.

Ironically, the biggest risk to getting calves reared is a high calf price.

The higher the four-day-old calf price, the lower the appetite rearers will have for taking on uncontracted bull calves.

This year many rearers are saying anything over $50 is too high.

I was at a calf rearing field day recently where there were several finishers who were concerned that there might not be enough calves reared.

But when asked about whether they would get calves contract reared they admitted they would rather play the market.

In other words, those who get calves reared on contract are perceived to pay more compared to those who wait for the late spring fall in calf price when there is an oversupply.

This lack of supply chain integration is one of the big problems with our industry.

Farmers make their margins at the expense of someone before or after them in the supply chain be it a breeder, finisher or meat company.

Unfortunately rearers tend to be the weakest link in the bull beef supply chain because their operations tend to be capital intensive (milk/meal/calves) but with a limited land area and lower capital asset.

On-Farm Research undertakes research into calf rearing at the Poukawa Research Farm.

The research is funded by Meat & Wool NZ and an annual newsletter is published containing research information and updated calf rearing budgets.

Copies of this newsletter (and back issues from previous years) can be obtained by calling (06) 874 8757.

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