By Will Verboven Contributing Editor
It’s been building for about two years in much of western Canada, a sort of trifecta of bad events that will seriously affect the well-being of the Canadian cattle industry. One of them is short term – much of southern Alberta and Saskatchewan have now gone through two years of severe droughts and forest fires in neighboring British Columbia. Both events have seen cow-calf producers selling calves early and severely culling their cow herds. In addition, producers are selling heifer replacements just to buy expensive hay for the remaining cow herd.
Auction markets in most areas have been doing a roaring business, but that does not bode well for the cattle industry in western Canada. Some analysts are predicting a decline of 20 percent in the cow herd from three years ago. That will have a run-on effect on Alberta feedlots and the two giant beef processors in the province whose viability depends on economies of scale. Having said that, one could drag out that old sawhorse – “We’ve been there before, and it’s all part of a cycle” – and all will be well after the rain returns next year. Those of us long in the tooth can relate to that, and we can hope that will once again be the case, but there seem to be other nagging issues surrounding the decline in primary cattle production.
The second part of the trifecta seems to be a limited but growing perspective that sees producers losing their faith in being able to make a living in the business. There is a multitude of reasons for that development, some of them expected, but when added to weather and fire disasters, it tends to accentuate the significant decline in cattle numbers. It’s become increasingly evident in areas where producers have alternative uses for their land, like for cereal and oilseed production.
That production sector has been profitable for many years and sees increasing technology, agronomic advances and marketing sophistication, making it much more attractive to ambitious young farm operators. Besides, the labor investment is a lot less and a lot easier. Sitting in an air-conditioned tractor or combine is more comfortable than feeding cattle at 30 below. For many cattle operators, that may not be an option, but leasing out your land to a nearby big grain farmer may be a more stress-free way to make a living.
The other issue is that making a modest living from a cow-calf operation up here in the great white, cold, north requires a herd of 500 cows with all the land paid off. There is an astute anecdote up here: The most viable cattle operations depend upon the rancher’s wife being a teacher or nurse. But I digress.
The third part of the bad trifecta for cattle production is Canadian federal government tax policy and regulatory decisions that continue to make it more expensive to stay in business. Directly, that involves a universal carbon tax that affects almost every step in production, transportation and marketing. Such an onerous tax does not yet exist in the United States (consider yourselves lucky). Climate change zealots consider it a cornerstone to reducing global emissions. There is no indication from the limited Canadian experience with the tax that it has any impact on emission reduction, but it does increase federal government tax revenue.
The other part of this trifecta is more long-term and involves atrocious federal government decisions that affect beef exports. Two recent free-trade agreements allow for seemingly unlimited beef imports from the United Kingdom and European Union into Canada but restrict Canadian beef exports to those two markets due to bogus technical barriers. Mind you, if the Canadian herd continues to decline at this rate, there may not be much excess beef left to export to offshore markets.
Closer to home, big Alberta feedlots are sophisticated operators, many of whom operate on a continental basis, buying trainloads of American corn and selling much of their production directly to U.S. processing plants. They have shown that when the market is right, they are quite prepared to buy U.S. feeder cattle from Montana and Wyoming, feed them in Alberta with American corn and then sell them to big plants in Canada or the United States.
Auction markets in most areas have been doing a roaring business, but that does not bode well for the cattle industry in western Canada.
The integration of the industry is quite remarkable. That production process is bound to increase if the Alberta cattle herd continues to decline. In a way, it will have to if the two big plants intend to continue operating in Alberta. I suspect it wouldn’t make much economic sense for the Cargill and JBS plants in Alberta to begin hauling fed cattle all the way from American feedlots in the Midwest and Texas.
That raises the ominous development that if local feedlots can’t supply the numbers they need, one of the plants may close. Both plants are more than 25 years old, so that is a real possibility. That would set back the Canadian industry and impact the U.S. industry.
Hopefully, the next few years will see abundant rains, and much of this will seem like whimsical conjecture.
