Packer-Feedlot Cooperation Critical in Canada

By Will Verboven, Contributing Editor

The cattle feedlot and beef processing industry is highly concentrated in Canada, primarily in the provinces of Saskatchewan and Alberta. The latter province contains the two biggest cattle processing plants in Canada, Cargill at High River and JBS at Brooks. Each can process 4,000 to 5,000 head per day and are highly integrated into their respective company’s North American beef marketing supply chain.

The Canadian feedlot sector is concentrated in Alberta, with hundreds of feedyards from 5,000- to 150,000-head capacity. That puts the industry on an equal footing to many U.S. cattle feeding and processing areas. The industry in Alberta developed into its present size starting in the 1990s. It’s all somewhat similar to the mainstream American industry, albeit in a much colder climate. I would suggest that Canadian operators are cut from the same entrepreneurial cloth as their American counterparts. That makes them sophisticated growers and marketers, with a bit of a gambling instinct. Interestingly, there is a long history of some U.S. and Canadian feedlot owners operating on both sides of the border.

As you might expect with all those commonalities, both feedlot operators and processing plants in western Canada engage in the same hedging and contracting activities as their American counterparts, except perhaps in one area – currency hedging. Because they operate within Canada using the Canadian dollar but, in many cases, buy inputs and sell cattle and beef in U.S. dollars, they must protect those international transactions by hedging dollars both ways on currency futures markets. It adds a bit more risk to operating in Canada, but those involved have by necessity become sophisticated in the process.

When the market is aligned, large Canadian operators will bring in a trainload of U.S. corn, feed it to U.S.-sourced feeder cattle and then sell those cattle to U.S. processing plants – all of that will be priced and/or hedged almost exclusively in U.S. dollars.

I suspect the marketing, pricing and contracting relationships between feedlot operators and big processors are much closer in Canada than in the United States. The main reason for that is the concentration and more medium size of the industry. It means both feeders and big packers need each other in southern Alberta. Neither has a lot of viable alternatives when either selling slaughter cattle or buying those same cattle within Canada.

Sure, Canadian feeder cattle producers and feedlot operators will sell cattle into the U.S. market if they can make a nickel more a pound – the same goes for American cattle going north. It’s all part of the cattle and beef trade dynamics that exist between the two countries. But it is in the best interests of both feedlot operators and the big plants to keep those cattle home. It costs a lot of money, shrinkage and paperwork to ship Canadian cattle long distances to U.S. plants.

One of the main reasons it happens is because some U.S. plants need Canadian cattle to operate at full capacity. It’s all intertwined with contracted and speculation cattle. The point is, feedlot operators and big processing plants in Alberta really need each other to operate efficiently in the long term. That came into shocking reality with the BSE crisis back in 2003.

Back in the day, that crisis shut down all cattle and beef exports to the United States. Those exports represent up to 70 percent of all cattle production in Canada. Imagine if 70 percent of all American cattle and beef production was shut down almost overnight. For the entire Canadian beef industry, it was an enlightening, costly and sobering experience.

The BSE crisis did many things to the western Canadian cattle industry, but one thing it did was drive cattle feeders and big processors into the same room to find a way out of the crisis. Many arrangements were made and many big feedlot operators managed to stay in business thanks to financial intervention from the big plants. That started a more harmonious and cooperative relationship between the two sectors that has lasted to this day. It’s one of the reasons sophisticated, sustainable beef production/marketing programs have developed in the Canadian market.

Export marketing and merchandising programs have also developed between retailers and processors. I don’t know for sure, but I suspect the relationship between feedlot operators and big packers is much closer in Canada than in the United States – and that’s a very good thing for the entire Canadian cattle industry. Still, there is one outlier, as recent events brought to light.

The two big Canadian plants are both unionized by the United Food and Commercial Workers (UFCW) union. That would be the same giant American union that represents workers at big American beef plants. Only Canada allows foreign-controlled unions to operate within its borders. The UFCW in Canada is much more radical than in the United States and seems Marxist at the leadership level in Alberta. One hears anti-capitalist class warfare rhetoric from some leaders. UFCW union bosses and staff were even seen picketing their own members to shut down the Cargill plant during the pandemic.

The same union is involved in lawsuits against the plant. It all boggles the mind. Such an antagonistic player endangers the future of big beef plants in Alberta. My point is, we can have all the hard-won harmonious cooperation at the cattle supply and marketing level, but it is not helpful when a union puts all that at risk. Perhaps the UFCW union needs to be Canadianized to get them to understand the big picture better for the meat industry in Canada.

In a retail world where plant-based fake meat competitors so threaten the entire beef industry, we need all players to be united to survive that onslaught. I rest my case.