by Rick Wright
As December 2008 draws to a close, cattle producers from all across Canada look to the future with more unknowns than ever before.
Even the strongest optimists in the cow calf business are questioning why they are staying in the business after 55 months of depressed cattle prices and increased input costs.
The major obstacle preventing the cattle market from taking off is the “Fear Factor” of the unknown. Until all of the rules and interpretations of “COOL” are figured out, the cattle feeding sector of the industry has no idea how Canadian origin cattle will be handled, where they will be killed and what if any discount will be applied.
The new Democrat administration under the leadership of Barack Obama looks to be more concerned with food safety issues than free trade issues. Their party platform supported smaller farm subsidy payouts capped at $250,000 per farm. They support ethanol production, which in turn means higher corn prices. They support tighter rules on environment issues concerning “confined animal feeding operations” which include cattle feedlots. They were major supporters of “COOL” prior to the election and are recognized as more protectionist than the Republicans.
If you look at the post election map, the majority of the cattle producing and feeding states supported the Republicans in the election and may not have as much influence as they did with the previous government. There is nothing to indicate that Democrats will make it easier to export cattle to the U.S.A.
The “Fear Factor” of this unknown is what is making the feedlots on both sides of the border nervous about purchasing calves at higher prices. Most of the buyers in western Canada and the United States have built in a discount margin on their inventory orders to cover their projected discounts on the finished cattle.
On the south side of the border, inventory that will be slaughtered before April 1, 2009 looks like it will have little to no discount. Currently packers are using labels that have origin of “U.S.A, Canada or Mexico” to get around the COOL regulations. Industry sources report that the USDA is putting pressure on American packers to produce more “Product of U.S.A” meat after April 1, 2009.
Rumours are that industry is asking for a six-month extension before the hard enforcement of the COOL regulations. This would give packers and retailers more of a chance to fine tune the logistics of handling all the products affected by the COOL rules. It would also give the new faces in the Department of Agriculture a chance to see how the COOL rules are affecting the whole livestock production, meat processing and retail/wholesale business. With the U.S. economy in a state of chaos, Obama will have higher priority issues to deal with than COOL. I do not expect any positive changes in the near future, if at all.
Western Canadian feeders are also facing a lot of uncertainty. They need to be able to access U.S. packers for competitive pricing. If the Nilsson purchase of Lakeside packers goes through, it leaves only two major packers left in the west killing finished cattle. Experts agree that you need a minimum of three in the mix to make prices competitive. With limited options to ship their finished cattle south, many feedlots are reconsidering their business plans and prices they are prepared to pay for feeders.
In Manitoba and Saskatchewan, a lot of the feedlots are backgrounding rather than finishing. For the first time in years there are empty pens, as the feedlots don’t want to take the risk of owning their own inventory and custom feeders are harder to find.
The good news is that the Americans are short of cattle. If they could get some solid response as to how the packers intend to handle the Canadian origin cattle, they would be active buyers on our markets like they were in the spring. There is a surplus of feedlot space and all of the packers are running below capacity. Their strong dollar has put them back into a competitive position to purchase Canadian cattle. Their export markets are increasing for beef products which means they need to source more cattle to meet the domestic demand. The number of cattle they import from Canada is about three percent of their national production. Small numbers for the Americans, but free access to their market is a huge part of the formula for the success of the Canadian cattle business.
This fall we have seen a large number of cow calf producers of all ages sell their herds. A sad sight at the markets, watching good cows sell at rock bottom prices with very few producers in the stands to buy them. It is disturbing to see so many of the county’s cattlemen and women that have worked so hard to save their herds since the start of the BSE crisis in May 2003, finally have to give up and look for another way to make a living.
We are not just losing cattlemen we are losing food producers, and with the grain producers not far behind, I wonder who will feed our nation in the future? When we read about Government bailouts for other industries and the protection of union jobs to help the economy, I can’t help but ask the question when will the government and people recognize the agricultural sector and protect them as well? It would not be a hand out but rather an investment in the Country’s future.
Until next time, Rick
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