A decision by Tyson Foods Inc to stop buying slaughter-ready Canadian cattle looks to accelerate the movement of lighter Canadian cattle to U.S. feedlots, industry sources say, damaging the already fragile Canadian beef sector.
A Tyson spokesman said on Thursday that the biggest U.S. meat processor halted purchases of slaughter-ready cattle from Canada as of mid-October due to higher costs associated with mandatory country-of-origin labeling (COOL).
Tyson will continue buying Canadian feeder cattle that are finished for market at U.S. feedlots, however.
As a result, Canadian feeder cattle exports to the United States should accelerate while shipments of Canadian slaughter-ready cattle should drop off, said Brian Perillat, senior analyst at CanFax, the market analysis division of Canadian Cattlemen's Association.
Tyson's decision highlights the stress on the Canadian livestock industry and U.S. packers linked to COOL, a set of U.S. rules intended to give consumers more information about where their food comes from.
Canada and Mexico are challenging COOL before the World Trade Organization as a U.S. trade barrier. They prevailed in an earlier WTO case against COOL, which led to revised regulations issued in May and that are now under dispute.
Canadian ranchers have been hit hard in the last decade by a variety of factors including COOL, high feed grain prices and mad cow disease. The Canadian cattle herd was 13.54 million head as of July 1, 2013, up slightly from 2012, but down 20 percent from its peak in 2005, according to Statistics Canada.
For Canadian feedlots, which fatten cattle for slaughter, Tyson's move is a double whammy. They lose a large buyer of their finished cattle and also face new competition from U.S. feedlots to buy lighter Canadian cattle and fatten them south of the border to sell to Tyson.
"Certainly, this is going to impact the ability of (feedlots), what they can pay for my calves," said Doug Sawyer, who raises cattle at Pine Lake, Alberta.
Exporting more feeder cattle hurts the whole Canadian cattle industry, including ranchers, feedlots and farmers who sell grain to fatten cattle, he said.
"There's a lot of negative stuff when we're exporting feeder cattle versus finished cattle."
Canadian feedlots typically earn seven to 10 cents per pound less per finished animal than U.S. feedlots because the Western Canada herd exceeds the region's slaughter capacity, meaning some cattle must move south, said Brent Chaffee, operations manager at Strangmuir Farms, a 24,000-head feedlot near Strathmore, Alberta. That price difference may now grow with Tyson no longer buying, he said.