Alberta-based Western Feedlots is one of the oldest and largest feedlot operators, a major North American player in the business. Last week, CEO Dave Plett announced its obituary, telling Canadian cattlemen that corporate death will come just a scant year short of its sixtieth birthday.
Plett said the decision was voluntary, citing dismal market conditions and a poor political environment in Edmonton for having a hand in the decision to close its three feedlots - Mossleigh, High River and Strathmore - that handled 100,000 head of cattle. Echoing the common cattleman's complaint heard south of the Albertan border, a lot of the blame was placed on increasing government regulations and taxes
The sudden announcement stunned the provincial government as well as cattlemen across Alberta.
Talking with Chris Varcoe, a Calgary Herald columnist, agricultural economist Sven Anders with the University of Alberta said, “I hope it rings some alarm bells with the government and I think it should also ring much louder alarm bells within the industry, to at least sit down at the table and talk with those in a position to help, advise and strategize about what to do next.”
Paul Engler, the grand daddy of the feedlot business, expressed concern about the economic impact to the cattle industry as well as the nearby communities. One of the oldest hands in the often insanely volatile feedlot business, he has survived every economic whipsaw the industry has thrown at cattlemen for seven decades.
"I believe that the economic impact will be major," he said, "not only on the livestock and meat packing industry but also the business communities where Western’s facilities and marketing areas are located," he said.
Explaining his fears, about the short- and long term-effects, he said, "A noted economist once told me that an industry such as cattle feeding that uses locally grown inputs, adds value to them, and then sells them to several different processors who also add value before they reached the ultimate consumer had an economic multiplier of five to one. Western Feeders, therefore, in marketing probably four to five thousand fed cattle per week that originated largely from the local areas and would be slaughtered and processed also in the local area would have a substantial negative economic impact.
Obviously, the short term effects are more noticeable and felt by the feeder market and the packing sector," he said and predicted "The catastrophic losses that the industry has suffered the past couple of years will probably result in additional closures, and perhaps cause some restructuring in the industry. My oh my, the hazards of being in a commodity based industry!"
Steve Kay, Editor and Publisher of Cattle Buyers Weekly, agreed with Engler. "This will send ripples through the beef and grain industry in western Canada . Western’s large presence in cattle feeding will leave cow-calf producers forced to find other outlets for their calves and feeder cattle. In turn, Cargill at High River and JBS Canada with its plant not far away at Brooks will have to turn to other feedlots in the province for their live cattle supplies.
Finding 'room at the inn' for 100,000 head on relatively short notice could be a problem but Kay was optimistic. "I think they (Alberta's remaining feedlots) have the capacity," he said. "The real issue is the deep losses cattle feeders have incurred. U.S. cattle feeders in 2015 had their worst one-year loss ever and losses continue. The industry made $5.4 to $5.5 billion in 2013-2014 but since then has lost $5.6 billion.
But Western Feedlots wasn't the first feedlot to shut down recently, just the largest. Five family-run feedlots have closed over the past two to three years, trying to cope with unfavorable market economics and Alberta's 'high-cost environment' according to a group called "Stop the Head Tax in Lethbridge (Alberta) County."
"Our industry is under attack on all fronts," said Rick Paskal, president of Van Raay Paskal Farms Ltd, an Alberta cattle feeding operation and a major backer of the Stop the Head Tax group. "We are going to see more cattle feeders go under in the next six months in Lethbridge County," he warned, "and see more cattle fed in the United States, which will mean job losses, further price reductions for ranchers and another blow to Alberta's already faltering economy."
Talking about Canadian beef cattle losses with the Calgary Herald, Anne Wasko, Gateway Livestock market analyst, pointed all the way back to the "difficult post-BSE years of 2003 to 2005" as comparable to current market losses.
“The cattle feeding sector has been in a negative margin situation for about 14 months now,” she said. “The losses have been substantial — they’ve been, at times, record large on a per head basis, as high as $500 to $600 per head.”
Canfax, a division of the Canadian Cattlemen’s Association, said Alberta fed cattle prices averaged a record high of $202.06/cwt. in May 2015. A year later, the average price had fallen to $158.70/cwt..For the week ending Sept 9, it had dropped to $129/cwt. showing losses similar to those suffered by U.S. cattlemen.
The rapid drop meant that cattle bought at a premium during the glory days of a year or two ago are now coming to market during the worst of times. Buying high and selling low is never a good business practice.
Plett claimed the “high-risk, low-return” environment was the leading factor in the decision but he kept glancing toward Edmonton and the recently installed liberal government.
"Our shareholders see the challenges facing the industry in the next few years are going to be greater. We don’t foresee it getting better soon."
Or at least soon enough for Western's management team to try to ride out the current bad market.
The added costs imposed by Alberta's not-so-big government might have been absorbable, though, in a normal free market. The real losses come from a tightly controlled market for the province's cattle. Just two processors, Cargill Ltd. and JBS USA Holdings Inc, dominate. Competitive bidding does not exist. The price offered on any given day is the price that must be taken.
With matching economic profiles, can what just happened in Alberta be confined to Alberta? Will it spread to Saskatchewan or move to the south and infect major cattle states like Nebraska, Kansas and Texas? Engler fears that it could happen. Certainly many of the same players on the 'buy' side of the equation are operating by the same rules that helped bring down Western Feedlots.
One thing is sure; the recent cattle market heyday caused by too many cattlemen trying to rebuild a drought decimated herd is starting to look like Bourbon Street during Mardi Gras. . .at 6:00 AM.