In September, Alberta-based Western Feedlots announced it will shutter its three feedyards with a capacity of 100,000-head early next year. The news stunned the cattle industry in Western Canada, but the event has ramifications on both sides of the U.S. and Canadian border.
For Canadian cow-calf producers, the absence of a buyer the size of Western Feed-lots will be felt across the province. The two major packers in the area, Cargill and JBS Canada, will need to find a new source of the 4,000- to 5,000-head that Western provided to their weekly kill. Analysts also warn Canada’s weakening feed-lot industry will encourage more cattle to head south for feeding in the U.S.
News reports of Western’s closing notes cattlemen blame poor markets, government regulations and increased taxes for creating an unstable business climate. Such criticism might also ring true throughout North America, but the most significant factor affecting current prices and profitability is the rapid increase in the total meat supply.
The U.S. cattle industry is just two years removed from a cow herd that was the smallest it’s been in 60 years. Prices reached record levels in 2014 and 2015, which encouraged ranchers to expand. The expansion phase has laid the foundation for an increase in beef production in 2016 to 24.8 billion pounds, a 5% increase. USDA projects another 4% increase in 2017 to 25.9 billion pounds, fol-lowed by an additional 3% increase in 2018 to 26.8 billion pounds.
Such increases are why veteran livestock economists offer relatively bleak outlooks for the next few years. Beef production increases reveal only a fraction of the outlook, however. Pork and poultry production are also trending higher giving consumers lots of options at the retail meat case.
“We’re projecting lower cattle prices through 2018,” says Jim Robb, director of the Livestock Marketing Information Center in Denver, Colo. “One factor that can slow the price erosion is how much we can grow beef exports.”
Typically, beef exports account for 7% to 10% of domestic production, though exports the first seven months of this year totaled 13% of production. According to the U.S. Meat Export Federation, export value of fed slaughter was about $253 per head from January to July.
Fueling the expanding supply of red meat and poultry is the fact grain prices have been under pressure for months. That has lower cost of gain for beef and pork producers, but also encouraged feeding to heavier weights, which only creates a self-inflicted wound that compounds market woes.
Given the beef industry’s current environment, feedyards that are not current in their marketings might have the greatest negative impact on cattle prices than any other factor. For the long-term health of our industry, it’s imperative cattle are shipped when they are ready.
Note: This story appeared in the October 2016 issue of Drovers.