The Future of Canada's Cattle/Beef Industry

[cakadu]

Thanks for the clarification grassfarmer. We have had to deal with the U.S. subsidies for quite some time now, even to the point of there being over-production of all grains.

I have heard rumblings about there being grain shortages in Canada because of biofuel production, which I don't believe at this point in time. As I said, I believe it is a means of increasing prices further down the line and the producer will likely not see all that much more.

I also couldn't agree with you more with respect to the fact that biofuel production is highly inefficient right now and takes far more energy than is produced. The millions being put into biofuel production is what is essentially driving it at the moment.

It will be interesting to hear more about what the Aussies are doing. I don't think we have properly calculated the true cost of biofuels i.e. adding in the cost of plowing up all that land and planting it, increased fertilizer and herbicide/pesticide use etc.

There is no doubt about it, the face of agriculture is changing.

[rkaiser]

Where'd you go batman? I didn't expose your secret identity. I simply compared your thoughts to those of ABP leadership. No answers to my questions - or are you busy getting ready for an AGM or something?

I am personally planning to run from the floor for the board and then run fro the executive as well. Under the name Randy Kaiser.............

[farmers_son]

Rkaiser: First I wish you the best in your efforts to run for a seat on the Board of Directors of ABP.

I thought you were referring to Cowman for a minute. You cannot expose my secret identity because you do not know it, but keep guessing. The opinions and views I express here are my own. I do not see how I am insulated. I have enough debt to choke a horse, no insulation there but I think I can make it. The future is never as dark as it seems but we still need to sit up and take a look around every once in a while just to see which way the wind is blowing.

To reply to your queries….I do not see producers will be expendable although some cows may be. There is no question acres will be diverted from pasture/forage production to grain production just as the reverse happened after 1990. Really the grain fed cattle industry was not truly sustainable in the long term if the Canadian grain industry was destined for financial ruin which would have happened with todays high energy costs if grain prices had not rallied. The true blue cattleman will be producing cattle but a lot of producers are flexible and there is no doubt they will shift production towards grain, meaning fewer cows and less beef for export.

Certainly the future can be changed but we need to be realistic. There are certain economic realities that are beyond our control. Sometimes you have to play the hand you are dealt.

I thought one comment in the manifesto was most interesting…. "Our survival hinges on trade, including trade with non-NAFTA markets, and we require in the long term a more diversified marketplace.” That is very motherhood and apple pie. But the reality is cattle and beef production in Canada had peaked and is going to shrink. In hindsight our survival depended a great deal more on cheap grain prices than it did on beef trade. The growth in the cattle herd and beef exports from 1990 to 2002 was 100% tied to cheap grain on the prairies and a lower cost of feeding when compared to the U.S. That has changed and we need to face it.

I think when Canadian cattle producers talk trade they need to look in the mirror. For Canadians that mirror is the U.S. cattle producer. We can look to our neighbouring U.S. producers who also want to trade with non-NAFTA markets but at the same time seek protections from live cattle and beef imports from Canada and the rest of the world. BIG C offers non-NAFTA trade as the iconic hope for the future without considering that every pound of beef exported would have to be, and is replaced with imported beef. We cannot and will not be expanding cattle and beef production in the present grain market. While there are benefits of trade for the packing plants live cattle prices cannot go up due to market supply and demand factors if we continually replace exported beef with imported beef. And even the Americans are slowly starting to realize that if they want to trade beef they need to be open to imports. Beef trade is not the easy answer. I would remind you that our live cattle prices are set in the U.S. minus a basis and it is live cattle trade that puts jingle in my jeans. Beef trade without competition for live cattle benefits the packers as we clearly saw in 2004 when the Canadian packers were selling beef to the U.S. at U.S. prices but paying Canadian producers rock bottom distress prices because we did not have the ability to ship live cattle to an alternative competitive market.

There are solutions but they are not easy solutions. It is important to offer hope to producers but it must be realistic hope and if hope is continually offered but nothing concrete comes of it producers will seek their hope elsewhere or leave the industry. We need to be careful that we offer doable solutions and even though results may be slow in coming it is important to base the industry on a solid foundation. I assure you that the problems Canadian producers are facing are the same problems as producers in other major cattle regions face on a daily basis. If the packers are global in scope then any producer solutions must be global in scope. In broad terms I see BIG C as having at best an Alberta and a little bit of Saskatchewan focus. I think the scope of the focus is too narrow and the problems are bigger than that. But that is just my opinion. Even though I agree with some of your efforts I believe BIG C will not be successful in significantly changing the financial fortunes of Alberta and Saskatchewan cattle producers in isolation from the larger live cattle industry. We can do a little to improve the live cattle basis between Alberta and the U.S. but if we are going to fundamentally improve the live cattle industry we will need to form alliances and harmonize our efforts with other producers in other regions. Just my opinion but I am entitled to an opinion just like you.

[rkaiser]

Thanks batman and as usual a well thought out post.

As far as continuing to brand the manifesto as a BIG C document, please refer to the top of the page where 4 producer groups have signed on. It seems that there are more than a few opinions that differ from yours and the ABP executive.

I do not disagree that producers in America suffer a similar fate but the solution is your very own words, and I quote---

"If the packers are global in scope then any producer solutions must be global in scope."

Exactly what this proposal spells out. Add to that the idea of producer ownership and a producer company actually knocking on the doors of the growing number of beef eaters in these emerging economic giants and wa la. Premium meat sales.

And yes farmer_son, we will continue to import beef. 309 million pounds last year compared to 1.5 billion in exports last year. And if the Canadian consumer is not willing to spend the same kind of money on our premium product as the Japanese consumer --- I guess we let those Wal Mart shoppers buy more Uruguay beef. --- about 16 million pounds in 2006.

Talk all you like about domestic demand farmer_son and how we will shrink our herd to become a domestic supplier, but YOU may have to start up an Rcalf here in Canada to stop the imports.

You are thinking small farmer_son when you also have the solution in your own words quoted above.

I wont' argue your historic submission as to why we grew our industry. But grain prices are not high enough to stop us from competing and yes we may have to grab some of grassfarmers ideas and start using more grass and just a little grain to finish cattle in the way I believe we can receive a premium. Barley finished (with maybe some sunflower seeds to enhance the CLA levels.) (wink)

Lots of hope out there if you look for it farmer_son. And BIG C is not the only group with that hope. Why not challenge WSGA or Alberta Cattle Feeders as to why they would support such a dreamy manifesto?

[greybeard]

Good thread with some revealing insight. This is why I lurk around at Agri-Ville.
I don’t know about the next 10 to 20 years but agree with Sean on the next 3-5 years.
I also think we will be asking for more government involvement (protection) but will pay for that with a stifling amount of bureaucracy and regulation. The existing producer groups will not have time for promotion as they will be tied up with various levels of bureaucracy and trade barriers. They may be there now.
We talked on the Angus thread about drastically changing our production practices to achieve a $30 saving. Didn’t we just give that up on SRM disposal?
I think we are also about to see another consolidation in the sale barns that will be accompanied by much higher charges due to traceability that they say no one is asking for.
More beef production will definitely come off of grass as opposed to grain as Randy points out. This is already well on the way with contract grazing for feedlots and others. Cost of gain on grain will set the price and may provide some real opportunities.
Other than direct farm gate, grass finished needs a lot of development. There is a good regional demand on the left coast but it still suffers from a poor image here. All the direct marketers say they still have to really push to get it into the market in this region.
I see big potential for Randy’s “value chain” broker there.
We are in the unenviable position of having a higher cost of production, (for finished product) than most exporters. Any with higher costs rely heavily on export subsidies. The U S is our largest market because of preferential treatment due to NAFTA. We will find countries like Uruguay, Brazil and Australia stiff competition everywhere we try to export to. Brazil is the big dog. Their grass-fed product is being pulled into many markets worldwide because it has a desirable quality for the price. They have lots of grain to grain finish but it is not widely used because it puts them on production costs similar to ours.
We do indeed need some strong leadership to dig out of this and not turn into Europe without the support.

[kato]

So where do the beef producers that do not live in Alberta fit into all this??? Over the many years we've been in this business, we've found that most things that were good for Alberta were not necessarily good for the rest of us!

Don't forget there are lots of other cattle producers out there who don't have the benefits of a rich provincial treasury to help smooth out the bumps. We're pretty much on our own, and wouldn't mind being remembered when future policy is set for our industry.

As for the future, I also see bigger herds. And fewer cattlemen. This may be as much a result of having no one to replace those retiring, as anything else. Also smaller feedlots and possibly less big time packers, but more smaller processing operations. Having more smaller feedlots rather than a few big ones is a good thing, in my opinion.

It could be an opportunity for smaller plants to expand. Making interprovincial trade easier, and helping existing provincial plants become federally inspected would help a lot. I think there is a brighter future for smaller existing plants to expand in a steady controlled manner than for big new plants to try and start from zero. The bigger new plants are easy targets for the internationals to shoot down. Transportation costs are reduced if the trade stays more local, and smaller plants can tap into the growing trend toward knowing where your food comes from. Never underestimate the effect a culture shift toward environmentally sound practices will have. This is something we can capitalize on.

The trend to using alternate feed will also increase. Ethanol byproducts are a lot more use to cattle feeders than hog feeders, so I think it's the hog industry that's going to be hurt the most by it. Cattle feeders are going to get a lot more creative over the next few years with what they use for feed.

In the long term, I don't think ethanol is going to be as big of a deal as it is now. Sooner or later the U.S. is going to follow the money, and drop their tariffs on South American sugar cane ethanol, and then it will be a whole new ballgame. Research is also moving forward to find alternate sources of ethanol, like wood. If they could figure out a way to make it from poplar or willow, they will do it. It's going to become politically incorrect to divert food to run SUV's before too long, and we will probably look back on the ethanol hype the way we look back on how the computer was supposed to make us a paperless society with more spare time than we can handle! ;-)

[Bez]

Just jumping into the fray.

The future?

Well, in the near future those who have their land paid for, have outside work or are using family for support - they will stay on unless an offer that cannot be refused comes their way.

Those who do not have land paid for, do not have outside work or do not have family support or a large bank account or a huge capability to handle the stress of big debt loads - well, many if not most of those will leave the industry. Why bother to watch literally thousands of dollars of equity go down the tubes?

There will not be many who return to the industry as profitability is the deciding factor.

Without it we literally cannot eat, pay taxes, fix equipment and so on .....

Despite many who loathe supply management, or some other program that would actually create a constant ability to make at least a 1% triple net profit - I am of the opinion the herds will get larger, the average age will get older and the industry will diminish in capacity to produce.

Simply because the actual number of producers will decrease. And that decrease will be substantial over the next 10 years.

The term factory farm is one I despise - however, they are coming - the family operation is soon to be a thing of the past - and if it does happen, all we have to do is look in the mirror to see where the blame lies.

Even if they fail - we can always import the food we need to feed this country. And that will come - hopefully not within my life time - but it will come.

If things do not change we are in for serious de-population of those who live in agriculture.

All because the main body of those in agriculture - speaking in this case of beef - tend as a greater portion to stick with the old ways that Gramps did. It worked for him and it may even be working for some today.

They also tend to sit on the fence posts and wait for someone to go down - after all it may present a buying opportunity.

Nothing like a few ravens, crows and vultures enjoying a nice meal at a fresh new auction - all the while shaking their heads in mock sympathy over the failure of the XXXX ranch / farm business.

Yet rubbing their hands with glee when they get home over the great steal of a deal they got on that new piece of equipment that old "Jonesy" only bought last year.

But the numbers do not lie.

There are less people today in the industry. There will be less tomorrow.

Why?

Because not only is it expensive to start, the risks are so high that there is very little financial support from any institution.

I know I can be argued with and will be argued with by some folks in a specific manner - usually because they themselves are surviving either through substantial monetary backing or family backing. Or perhaps both.

Or more rarely - they were one of the few who managed to get in at the right time and now are making it - barely, but they are making it.

But in fact they are the exception to the rule. And it is my opinion that many of them sit fat and happy - waiting to grow off the backs of others.

As a general rule we are definitely in a declining industry - simply because the vast majority refuse not only to see it, but also refuse to do anything about it - other than pay it lip service.

I see the main producers from Alberta driving whatever program we have in Canada - benefitting them and probably not many others.

I see the sale of animals being controlled by a system that allows price control.

I see vertical integration growing and squeezing the players - soon many will grow cattle like hog producers grow pigs. And then they will be squeezed.

I see very little hair that is not grey at the sale barn. And I see very little movement to save the industry. Nothing more than talk and cheap talk at that.

I see the average farm / ranch kid not being interested in working for years and never getting ahead.

It is basically every man for himself and that is why we are managing. We essentially told every organization out there to piss off and go away.

Presently they are more of a hinderance than a help.

I see all ag orgs fighting to the point and even - despite vehement disagreement from our own group here in pissant Ontario - actually sueing each other over issues that are divisive instead of uplifting.

To expand out - if ag orgs as a whole would at least guarantee to not hinder the processes of other orgs within the total ag family - at least there might be some progress down the road.

I know this is negative, but show me a time that profit was a constant over the past 20 years. Show me a time when fuel and tax and mortgages ate up nearly 80% of some operating money.

Show me a time when the basic producer demanded a price rather than took whet he got.

How many businesses work off business to support the business?

Show me a place where cattle orgs actually got together to do anything other than tells us packers are good and that we desparately need our southern neighbour.

Show me a time when I knew for certain I could get a price that would at least pay for the cost of raising that animal to sale or slaughter.

Show me a time when we actually managed to develop a program to sell to someone in Europe.

Times are changing and we are not changing with them - other than in very localized areas.

You want to see this industry succeed?

Then it is time for RADICAL change. Not some pissant initiative that might give the basic producer XXX bucks a head.

Show me how Verified Beef, Age Verification and producer owned plants are going to shake this industry up and create profits for the base producer.

In my opinion they are not!

In very specific cases they have. In general they have been nothing more than a band aide that fell off as soon as it got wet.

I would really like to see how the CCA, and every umbrella cattle producer org has proven their worth.

I am sorely disappointed with all of them - from coast to coast.

And yet we muddle on - if only because the vast majority of us are too stupid to change.

Our kids on the other hand will happily sell that land at a profit when we die - so there is a small satisfaction of "future profitability".

Rant over - excuse any spelling and grammatical mistakes - I did not proof it.

Bez

[smcgrath76]

I have posed this question before, but no one has really answered me. Does it matter if we lose producers, and if so how many?
Let me explain my thoughts a bit here...
I believe that the broad industry is made of many small producers (relative to the industry) making independent business decisions. If we independently pursue business as usual, we will see our costs increase (this is the basic law of inflation). Many of us reduce this cost by paying down debt, changing our practices (eg: grazing longer)but at the end of the day we still face inflation (rent, land taxes, diesel, feed, etc.) Conversely in the commodity business (with or without limited competition) price will continually be driven down (the cost/price squeeze) and in the context of WTO access to our markets by potentially lower cost producers will increase.
Basically, this to me spells out a couple of options...
1) get more cows. If margins are squeezed and it costs more to live all the time, then you need more cows. In the traditional model I figure I need around 1,000 cows and no hired labour to make a go of it (this assumes purchasing or renting a land base). The number may be less if the land base is largely secured.
2) add more value. If the commodity thing squeezes margins, then get into a business with better margins. This to me means value chains, niche marketing, etc.
3) do both.
The way I read it, unless more individual operations are willing and wanting to change, then option 1 becomes the defacto model across the industry, and the number of producers will continue to decline.

[grassfarmer]

Interesting discussion. A few comments on the latter posts - Kato I think your analysis of ethanols future is right on. They actually have a plant up and running (or very close to it) in Scotland burning wood, primarily derived from farmed "short rotation coppiced willow" another is being built in northern England so that technology is available now. It's a lot smarter than corn ethanol that's for sure.

BEZ, You make a good analysis of the situation at the moment, it was lacking in solutions though. I think there are still opportunities out there - growing crops for fibre or fuel is one, getting paid for carbon sequestration is the ones that excites me most. If we can achieve returns of $100/acre or even $50/acre in carbon credits for managing grass in a sustainable manner imagine the potential cash injection into Canadian agriculture on the land base we have. This would be great progress - essentially big business subsidising good management of grasslands, the shoe would be on the other foot for once!

But even in the beef sector there are opportunities - take the US grassfed beef market which has grown from 8000 head marketed in 2000 to 50,000 in 2006 with predictions that consumer demand would need 100,000 head to meet demand in 2007. Where will this end? will it happen in Canada too? these are possible opportunities with huge potential. Remember too none of this grassfed beef is going through the doors of Cargill or Tyson, this is small, local plant killed beef much of it being direct marketed.
How climate change effects agriculture around the globe remains to be seen and could also shape our destinies.

Sean, I think your #3 choice is where we are headed as there are many people working to gain a better portion of the proceeds of the beef they rear, some will succeed.
I don't think it really does matter that we are losing producers or that there is a critical number to get to, it's evolution and has been going on since every human on earth was growing/catching their own food. The important thing is that in almost every case when someone sells up, retires or goes bust someone will farm their land after them. The land remains in production and that will always be the case as the population continues to grow.

[ValueChainFX]

Been a while

We all know the challenges are many

1.) Producer groups need some sort of central communication/marketing effort. It isn't happening now!

2.) Until our Federal / Provincial governments establish an inter-provincial trade inspection system crossing our own provincial boarders will not happen.

3.) Success in the Asian market only happened when we worked close with our customers there, inspected every load when it arrived and had them working with us in our plants to provide the exact product they wanted (and paid for limited available product by buying less desired cuts that helped us balance loads)

4.) We had people on the ground in our customers country to ensure their every desire was met.

5.) Unless there becomes a way that the producer is the Canadian supply chain, they best be happy as producers win lose or draw.

6.) Producers need to align thier opinions rather than supply 2 or 3 for the same plan.

Manifesto .... Plan .... Objective ..... Vision or hollusination if whatever happens is not in alignment with the needs of producers across Canada there will be fewer and fewer every year.

Personally I wish them all well and presently keep up now and again with what is going on in the industry, I walked away when I found the leadership was more often than not doing the government business and not producer business.

Just an observation, hope I didn't stir the pot