God help the beleaguered cattle producers of Canada.
As prices plummeted like the proverbial stone in 2007, we were told it was because of the high cost of feed grains and the soaring Canadian dollar that briefly took on the American greenback and pummeled it.
Now the situation is nearly the opposite. Feed grains have tumbled and the loonie has resumed its humbled position at the feet of the American eagle.
But bad as cattle prices were then, they are worse now. What’s up with that?
One major difference is the Americans’ implementation of Country of Origin Labelling. COOL has scared most American packers off processing Canadian beef, and this is now considered an important driver in the downhill slide.
It should also be noted, though, that cattle prices have been more or less continuously falling since 1989, as an excellent report by the National Farmers Union recently pointed out.
The inevitable outcome is a drop in Canadian cattle numbers as farmers cull older cows and reduce replacement heifer numbers.
Last July, Statistics Canada released data that demonstrated this. Where the losses are taking place is interesting. Overall, Canada’s beef cow herd shrank 4.7 percent from July 2007 to July 2008, but the pain was unequally spread.
Manitoba lost 1.8 percent, Saskatchewan dropped four percent, Alberta tumbled 5.8 percent and B.C’s relatively small herd fell by nearly 12 percent.
Eastern Canada did not fare quite so badly. Ontario’s beef cow numbers declined 3.3 percent and Quebec lost less than one percent.
The smaller declines in Ontario and Quebec may be a result of the much larger domestic market in those provinces.
Western Canada needs to export much more of its beef production due to larger numbers of cattle and a smaller population.
While the cattle industry wallows in misery, the federal government has offered it a teaser.
Federal finance minister Jim Flaherty made a cryptic reference to the problems in the livestock industry during a meeting with provincial finance ministers. It was enough to inspire Saskatchewan’s finance minister Rod Gantefoer to offer his own teaser â€“ farmers should look to the upcoming Jan. 27 federal budget for a late Christmas present.
Alberta’s government didn’t wait for the feds to move. It brought out a substantial assistance package for livestock producers months ago.
Governments should indeed act. Livestock producers are losing equity daily while they maintain their herds.
Governments, both federal and provincial, need to decide what they want for a livestock industry.
If cattle producers are left to their own devices, the industry will indeed shrink far more. If this is the decision of governments, that the industry must shrink to meet the new reality, they should immediately make that clear to producers so they can exit before they consume their equity in a futile waiting game.
Let them get on with it, break up their pastures and hayfields and produce the annual crops that are more profitable. (I’m trying to keep a straight face as I write that last sentence, given recent grain prices.)
Better yet, provide a program to let producers exit the industry with dignity and the cash to transition to something else.
But if governments support the industry, what is the end game?
Would it be done with the belief that markets will one day turn around and the industry will be there to take advantage of them?
This is a pathetic strategy at best.
One strategy, advocated by the NFU as part of its overall plan to revitalize the livestock sector, is to decrease the cattle herd to one that matches domestic consumption.
To many, that would be a hard pill to swallow. Charlie Gracey, longtime observer of the cattle industry in Canada, called this idea unthinkable.
It would certainly mean a reduction in the number of feedlots in Canada, and a shift out of feed grain production in some areas.
For ranchers, the decision to downsize is often hard, because the idea of being more profitable with fewer cows seems counterintuitive.
A smaller industry makes sense, though. Since returns on calves barely cover variable costs, a positive return on fewer calves would have to look better.
Fewer acres of pasture and hayland would be needed for a smaller cow herd, but farmers could use these surplus lands to background their calves rather than selling them at weaning.
This would bring a greater return per calf and provide less disruption to cropping and land use patterns.
Much more would be needed to make this situation feasible, and the NFU report contains many ideas.
One thing is sure. If our governments, provincial and federal, have a better idea, they should say so soon. Canada’s hard working cattle people deserve to know where they stand.