This should have been a golden year for cattle producers — but it wasn’t just the weather that didn’t co-operate.
Viewed through a high-level, macro-economic lens, the national herd should have seen a significant jump in numbers as the cattle cycle — that big wheel that takes a decade or so to make one turn — entered its sweetest phase: Expansion.
The stage seemed set. A period of liquidation was followed by consolidation in 2012; prices began to rise in 2014; and two years ago, demand shot up (peaking at the highest level seen in 27 years).
But herd numbers? They barely moved.
“It was a historically small expansion phase at just under one per cent,” said Brenna Grant, manager of Canfax Research Services. “And now we’re seeing larger cow marketings that have actually put us back at liquidation levels. We’re expecting the cow herd to be smaller for Jan. 1, 2019.”
And this despite the first of a pair of much-heralded trade deals having come into effect.
But ask Stuart Thiessen about the Comprehensive Economic and Trade Agreement (CETA) and you’ll get an earful.
“CETA is a joke — we’re getting nothing,” said Thiessen, a cattle producer and feedlot operator near Strathmore. “Last I checked, it was 2,500 head that went to Europe. That’s not even a day’s kill.”
The deal was ratified a year ago, but only one of Canada’s major packers is shipping cattle to Europe because of restrictions around carcass washes. As a result, producers haven’t yet jumped on board with producing cattle that meet the European requirements for hormone-free beef.
“Because we do an extra wash in Canada, they won’t take beef from our big packing plants — that’s a big stumbling block,” said Thiessen, who runs 26,000 head in his feedlot and sells to Cargill. “When are we going to stand up for ourselves? We’re going to lose on every trade deal until that happens.”
As a result, cattle producers are still in a wait-and-see mode when it comes to expanding their herds. Thiessen had been planning to build some new feedlot space to accommodate the expected growth in cattle herds, but that expansion hasn’t happened as predicted.
“I can’t ramp up unless cow-calf guys start producing more cow-calves. And they’re not,” said Thiessen. “I know of several people who have cut down production in Alberta because they don’t want to have to deal with new regulations. They’re at that age where they’re just going to start winding down instead.
“Feedlots are trying to grow, but it’s very tough to grow in Alberta. And as an industry, it’s squeezing us.”
The ‘missed’ cycle
Grant acknowledges things haven’t worked out as they should: Canadian cattle producers appear to be in the middle of what she calls a ‘missed’ cattle cycle.
But she also argues there are long-term gains on the horizon and producers who can stay in the game will profit.
“After a missed cycle in the early ’80s, we then turned around and had one of the largest expansions, from 1987 to 1999,” said Grant.
“Things are really set up well for the future. It’s in the producers’ hands to decide what they want to do.”
Like 25 years ago, a number of “outside factors” have affected the cattle cycle this time around, she said.
The big short-term one has, of course, been the weather in the past year. Spring snowstorms resulted in more cows being culled after calving, and then rain came at the wrong time for hay and pasture crops. Now feed shortages and high prices are battering many operations.
This destocking is reminiscent of what happened in the U.S. following the drought of 2012, said Grant. And since then, the American herd has expanded by about nine per cent, making Canada’s own expansion look paltry in comparison.
“They responded really strongly when they had weather conditions that were favourable in 2013 and 2014, so they seem to have had a really big expansion,” said Grant. “But in actual fact, the U.S. market wasn’t so much expanding as it was restocking cattle after they had some pretty severe droughts. That’s really made the current U.S. expansion cycle appear much larger than Canada’s.”
There’s also been a big change in production efficiency that has kept herd numbers down, she added.
“The price signal is not really telling us to expand in terms of number of head but, rather, in terms of pounds of beef being supplied to the consumer,” she said.
“Every additional cow that’s coming into the herd now adds substantially more pounds of beef to the system than 20 or 30 years ago. We’re able to get the same pounds of beef now with fewer cattle.”
But perhaps the biggest driver in this most recent cycle was trade uncertainty, which is mostly at an end with the renegotiation of the North American trade deal and the ratification of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP.)
“At this point, with CPTPP signed and ratified, and the update of NAFTA (having been) renegotiated, there’s more certainty going forward,” said Grant.
And despite his disappointment with the European trade deal, Thiessen is hopeful following the recent ratification of the Trans-Pacific agreement.
“I think that one is more promising,” said Thiessen. “Cargill already has a program running there, and they’re not asking us to do a lot that’s special. Let’s hope it works.”
The deal involves 11 nations, but the big immediate prize is the Japanese market. Once it comes into force, the Japanese tariff on fresh beef will fall to 27.5 per cent (from 38.5 per cent) and to 26.9 per cent on frozen beef. (Canadian beef will also be exempt from the Japanese safeguard tariff of 50 per cent.)
It should give cattle producers access to markets where demand for Canadian beef has been growing, said Grant.
“Last year and this year, we’ve seen continued strong support for beef out of North America going into Asia, and that’s really been supporting expansion of the herd and overall production and prices,” she said.
With reduced Japanese tariffs, Grant expects that exports will surpass the volume peaks seen in 2001, and there’s potential for that to increase even further.
“Japan has been increasing its total beef imports, so there’s an opportunity there.”
Although not part of the Trans-Pacific deal, China is another market with big growth potential.
“Population growth, urbanization, and a growing middle class have all resulted in changing consumer diets and a desire to increase the amount of animal protein in these diets,” said Grant.
“China has been unable to have its domestic production keep up with its consumption growth, and this is a trend that is going to continue going forward. We know that China will continue to rely on imports for beef.”
Canadian cattle producers will still have to compete to gain market share, particularly with Australia, which is part of the Trans-Pacific deal, and the U.S., which is not.
And that means not just riding out the current challenges, but positioning themselves for the future.
“The biggest thing for producers is the bottom line,” said Grant. “Part of staying profitable is building equity and having the economic resilience when faced with times of market volatility and uncertainty so that they can continue supplying the market.”
Thiessen is ready.
He’s just waiting for the market to send the right signals to his operation and the cow-calf producers who supply his feeder cattle.
“Honestly, the market is going to pull it,” he said. “As much as we can, we try to use the market to decide what to sell and when to sell. The market drives us more than anything.
“So we just need to remove as many impediments as we can and let it happen as it happens.”