Disaster averted: Cattle set-aside does its job

'It could have been worse, a lot worse,’ says feeder association chair

It has been a long, tough haul since the pandemic nearly cratered the cattle sector and feeders are only now getting close to break-even, says feeder association chair Greg Schmidt. But if not for the set-aside program, the financial pain would have been much greater, he said.
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It was a response to a crisis that threatened to overwhelm Alberta’s cattle sector — but seven months later the cattle set-aside program has come to an end.

And it’s clear it’s been a success, says the chair of the Alberta Cattle Feeders Association.

“I think the program did its job,” said Greg Schmidt, an owner of Schmidt Livestock in Barrhead. “It really helped mitigate supply at the right times.”

The set-aside started in June, and was designed to help the cattle industry deal with the huge backlog of 130,000 market-ready cattle that couldn’t be processed. The backlog had built up after a large number of COVID-19 cases forced Cargill to temporarily shut down its High River facility in April. Soon after, another outbreak saw JBS go down to one shift at its Brooks plant.

As the number of unprocessed cattle grew, there were fears the sector was headed for disaster.

“The value of a market-ready animal has dropped over $500 per head since the start of COVID-19,” the Canadian Cattlemen’s Association said in late spring. “Left unaddressed, the Canadian beef industry will lose half a billion dollars by June on market-ready cattle alone.”

The set-aside program was designed to prevent that by stabilizing prices via feed subsidies for cattle waiting to be processed.

The first cattle were accepted into the program on June 29 but the take-up was not huge.

“They took a limited number into the program, and then didn’t take cattle again until August or September, when they took more small numbers,” said Schmidt. “November would have been big numbers up until the first week of January.”

But limiting the number of cattle going into the program was a key feature of its design — the goal was to prevent a price crash by having too many cattle marketed at once. So a committee decided how many market-ready cattle needed to be ‘set aside’ and feeders then ‘bid’ by stating how many cattle they would be willing to keep on feed and what price they would accept for their feed costs. (The money from the set-aside covered about half of the daily feed costs of an animal.)

There were also other criteria used to regulate the flow of cattle into the program.

“The regulations were that your steers had to be over 1,400 pounds at the time, and heifers over 1,300 pounds to qualify,” said Schmidt. “The theory was that they were market-ready cattle that we wouldn’t put on the market at that time. That’s why those weights were chosen.”

Participants could also lock in a basis so they wouldn’t take another financial hit by not being able to market cattle while they were in the set-aside program.

“What ended up happening was that we were getting relatively decent prices compared to the U.S.,” said Schmidt. “That was one of the criteria, but they used many. One of the criteria was our basis level compared to the U.S. We had a fairly favourable basis into the fall with the plants.”

And demand has been good as the processing plants put up impressive slaughter numbers during the summer and fall, and prices were up on finished cattle.

In a recent presentation, one leading market analyst called the performance of the meat industry (both in processing cattle and hogs) “phenomenal.”

“I make that claim because it is,” said Kevin Grier. “I never ever predicted that this industry would bounce back as fast as it did in terms of being able to move hogs and cattle through the plant.”

But while disaster was averted, it has been a rough time for feeders in Alberta, said Schmidt.

“I’ll never say that we came through the fall in good shape,” he said. “Feedlots were seriously in the red for all the cattle that were going.

“It could have been worse, put it that way, a lot worse.”

In November and December, feedlots were still taking a $200-a-head loss.

“We were considerably lower than our regular fed cattle prices,” he said.

Schmidt said processors have been able to eliminate the backlog, or at least come close to wiping it out.

A similar program was developed back in 2003 (to help deal with the oversupply caused by the BSE crisis) and although the current version is technically finished, the Alberta Cattle Feeders Association would like to have it available in case of another emergency.

“What we’ve asked is that they at least keep that program on the shelf and some money earmarked for it,” said Schmidt. “Our biggest worry is that we’re not out of the woods yet.”

Another plant closure or production slowdown because of the pandemic could quickly produce a new backlog of cattle.

“If we get into that same situation, it would be nice to have something immediately if we need it. (The government) seemed fairly receptive to that.”

Currently things are OK and January saw some upward movement on prices for finished cattle.

“We’re getting close to the break-evens on cattle now, which hasn’t happened in quite some time,” said Schmidt.

The heavy marketing season for cattle is February, March and April. And this year, there will be an additional influx as the last cattle put into the set-aside program come back on the market. (About 10,000 to 12,000 cattle that were put on the program in November will be released in the first part of February.)

Schmidt said that the cattle coming off the set-aside could technically be considered part of the backlog.

“I wouldn’t say we’re completely better, but things are looking marginally better,” he said.

– With files from Glacier FarmMedia

About the author

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Alexis Kienlen

Alexis Kienlen lives in Edmonton and has been writing for Alberta Farmer since 2008. Originally from Saskatoon, Alexis is also the author of two collections of poetry, a biography, and a novel called "Mad Cow."

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