The pending closure of one of Alberta’s largest feedlot operations has sent ripples throughout the industry and provoked concerns about the future of the cattle business in Western Canada.
Western Feedlots announced Sept. 21 that its shareholders had decided to wind down cattle feeding operations by 2017 in Mossleigh, High River and Strathmore, removing capacity for 80,000 to 100,000 head from the sector. It cited low market returns and “the poor political and economic environment in Alberta” as contributing factors in the decision.
Western Feedlots did not return calls to elaborate. However, it was widely known in the industry that it had been trying to sell its feedlot operations for at least a year.
As well, the feeding industry has seen considerable consolidation over the past 10 years.
Nevertheless, Western’s decision to end its feedlot side completely, retaining only its farming operations, came as a shock.
“I think it surprised a lot of people,” said Bryan Walton, chief executive officer of the Alberta Cattle Feeders Association. “They were one of the largest feedlots in the country.”
Leighton Kolk, who operates KFL Feeders near Picture Butte, Alta., shared that sentiment.
“I was aware that they had been trying to sell it, on and off, but it was a surprise when I heard that rather than selling it, it was getting mothballed,” said Kolk.
“They’re making a tough decision because it’s not an easy decision to just take something off stream. It seems like everywhere you turn, it’s a tough business. You can’t seem to buy the cattle right, you can’t sell them right. It’s been a challenge for anybody in the business.”
Cattle feeders are facing low market prices for fat cattle after having paid higher prices for feeders last year. Cattle have lost about 35 percent in value over the last six months.
Losses in the feeding sector now hover around $300 to $400 per head, a situation market analyst Anne Wasko says is unprecedented.
“The level of these losses has been substantially larger and for a longer period of time than they’ve been managed before, “ she said.
While its true the feedlot industry is cyclical and based on margin, the current situation is worrisome.
“To say that we’ve lost $300 a head before, for an entire year? We haven’t done that before. The industry has lost money before, but this one’s a biggie.”
The loss of Western and the prospect that losses might lead to more closures also has implications for the future of Alberta’s two big packers, Cargill and JBS.
“The supply scenario has been precarious for the packer in Canada for the last little while, to say the least,” said Wasko.
Walton said the cattle feeders commissioned a study on the impact of a packing plant closure, primarily with the labour shortage in mind. Though he does not believe such an event is imminent, Walton said he hopes the government will release the study, which was finished last year.
On the political front, the Wildrose party made hay with Western Feedlot’s reference to the poor political climate in Alberta as one reason for its decision to close.
Agriculture critic Rick Strankman said the NDP government’s actions on farm safety regulations, which drew widespread protest among farmers last year, destroyed the NDP’s political capital and the effect of the pending carbon levy on agriculture has yet to be gauged.
“There’s still a lot of apprehension and uncertainty” in the sector, said Strankman. “It’s frustrating that this government just simply doesn’t relate well to where their food comes from.”
Agriculture Minister Oneil Carlier said Sept. 23 that he was taken aback by Western’s announcement but considered it a business decision.
“I’m pretty comfortable knowing this was a business decision that they felt they had to make.… They’ve been a strong supporter of the feedlot industry for many years, so it is disappointing.”
Carlier said he knows these are lean times in the feedlot industry and the government continues to support beef sector research. A feeder loan guarantee announced by the government two weeks ago was also well received, he added.
As for NDP policies having a role in the feedlot closure, Carlier said he is aware of the accusations.
“I hear what he’s saying but I would perhaps respectfully disagree.”
Ian Goodbrand, owner of Dryland Cattle Trading Corp. in Central Alberta, said there is excess feedlot capacity in Western Canada to support the smaller domestic cattle herd and that is playing a role.
“Nobody wants to hear this, because everybody wants to blame the government for this and that,” he said.
“The fact is we’ve got too much feedlot capacity in Alberta, so at some point that had to get rationalized, and we did that with the packing business in the last few years.
“We’re running far below capacity so what that’s done is it’s made our cattle higher relative to U.S. because people are trying to fill the pens. Now we’ve lost so much money that we can’t, and so the weaker players go away. That’s what happened. So now I think we have a more healthy business going forward.”
He said fewer fed cattle, as a result of Western’s closure and more rationalization in the sector, could support the two big packing plants by allowing them to run at capacity, which they haven’t been able to do in recent years.
Goodbrand said Western’s move is the smart play.
“I think they’re just doing the right thing. If you’re looking at your equity, a third of it’s gone. You’ve still got two-thirds of it left. You’re sitting on some very good ground. It’s worth a lot of money. Just pay off the people and farm it.”
Jerry Bouma of Toma and Bouma Management Consultants agreed the closure will reduce excess supply of bunk space but the future of the two major packers remains a concern.
Neither Cargill nor JBS are Canadian-owned, so either one could accept Canadian cattle at U.S. plants if it became uneconomical to operate in Alberta.
“Then you become price takers,” said Bouma about Canadian cattle feeders.