BBeef production in Canada is based on an interdependent relationship among three parties that is designed to preserve the whole.
Packers, feeders and cow-calf producers need one another to remain viable. It is one of the simplest of agricultural businesses. Cattle get bred, fed and bled and meat gets shipped to wholesale and retail. Everyone tries to be as efficient as they can.
Beef prices paid by consumers have been rising sharply in recent years but cattle prices have been flat until the past few months. At the same time costs of production, such as feed, have in some cases doubled.
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Cow-calf producers have no leverage in this relationship when it comes to price. They are either in business or not. Some can reduce risk by feeding cattle themselves but that isn’t a realistic option for most.
Cattle feeders have a few choices about price. Darned few. They can fill the pens, fill fewer pens, fill pens with short- or long-kept animals depending on feed costs, or not fill the pens. Their lenders don’t like that last option. Or they can pay less for calves.
There have long been cycles of production in which production and feeding capacity rise and fall. Feeders have been profitable while cow-calf producers struggled and the opposite has been true.
Beef packers have the choice of buying cattle at the rates they bid or not buying them, slowing their chains or failing to expand to meet demands, potentially raising consumer prices by shorting supply.
In Canada, two operators with more than 80 percent of slaughter capacity hold those cards. Contracts for production are tied to price, quality, weights and delivery times, not to costs of growing the animals.
Meat packing has historically been a volume business based on small margins. The largest companies have been consolidating ownership of packing. American-based Cargill and Brazil’s JBS have likely reached a point where they can, to a point, offer producers what the market will bear, no matter what consumer prices are doing.
Canada exports about half of the beef it raises, so it must compete with American production on price.
The U.S. government, supported by cattle producer groups and some states, is investigating cattle and beef pricing, suggesting there are too few packers doing too much of the business.
While price signals to producers across North America encourage herd reductions, consumer demand suggests a need to instead grow the herd.
Saskatchewan cattle producers have recently asked for government analysis of cattle pricing in this country. While it would be good to get some answers, the question will likely remain: what are the solutions?
Canadian beef packing is mostly a division of two companies serving the American market. If the American government were to impose a pricing mechanism to protect its producers, it would interfere with the market, potentially causing growers there to over-produce and squeeze out Canadian supplies. Or it could result in Canadian beef remaining underpriced and in demand, which would rapidly come under scrutiny from American farm groups.
Do Canadian producers want their government to have oversight into pricing? Do they want binding arbitration or government orders to break packers into separate operating units? The options are few and many are unpalatable.
If nothing is done, there will be fewer cow-calf operators of any size until supply matches demand.
