REGINA – Consolidation in Canadian agriculture has caused an industry that once relied on seat-of-the-pants decisions based on experience and luck to turn to advanced management strategies to prosper.
“We now manage our luck,” said Dave Plett, president and chief executive officer of Western Feedlots Ltd. of Alberta.
Plett was speaking to a business strategies seminar in Regina Nov. 25-26, hosted by Farm Credit Canada, the credit union system and Chinook Solutions Inc., a business management company based in Calgary,
Western Feedlots is one of Canada’s largest cattle feeders, handling more than 250,000 animals annually in three locations.
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Canada produces only three percent of the world’s beef, yet until bovine spongiform encephalopathy closed borders, it was the third largest beef exporter behind Australia and the United States.
About 85 percent of Canada’s total beef cattle industry is in Western Canada, with Alberta and Saskatchewan feeding 40 and 30 percent respectively.
This concentration puts the industry at risk from several factors, said Lawrence Hobbs of Chinook Solutions, which provides management support to Western Feedlots.
“Trade problems, like we have seen with BSE. Feed costs, drought, currency value changes, volatile commodities. Cattle feeding in Canada is more than farming. It is the commodities business and it requires attention to management,” said Hobbs.
Plett said Western Feedlots was once run like other farming businesses.
“It was traditional. Experienced based, direct cause and effect, unilateral, unco-ordinated management. The boss said what needed to be done,” said Plett.
Today the company relies on its 100 employees to provide input into every aspect of the operation.
“If I can save a penny per head, per day, I can put another $250,000 on the bottom line at the end of the year,” he said.
Plett said the company had to learn how to communicate up and down through its staff, and delegate authority and responsibility accordingly.
“We now measure everything to the 16th of a cent,” he said.
The company adopted a balanced scorecard system of management and modified it to accommodate the volatile nature of the cattle business.
Balanced scorecard systems focus the manager on the financial and operational aspects of the operation that can be measured and then applies those measurements to business to track its progress.
The system has been so successful for the company that it has sold the program to the largest feedlot in the U.S., said Plett.
Hobbs said that by adopting management strategies that include hedging commodity prices and currency exchange, Western Feedlots has found that in “some quarters, they can make more money buying and selling feed and money than they do on cattle.”
The use of advanced management strategies is becoming essential in agriculture, “both because the lenders demand it and because the margins get narrower as the volatility of commodities becomes more dramatic,” Hobbs said.
Plett said BSE has wounded a number of cattle feeding operations, with losses that now run about $250 per head.
The rise in the Canadian dollar is doing even more long-term damage, he said.
Because the trade in beef is mainly with the U.S., the relationship between the two currencies is critical to the value of Canadian beef.
In June 1990, the cattle feeding industry could expect to receive $955 for each animal it produced.
Due to the drop of the loonie relative to the greenback, by June 2002 the price of an average Canadian steer topped $1,300 per head.
“We did nothing to create that price rise. It went up because our dollar fell.”
With the rise of the Canadian dollar, the price of Canadian cattle has fallen by more than $200 per head since the summer of 2002 on currency alone.
High U.S. beef prices are deflecting some of that blow, but when the border reopens and U.S. supply and demand even out, the true effect of the stronger loonie on Canadian producers should be felt.
Plett said his company has been able to use the currency markets to weaken the blow of the Canadian dollar’s rise.
“We want to be the most efficient operator in the industry. When we measure ourselves against others, that means we are the most competitive,” he said.
As a result of Plett’s management strategies, Western Feedlots has been able to turn down cattle it doesn’t want, while other feeders are scrambling to fill their yards.
Plett said this results in his company attracting better quality, more consistent, efficient cattle that are sold to the packer at higher prices. Lower quality animals are shifted to his rivals, making them less competitive.
