SASKATOON – The Canadian beef industry has been told to get used to living with a higher-valued dollar.
The traditionally lower dollar, when compared to the United States, allowed Canada to build and maintain a strong feeding sector.
“We’re adjusting to the new model where we are not a low cost producer,” said Brian Nilsson, co-chief executive officer of Nilsson Bros. and XL Foods.
“There’s other farming options and the effect is the current liquidation of the cow herd.”
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He said Canadian cattle numbers increased significantly between 1985 and 2005, while the U.S. herd did not grow at all.
This was based on the low dollar and farmers’ choices, he added. Grain farming wasn’t an attractive option through most of the 1990s and 2000s, so many chose to run cattle.
However, he said that has changed.
“When canola is $8 to $15 a bushel and you can generate $500 an acre and maybe net $150, there’s a lot of land that the better farming option is farming,” Nilsson said.
Americans experienced two down cycles during the Canadian expansion period, while Canadians had two short, small ones and were sheltered by the low dollar.
“The realistic truth of where we will be in the next 10 years … is we have to live with the fact that the Canadian dollar probably isn’t going under 90 (cents),” Nilsson said.
“I mean, 85 would be hugely low, but it is probably spending time between 90 and 105, maybe 110. We are effectively going to have to live with a par dollar and we will not be sheltered by the dollar.”
Travis Toews, vice-president of the Canadian Cattlemen’s Association, said it is difficult adjusting to a dollar that increased to nearly par from 63 cents in 2003.
“We’ve got a cost structure that we capitalized at a very low dollar,” he said.
“Over time, those costs have to go through the system and be realigned.”
Nilsson said the resulting herd liquidation is painful but the industry will still come out ahead.
In 2005, the cattle herd peaked at 6.2 million cows, including one million dairy cows that never disappear, and total head of nearly 17 million.
Today, there are about 5.2 million cows and a total of about 14.5 million head.
“We feel the bottom is coming soon, in the next year or two years at the most,” Nilsson said.
That bottom should see about 4.9 million cows, or 3.9 million beef cows, and 13 million total head.
“The good part about that is, that is higher than our 1985 low, which was 11.8 million,” he said.
“So we will still have a bigger industry even after we contract than we did before we went down this long road.”
