Any grace period banks had extended to feedlot owners after the discovery of BSE in Canada seems to be over, according to the general manager of the Alberta Cattle Feeders Association.
“The banks are seriously reassessing their situation,” said Axelson.
He said nervous bankers are telling feedlot operators they want to see an improved debt-to-equity ratio before banks will loan them more money.
Since the first BSE case in Canada was announced last May, it’s estimated the Canadian cattle industry has lost $3 billion after 35 countries banned Canadian beef and live cattle.
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Rick Paskal of Picture Butte, Alta., said he was told by his banker to get a more favourable debt-to-equity ratio if he wanted a loan.
“My partner, the bank, says I can’t buy any more cattle until I get the margins corrected.”
Paskal said he must sell half of his 30,000 head before he will reach a margin level within the bank’s comfort zone. But Axelson said cattle producers are losing more than $200 per head every time they sell.
Glen Thomson, a feedlot owner from Iron Springs, Alta., said the banks have made the rules clear to the feedlots.
“The banks say either meet your margin requirement or you don’t get to play.”
For the first time in more than 20 years in the business, Thompson is not replacing the cattle leaving his feedlot.
Brian Countryman, director of public affairs with ATB Financial in Edmonton, said nothing has changed in how his bank deals with feedlot operators since the first case of BSE was made public.
“We are in no way trying to turn up the heat yet on anyone,” he said, adding the bank is trying to be flexible with its agricultural customers.
“Each circumstance is different.”
ATB forecasts it will lose $29.4 million because of BSE.
Walter Schmidt of Schmidt Livestock in Barrhead, Alta., is still buying cattle, but he has cut back. His equity, built up from years in the business, has disappeared, but he still manages to turn a profit.
“If you don’t stay in, when the border comes open you won’t have anything to sell. We’re going to play the game for awhile.”
Banks use a combination of numbers on which to base the line of credit they offer to feedlots owners. When an operator’s debt-to-equity ratio worsens, the credit available to buy cattle is reduced.
With a lower credit limit, cattle feeders can buy only half the cattle or at half the price, said Axelson. The ability of feedlot owners to buy cattle will have a serious impact on feeder cattle coming to market. Feedlots are already operating at a fraction of capacity, he said.
“It will really put the screws to the industry.”
Cattle industry analyst Canfax reported fat cattle prices fell $10 last week to $76.65-$79.75 per hundredweight.
Graham Schetzsle of Schetzsle Marketing in Veteran, Alta., said Feb. 2 that prices for feeder cattle were down from a week earlier.
“The major players in Alberta are sick of the whole scenario. There’s not a lot of optimism out there, that’s for sure,” Schetzsle said.
Paskal said federal and provincial governments must devise a plan to get all levels of the cattle industry through this crisis.
“We’ve got to sit down with government and figure out a plan with the border staying closed. The (U.S.) border is not going to be open until after the American election in November.”
From April to Dec. 31, Paskal’s company recorded a $6 million loss.
Under the Canadian Agriculture Income Stabilization program, he is able to make a claim on 70 percent of his $2.2 million historical reference margin. For Paskal that would be a $1.5 million claim.
“It absolutely does not address this need,” he said.
