DDGs too pricey due to ethanol collapse, U.S. corn too expensive due to weak loonie and prairie barley running short
Jake Bueckert’s phone greeting reveals what is on his mind these days.
“It’s another beautiful day in southern Alberta with the wind blowing, the sun shining and the cattle still in the feedlot,” said the vice-chair of the Alberta Cattle Feeders’ Association.
This is not a good time to be in the feedlot business.
“We’re in a little bit of a crisis mode,” said Bueckert.
COVID-19 is wreaking havoc on the beef sector.
The most pressing problem is the temporary shuttering of the Cargill meat processing plant in High River, Alta., which slaughters 40 percent of the cattle in Canada.
Cargill hasn’t said how long the plant will be closed but any prolonged reduction in slaughter capacity means cattle producers like Bueckert are going to be feeding their animals longer than usual. That means mounting costs.
And then there are the ripple effects of what is happening in the ethanol sector. Demand for the fuel has dried up, which is leading to vastly reduced production of distillers grains.
That is driving up the cost of the feed ingredient, making it uncompetitive in rations.
The price of feed barley in Lethbridge was $235 per tonne last week. Distillers grains work in rations at a price of 120 percent of feed barley, or $282 per tonne.
Bueckert was quoted $350 to $360 per tonne for distillers grains the last time he inquired for his Driland Feeders operation in Warner, Alta.
“It has priced itself out of our rations. It’s probably $60 to $80 per tonne too much,” he said.
Distillers grains used to comprise up to 20 percent of his feed rations. That has to be replaced with an alternative ingredient. But what?
Feed supplies are limited in Canada. He tried to pull some out of Saskatchewan last fall but the economics didn’t work due to freight costs.
“There’s just not enough barley in the country,” said Bueckert.
“I sure hope we can draw on some U.S. corn. Otherwise we’re going to be in big, big trouble.”
U.S. cash corn prices have dropped 16 percent since March 1, according to the National Corn Growers Association. That is because half of the country’s ethanol production has been idled.
But the problem with importing U.S. corn is that the Canadian dollar has been depreciating against the U.S. dollar, which is making the alternative feed ingredient more expensive.
Bueckert said it is possible to import some corn from Manitoba but the bottom line is cattle feeders are likely going to have to pay more for feed barley and feed wheat to keep it out of export channels, putting further pressure on non-existent margins.
“We don’t have margins right now,” he said.
“I’m not sure what we’re going to do if these packing plants can’t operate.”
Jayson Lusk, head of the department of agricultural economics at Purdue University, said the packing problem goes well beyond plant workers getting sick with COVID-19.
The global pandemic has caused a big reduction in meat demand as consumers have shifted from dining out to dining in.
Initially there was a surge in fresh beef, pork and chicken demand. Grocery store sales of the products were up between 55 and 102 percent over the same time last year in the U.S. during the first couple weeks of the lockdown.
But that has settled down. Sales in recent weeks have been averaging 30 to 40 percent higher than the same time last year, he said during a recent webinar organized by the university.
Lusk was asked if that is enough to offset the losses in restaurant sales of meat products.
“Almost assuredly not,” he said.
In the United States, a little over half of food spending occurred away from home in the pre-COVID era. In Canada, it was closer to one-third.
Food service demand has evaporated with the exception of limited drive-through and pick-up traffic at some restaurants.
“The increase in sales through grocery stores has not been enough to compensate for the loss of food away from home,” said Lusk.
Wholesale prices of beef, pork and chicken are all below last year’s levels indicating that supply is outweighing demand. Expensive cuts of beef have been particularly hard hit, while prices of products like ground beef are on the rise.
Daily cattle slaughter in the U.S. fell to 85,000 animals per day on April 22, down from 122,000 per day the same time last year. That is a 30 percent decline.
Those animals that are not making the trip to the abattoir are continuing to eat, which means they will be marketed later in the year at a heavier weight, putting further pressure on beef prices.