Calgary, the city built upon the cattle business, will lose its last packing plant in May.
The cows are leaving cowtown. For the nostalgic among us, the pending closure of the XL plant will mark the end of an era that included large cattle ranches, colourful and charismatic ranchers, busy stockyards and the packing plants of Burns, Dvorkin, Kerr and Canada Packers.
Those smaller plants were once profitable, but margins in the packing business have become razor thin. Nostalgia is just one more thing the existing array of businesses can’t afford.
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XL Foods, owned by Nilsson Brothers, will be criticized for the closure, but it is clearly a decision made necessary by business realities.
The plant hasn’t been running at or near capacity for some time, and it makes no business sense to run even an efficient plant inefficiently.
Low slaughter numbers are the primary villain in this story. The Canadian herd has been contracting for years and there simply aren’t enough cattle available to keep the Calgary plant running efficiently, let alone the bigger plants at Lakeside in Brooks, Alta., and Cargill in High River, Alta.
Neither of those plants is running at capacity either and each has reportedly halted slaughter operations for a day or two each week to save money until the situation improves.
That it will improve is a given. Such is the nature of the cattle business and the cattle cycle.
Herd sizes won’t increase quickly. It takes almost three years to bring an additional animal to slaughter weight, and that of course depends on earlier cow and heifer retention.
In the meantime, cattle prices are improving after years of producer losses, so there’s a need for many to capitalize on decent sale prices to cover debt. That means a herd increase will take even longer.
XL Foods holds out hope that the Calgary plant may reopen when slaughter cow numbers improve, but that seems unlikely given the attraction of the prime real estate that it occupies in the city’s southeast.
As well, XL will terminate up to 500 employees, and it will be difficult to replace that labour force at some unknown future date.
The packing plant situation isn’t much different in the United States. Indeed, XL Foods announced closure of its Nampa, Idaho, plant at the same time as the Calgary closure.
Herd contraction is also an issue south of the border with signs of only meager improvement. Beef cattle numbers are down and a massive dairy cow cull over the past several years, prompted by low milk prices, worsened the problem.
Domestic beef demand is flat in Canada and the U.S.
American packers are thus running on thin margins as well, although their beef exports, now running 25 percent ahead of last year’s amount, are providing wiggle room.
As well, American packers don’t face the major costs associated with removing specified risk materials from each carcass, as Canadian plants must do. Federal government funding has eased that expense to a degree but there’s no guarantee it will continue.
Economics dictate that every link in the cattle production chain can’t make money at the same time. Packing plants have been able to ride the gravy train in the past but now they have thin gruel.
Their health is going to depend on careful management until export demand improves and cattle numbers rise again.
Bruce Dyck, Terry Fries, Barb Glen, D’Arce McMillan and Joanne Paulson collaborate in the
writing of Western Producer editorials.
