AHEAD OF THE HEARD — In the segmented world of cattle production there is not always a lot of empathy between the various players. Much of that has to do with the buying and selling tensions that occur between cow/calf primary producers, feedlot operators and packing plants. Each sector at one time or another feels they are being exploited by the other. It is all part of the cattle marketing cycle that has been going on for at least 150 years. The response of every sector is to drive their input costs as low as possible – at least the ones they have some control over. What drives them all to exasperation are the external costs that are foisted on the industry by governments and regulators. Lately it has been the cattle feeding sector that has been facing an onslaught of new costs and fees.
Now cattle feeders are long-time survivors of market price fluctuations – it goes with the territory. It is not unusual to lose a hundred dollars a head and profit a hundred a head all in the same year. To mitigate price fluctuations, operators have a multitude of risk management tools available from hedging inputs and selling prices, to price insurance programs, to various contractual arrangements. Many feedlot operators do dabble in betting on the market, but I expect their bankers frown on too much of that activity. But there is more to the cost story.
The recent operational suspension of Western Feedlots brought to light the circumstances that feedlots are facing besides the discipline of the marketplace. It is a growing problem and if it is not addressed that sector may well see further significant retraction which will seriously impact the other sectors – cow/calf producers and packers. Besides the suspension of the giant Western Feedlots operation, at least five other feedlots in southern Alberta have closed. This cannot continue and it behooves the government and the industry to convene a task force to identify the cost issues that are of most concern and how they can be resolved.
The ones that come most to mind are those that have been instigated by governments and regulators. The most immediate are the increase in new WCB costs, and in Lethbridge county the three-dollar per head infrastructure tax. These additional costs hit feedlots the hardest. But it is only going to get worse – new farmworker OHS and employment standards are going to cost employers even more. And unless there is a universal exemption for the agriculture supply and marketing chain the new carbon tax will hurt the feedlot sector even more. Then on the medium term it will get even worse as feedlot operators lose some of their production efficiency tools when restrictions on antibiotics and growth hormones are forced on the industry by governments. New regulations are also in the works to cut off the supply of cheaper generic veterinary drugs and supplements from the USA. Sure it is a dollar here and a dollar there, but after a while it starts to add up to real money and it puts feedlot operators at a serious production disadvantage against their American counterparts.
So what can be done – first, the government needs to suspend any new fees (including the municipal head tax) until a rigorous review has been done – and that would include an assessment on the impact of these fees on the economics and competitive situation of the feedlot industry. Second, the government and industry need to create a task force to carry out the assessment and to come up with a rational resolution to support the feedlot sector. But alas, as reasonable as such an initiative may be, one is not hopeful considering the attitude of the present government. The initial reaction of Agriculture Minister Carlier towards the Western Feedlots closure was that 85 workers were losing their jobs. Okay, but he seemed oblivious that government actions may be part of the reason that this is happening and will only get worse. It all displayed a woeful lack of insight into the plight of the feeding industry by the minister and his political staff. One would hope that that government would seek out advice from producer groups as to resolving the financial challenges facing their industry, but there is no danger of that happening.
It may be cold comfort but other sectors of the ag industry are also about to face severe hardships – hog prices are sliding, feeder calf prices are crashing, and grains and oilseeds are under price and harvesting pressure. It’s going to be a long winter.