Ahead of the Heard
It’s been over a year of increasing prices for cattle and hog producers, heck even lamb producers are seeing prices stabilize and increase. That’s good news all-around for producers, their bankers and the rural community in general. The nagging question as always is when will the gravy train end. Market highs and lows are just part of the price cycle livestock producers face. Market analysts and ag economists love to dissect price trends and cycles and create complex supply and demand graphs and to be fair it’s a process that in the past showed a regular cycle. The insightful producer used those cycles as a guide to expansion and contraction. However, it did develop into a perverse process of sell low and buy high mentality by some producers.
But as livestock producers have noticed, the usual price cycles have not been functioning within their usual pattern for a number of years. Unlike in the past, today’s factors affecting the market are quite different from what occurred in the past and they may have long term impact on the size of the North American cow herd in particular. What seems to be occurring is that we are running out of land and people to produce cattle and beef on this continent – certainly in the short term.
First the people shortage situation - and it’s become a problem from primary production to the processing sector. In the critical Alberta and Saskatchewan cattle industry area, the bustling economy is causing a farm and meat processing labour shortage problem. The energy industry is the main culprit as workers flee agriculture and processing for much higher paying jobs in the oil patch. It’s not just workers either, family farm and ranch operators are finding that their grown children are also not that keen to take over the operation because of better opportunities elsewhere. That’s had a further affect as owners near retirement and no prospect of turning over the operation to their children, reduce the size of their herds and rent out their land for crop farming purposes.
The related driver in herd reduction, particularly in the USA, is that less grazing land is available for cattle production. That’s been caused by weather calamities and governments reducing the use of public lands for grazing purposes. Clearly with a decreasing supply of people and land to raise cattle, the underlying trend becomes rather clear. But it’s the people shortage at the other end that is the biggest worry. Feedlots and meat processing plants need workers to feed and process the cattle primary growers produce. There the shortage becomes acute and can cause these operations to cut back their buying practices. That could result in a curious dilemma – high priced cattle with nowhere to go – a producer’s worst nightmare
Industry observers will tell you that regardless of the other factors affecting cattle production, high prices will solve all production problems in the end. There is considerable truth to that observation and agriculture has proven that it can respond quite dramatically to price incentive. But there is a related problem to that incentive, reports are that with the present unprecedented sky high prices, cattle producers are selling every bovine they can including potential replacement heifers. That does not bode well for herd expansion, never mind just regular herd replacements.
I expect many cattle producers also suspect that regardless of the ongoing reduction in the national cattle herd, the present price gravy train could come to a grinding halt at any time. Might as well extract as much return as possible whilst the market is high. That’s because there is a looming reality that is like a ticking time bomb – and its retailer and consumer price resistance. The sight of $50 dollar steaks at a restaurant or a $60 prime rib at the meat counter is sure to initiate some sticker shocker on any consumer. Surely they will start to look elsewhere for their meat purchases. That is almost guaranteed to happen.
But is there another side to consider – yes there is – supply and demand can work in different ways. If herd expansion is not forthcoming because of other factors, what may well occur is that the industry will settle into a smaller production and processing base. That will see fewer feedlots and probably fewer processing plants. Cattle prices may still remain high but they will be needed to resolve those higher labour costs. What is for sure is that the next few years will be interesting times for cattle production and processing in western Canada.