Could it cost us another plant?
To the surprise of no one, cattle numbers are down for the fourth year in a row. The July mid-year inventory survey found 14.8 million head of cattle in Canada, two per cent less than last year and six per cent fewer than in 2007. Almost all of the drop came out of the beef herd. No surprise there. Profit has been a rarity for cow-calf producers of late and clearly many have given up hope of seeing a return on cows and calves any time soon.
It took six painful years but we have now washed the BSE bulge out of the herd. Beef cows were culled down 5.6 per cent in the last 12 months to 4.58 million head putting the total below the drought-shrunk herd of 4.92 million head in July 2003. And there’s no indication the sell down has stopped.
Beef replacement heifers are down 2.5 per cent at 638,000 nationwide and it is anyone’s guess how many will actually end up in a breeding herd. This follows a near 10 per cent year-to-year drop for replacements on January 1.
The sell off is going on in every region. Cow numbers in Eastern Canada are down about four per cent, primarily in Ontario. Quebec’s beef herd actually went up a little — more on that later. Out west producers now own six per cent fewer cows than they did last July. Most were culled from Alberta, Manitoba and B. C. herds. Beef cow numbers fell eight per cent in all three provinces this summer while Saskatchewan’s cow herd remained pretty much on par with last year.
U.S. cattle inventories were also down another 1.5 per cent in July.
Fewer cows means fewer calves and smaller supplies in future. That has implications for the whole beef chain.
We’ve already seen some evidence of this trend with the mothballing of XL Food’s cow plant in Moose Jaw earlier this year. The company blamed the closure on the $30 to $40 per head cost of disposing of specified risk materials required by the enhanced feed ban and the falling number of cows that are available for slaughter.
Last month rumours started to circulate that the same combination of forces has Eastern Canada’s largest cow slaughtering operation, the Levinoff-Colbex plant in Quebec, on the ropes as well.
Quebec has always been a bit of a special case because of its stabilization scheme, but there is no doubt the loss of this plant would have a serious impact on cow prices right across the country. The Quebec beef producers federation bought the plant in 2006 when they were knee deep in cull cows. Now they are facing the same situation as every other owner of a cow plant.
Levinoff-Colbex has capacity for 5,000 head a week and needs about 3,000 to break even but it has been averaging 2,400 this summer. It gets most of Quebec’s culls but not all and that’s hard to understand.
Producers are paid a supported formula price based on the value of the carcass at the time of delivery. For the first five months of this year Quebec cows averaged $95 per cwt, about 20 per cent higher than last year. You won’t be surprised to learn that Quebec’s beef cow herd has been stable at around 230,000 head for several years now. It is the dairy herd that shrank from 410,000 in 2004 to 366,000 head as of July this year. More recently an increase in milk entitlements has encouraged dairymen to keep more cows. As a result the plant’s supply of Quebec culls is down 24 per cent this year.
Another 1,100 head of cows are bought every week from Ontario and western markets but this supply is shrinking, and on these markets the Quebec plant must outbid the Americans for the cows. Last year the plant lost $5.1 million and wrote off another $8 million in good will. The projections for this year aren’t looking any better.
At the moment, no one at the federation is talking about closing the plant. But they are planning to get back into fed cattle. Quebec feedlots ship about 4,000 steers to the U. S. and Ontario every week. The federation wants to process 2,000 of those for a Japanese restaurant chain that is looking for a guaranteed supply of grain-fed, age verified, traceable beef. Sources within the federation says they’ve already set up a processing line within a cooler to do a test run on 200 head a week this fall to cement the order.
The catch is they need $60 million to build a processing plant next door. Part of the money is already committed but it requires $20 million in grants or guaranteed loans from Ottawa to finance the rest. The federation can’t go back to producers for more money. They are already paying a levy of $54 a cow over five years to pay off the $30 million the federation raised last year to pay for the plant.
If Ottawa says no, we could lose another cow plant.