A Time For Opportunity

A combination of business acumen and lifting of government programs spurred the Canadian cattle feeding business into high gear - but what now?If, as they say, timing is everything, then the timing has been good for the Canadian cattle feeding industry. Seldom in the course of any industry's progression do so many pieces fall into place so nicely as they did over the past 10-15 years for Canadian

A combination of business acumen and lifting of government programs spurred the Canadian cattle feeding business into high gear - but what now?

If, as they say, timing is everything, then the timing has been good for the Canadian cattle feeding industry. Seldom in the course of any industry's progression do so many pieces fall into place so nicely as they did over the past 10-15 years for Canadian feeders.

More often, the government gets in the way, and progress takes a backseat to bureaucracy. Investors, if they can be found, get cold feet and nothing happens.

This was not the case in Alberta where cattle feeders have become a force on the North American beef scene. Last year, nearly 2.5 million cattle (69% of Canada's fed beef) were fed in this Western province situated just above Montana. Fed cattle production in Alberta has doubled in 15 years, pulling a 70% growth in the country's fed cattle production over the period.

A Look At The Pieces To know where the Canadian industry is headed, it's important to understand where the industry has come from.

Nearly everyone points to the lifting of the "Crow Rate" rail transportation subsidy as a turning point in Canadian cattle feeding. Using this subsidy, prairie province farmers once joked they could send a bushel of barley to Vancouver cheaper and faster than they could mail a letter to the coast. But the Crow Rate, along with the long-gone Tri-Partite livestock subsidy, were federal support programs that ironically worked to restrict development of the cattle industry.

"The Crow Rate was artificially encouraging the export of barley and wheat out of the province," says Nithi Govindasamy, Edmonton, AB, head of trade policy for Alberta Agriculture. "The elimination of the Crow Rate in 1995 was a tremendous boost for value-added opportunities."

The Alberta cattle industry was the first sector to see a change coming, explains Govindasamy.

"Government involvement in the form of direct subsidies constrained the industry, discouraging entrepreneurship and innovation. And, more importantly, the subsidies exposed a growing industry to trade challenges."

Enter some producers who recognized and invested in the comparative advantage they had in their feedgrain resources. "There was a clear recognition that the cattle and beef industries could be competitive on an international basis - but they knew they had to rely on themselves," adds Govindasamy.

While all this was going on, a monumental change in world trade climate was beginning. The Canada/U.S. Free Trade Agreement initiated a shift in the inefficient east-west flow of agricultural products to a more practical, albeit controversial, north-south flow.

"Even before the free trade agreements, though, cattlemen in southern Alberta had a very broad vision about where the industry was headed," says Tennis Marx, Camrose, AB, a beef feedlot specialist with Alberta Agriculture. "This beef production potential was also recognized by major beef packers very early on, a component that was badly needed."

Cargill opened its first beef plant outside the U.S. in 1989 at High River. IBP got into the act in 1994 by acquiring Lakeside Farm Industries. IBP's operations included a feedyard, but the primary reason IBP bought the company was its carcass beef plant at Brooks.

So, an infrastructure fell into place to support a long-standing cow/calf industry that today supports 3.5 million breeding cattle stretching from Manitoba to British Columbia and accounting for 94% of Canada's cows.

The Future Is In Cattle Meanwhile, the province of Saskatchewan is learning a lesson from its western counterpart - that there's more than wheat and barley to be raised on the prairie. With its economy so closely tied to grain exports, Saskatchewan lost the most with the elimination of the Crow Rate, Marx says.

Saskatchewan ranks second nationally in cow numbers, but its fed cattle production has steadily declined since 1985. Marx says recent growth in Saskatchewan's cow/calf industry might very well spur growth in feeding.

"Saskatchewan is beginning to recognize that the Crow is gone forever and the future of their agricultural industry is in diversification - and cows," says Govindasamy.

Brad Wildeman of Pound-Maker Agventures Ltd., Lanigan, manages one of Saskatchewan's largest feedyards. As cow numbers increase, Wildeman sees tremendous feeding potential in the province. With about 1 million cows today, Saskatchewan can easily expand to 1.5 million cows, with 2 million head someday becoming a reality, he believes.

"We have tremendous forage potential, and there's a lot of marginal grain land being converted to pasture," says Wildeman. "We're starting to see more networks established between our smaller backgrounders and finishing lots located both here and in Alberta."

Of course, Wildeman wants to compete with his neighbors to the west. "Every time we sell out of province, we're putting a nail on Saskatchewan's road to a larger, more dynamic beef industry," he says.

Nonetheless, Govindasamy says the majority of Canada's prairie and foothill cattle will continue to be fed and processed in Alberta. "I don't think that's going to change all that much in the foreseeable future because of the investment we have in our feeding and packing industries."

Dennis Laycraft, Calgary, AB, executive vice president of the Canadian Cattlemen's Association, is amazed that Alberta's cattle-on-feed numbers continue to set records.

"We wonder where all the cattle are coming from," he says. "At some point in time, the numbers have to turn around - but we've been saying that for quite some time."

And, with the packing plants at both High River and Brooks "double-shifting" and adding Saturday shifts, beef demand is apparently not a problem.

To keep up, many of the larger feedyards are adding bunk space. And, according to Laycraft, many smaller feeders are now specializing in backgrounding - funneling heavier feeders into the larger yards. All this downstream demand makes for keen competition between feedyard operators in both provinces.

Laycraft agrees Saskatchewan is to be watched and believes the province's new cow/calf producers are likely to be in the cattle business for the long-term. "This is different from the past when numbers fluctuated with the economics of grain farming," he explains. "Now, it's not much of a question what to do."

Laycraft doesn't see a huge increase in cow numbers nationally, however. "We'll continue to pull feeders in from the northern U.S. when possible. But we'll have to outbid cattle feeders in states like Nebraska, Kansas, Colorado and Washington," he adds. "There's going to be a lot of competition for cattle. It looks like we might have some trade issues behind us. That should help everyone."

There are some trade issues that are still of concern to some U.S. feeders. Craig Uden, manager of Darr Feedlot Inc., Cozad, NE, has to compete against Canadian buyers for Northern Plains feeder calves. While Uden doesn't relish the idea of more competition, he's willing to go head-to-head with Canadian feeders when it comes to buying calves. It's on the marketing end of the equation, however, where Uden has some suggestions that might help even things up with Canadian feeders.

"What hurts us more than anything is that we have very little information on what's coming down across the border," says Uden. "They send a lot of fed cattle into our packing plants, and we never know it - they just show up. That's what kills us at times."

Uden says accurate, "real time" reports of on-feed numbers, placements, captive supplies and other information - on fed cattle and beef production - would improve trade and market transparency. With today's technology and the relatively small number of cattle feeders in Canada, such information should be possible, he believes.

"It all comes down to having better information, whether on domestic supplies or on imports. The beef is going to be produced somewhere, and I don't see anything slowing the Canadians down. So if we are going to compete, we need better information on what they are exporting," Uden says.

The events of the past 15-20 years in Canada certainly have put a long-term infrastructure in place. Even more important, however, is Canada's "can do" mentality. The rapid growth of the past is unlikely, however.

"There's room for growth, and there will be further integration and certainly more specialization," says Govindasamy. "But if I can offer a suggestion, it would be to get out there and look for your own opportunity because opportunities are still there - on both sides of the border."