November 30, 2006

 

Western Canada's cattle producers hurt by feed costs

 

 

Rising feed costs in Western Canada have been slowly deteriorating returns for cattle producers, according to industry sources.

 

"There have actually been two key items that have been cutting into the returns of cattle producers in Western Canada," said Dennis Laycraft, an executive Vice President for the Canadian Cattlemen's Association, or CCA. "Those two things are the Canadian dollar and the cost of feed."

 

Laycraft said the Canadian dollar has appreciated significantly over the past year, helping to reduce the returns of cattle producers.

 

"As we tend to have a North American market, when our currency is stronger, our prices for feeder cattle become lower relative to the US," he said.

 

On the other hand, rising feed grain prices in Western Canada have not been beneficial to cattle producers either, he said. "As feed costs in Canada climb, calf prices decline."

 

With the higher cost of feed this year, the average price for feeder cattle has declined significantly, Laycraft said.

 

Using sales of 400-600-pound cattle, prices for those classes of animals in Alberta were down about 20 cents a pound from the same time a year ago to about C$127/cwt. In Saskatchewan, prices were down about 26 cents a pound at around C$122 while in Manitoba values were down 14 cents a pound from the year-ago level at around C$123.

 

"The price declines are a direct result of the increased feed costs," Laycraft said.

 

Herb Lock, a livestock analyst with Calgary, Alberta-based Farm Sense Marketing, said it was still a bit early to know the full extent of the damage done to the livestock producer from rising feed costs.

 

He acknowledged that as the grain costs increase, the cost of weight gain in cattle rises, resulting in feeder cattle losing its premium to the fat cattle price.

 

"Somewhere around CUS$4.00 a bushel barley, feeder cattle, fat cattle and calves all become close to the same price," Lock said.

 

Lock said the silver lining in the higher feed costs is that the poultry and hog industries are also feeling the pinch.

 

"Essentially the higher feed grain costs will take pounds off the chickens and pigs," he said, noting that when there is less meat around, the better the price.

 

Lock said it appears that feed grain supplies in Western Canada are on the tight side and not just a case of producers deciding to hoard their feed wheat and barley.

 

"There may be a bit of hoarding going on, but given the growth of the ethanol industry, supplies of feed have tightened considerably," he said.

 

The ethanol industry demand is inelastic, Lock said, noting that to this sector, the price of the grain does not matter and will not discourage consumption which will ultimately mean the livestock industry having to deal with this.