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Seeing through the fog

Soon we will face the juncture of one year ending and a new one beginning. It’s hard to believe that a year can speed by so fast. It is even harder to look back and believe the swings in the issues that have faced agriculture over the past 12 months. From record high input prices, to impressive global grain demand, to a rise and fall of biofuels, and now a recession to put icing on the cake.

I know I am relatively young compared to many in this industry, but I don’t quite remember a year like this past one. Close your eyes too long and the scenery can completely change. There are so many things that are going on it is hard to make sense of it all. It’s almost like trying to navigate through the fog, not knowing when there will be another turn in the road. So as we move into 2009, what lies ahead? Time will tell, but here is some of what I see.

I recently read in Canadian Cattlemen’s magazine that the B. C. cowherd is down close to 25 per cent. Well I am not Stats Canada, but I am sure these numbers are similar in other provinces — only nobody has figured it out yet. Examine the dispersals and you’ll see that 90 per cent of these herds have been bought by three buyers; Tyson, Nillson, or Cargill. Those girls are not coming back and with this amount of culling you would think eventually the price pendulum would swing in the opposite — up-direction. Right? Well, with a global recession your guess is as good as mine.

Beef demand has been all over the place. This past year’s demand started out strong, but now demand for high quality cuts has dropped like a rock. Blame this on the recession. Consumers supposedly now have less money and so are less apt to be eating out, and if they do eat out they tend to step it down a notch. I believe demand for middle meats will stay low, while demand for end meats and grinds will stay steady and even perhaps increase.

Adding more complications to the demand is the value of the drop credit that packers get for things like, hearts, livers, tongues and hides. Typically the drop value has almost always paid for the cost of killing cattle. However, with a recession, demand for these products is going down like the Titanic. About 70 per cent of the drop credit value is based on the value of the hide. Although many of us like leather shoes and jackets, the most significant user of leather by a long shot is the automobile industry. And as we all know, things are not rosy in Detroit these days.

Hides at the tanners are starting to pile up in places like China, and unless we find a new use for hides, prices will get worse before they get better. A once $70 value per animal may soon be down to a $0 value! The long and short of it, I believe that beef cutout values in the U. S. will continue to drop and only thing that may save the Canadian beef industry will be a Canadian dollar that sinks as fast as the demand. Being a resource-dependent economy and a major exporter of products to the U. S., I think it’s a safe bet.

The other issues we face as a Canadian beef industry is the costs of labour and SRM disposal. Labour expenses for Canadian packing plants are significantly higher than in the U. S. Estimates are that labour costs in Canada are $40 to $50/head higher. I can’t blame the Canadian workers for wanting more, given the cost of living in and around big urban centers is not cheap either. However, perhaps now with the economy cooling these costs may level off.

As far as the cost of SRM disposal, I don’t think most of us asked for it, and it seems the federal government and better yet some Canadian Food Inspection Agency vets decided it was in our best interest. Maybe the government should be picking up the tab (it adds another $20 to $30 to processing costs) rather than throwing it on our industry and making us even less competitive with the U. S. industry. Country-of-origin labelling (COOL) is also on everyone’s mind. As we all well know many U. S. customers (packers and retailers) have quit buying Canadian because of the hassle of segregation and labelling. After spending time in Switzerland this fall, COOL can also be looked at as a positive thing. In Switzerland COOL is everywhere, from every retail pack of meat and vegetables, right down to the menus at restaurants. In fact, pick up the menu at any restaurant and you can see that your ribeye may have come from Uruguay, the vegetables from a farm down the road, and the horse striploin from southern Alberta.

Personally I thought is was wonderful to know where the food I was eating came from. In this way the consumer is fully informed and can have a direct impact on demand. I think Canada should adopt similar legislation and not just stop at manufacturing and retail, but also include food service in its mandate. Too often I have been in restaurants touting AAA Alberta beef (no offence intended to the good folks in the other provinces) and about the only thing that the “A” has represented has been Australia! There is so much cheating and misleading advertising with food labelling at the food service and retail levels, it is time to lay the hammer down and let the consumer be the judge.

Finally with the drop in the price of oil, I can’t quite imagine that ethanol can stay viable, never mind compete without heavy subsidies. Worse yet for ethanol, there are larger more connected companies and industries lined up at the doors in Washington looking for a few billion $’s here and few more billion $’s there, that I can’t quite see there being enough bailout or subsidy money for everyone. Seems to me we are at the point where the once golden industry has lost most of its luster. So now, take away part of the demand for corn from ethanol, and a reduced demand for feeding livestock because of reductions in the size of the herds, and I think grains will tank. But then add a few droughts and weather scares around the globe and all bets may be off.

Needless to say it’s a crazy world and an even crazier industry. If you intend on staying in this business I hope you have a longterm vision, a road map of where you want to go and a good set of fog lights. Better yet I hope our industry and government leaders have these tools because there will be some interesting steering needed to navigate through all the issues in the coming year.

Finally, as I wrap up, Erika, our boys and I wish you all the best in this holiday season. Enjoy it with your families and good luck in the coming year!

Dr. Christoph E. Weder is a purebred Angus breeder in the Peace region of Alberta, a founding member of Prairie Heritage Beef producers and also runs SVR -Ranch Consulting. For additional info check out www.spiritviewranch.com

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