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Expensive Steaks Here to Stay as Drought Cuts Canada Cattle Herd

12:12PM Jul 06, 2015

From burger meat to prime steaks, the rising cost of beef from Canada shows no signs of easing anytime soon. To understand why, look no further than ranchers like Shawn Freimark who can’t afford to feed their cattle.

A drought has parched pastureland throughout the biggest beef-producing provinces and left Canada, the world’s seventh-largest exporter, with its smallest herd in 22 years. Freimark was unable to grow the grass normally used to feed his 200 cattle in Castor, Alberta. He’s sold one-fifth of his animals to cut his losses, and may unload even more.

“We’re going to be buying all of our feed,” said Freimark, 45, who estimates it will cost him C$50,000 ($39,800) to get C$100,000 of hay by truck from six hours away.

Cattle supplies are so tight in Canada that meat plants are running at 74 percent of capacity, a seven-year low, forcing processors to pay a premium for animals to slaughter. Retail prices are the highest on record going back to at least 1995, with a kilogram (2.2 pounds) of ground beef up by a third over the past two years to C$12.84 in May and sirloin steak jumping 44 percent to C$24.22.

Delaying Expansion

It wasn’t supposed to be like this. In February, the government said high meat prices would encourage ranchers to expand the breeding herd this year. Instead, they’re shrinking as persistent dryness compounds the financial strain on an industry that has been hurt over the past decade by cases of mad cow disease, flooding and labor shortages.

“It could be four to six years of tight supplies,” said Charlie Pearson, a market analyst with Alberta’s agriculture ministry in Edmonton.

That spells trouble for meat eaters south of the border in the U.S., the world’s biggest consumer. Canada exports more than a third of its cattle and beef to the U.S., where tight supplies also have led to record prices. American ranchers still haven’t recovered from a drought that sent feed costs surging in 2012 and left the domestic herd in January 2014 at the smallest in five decades. Corn, used in food and livestock feed, fell 2 percent to $4.20 a bushel in electronic trading on the Chicago Board of Trade at 11:42 a.m. in London. Prices have climbed 5.8 percent this year and reached a one-year high on July 2.

Canadian ranchers held 11.9 million cattle as of Jan. 1, the fewest since 1993, Statistics Canada said in a March 5 report. Since then, pasture conditions have worsened.

Too Dry

Parts of western Saskatchewan and eastern Alberta have gotten less than 40 percent of normal rainfall since April 1, according to Agriculture and Agri-Food Canada, a government agency. Alberta’s hay and pasturelands are showing “the full effects” of insufficient moisture with almost half in poor condition, the province’s agriculture ministry said in a June 26 report.

With less free feed on their land, ranchers are buying more hay, sending prices up 33 percent to C$120 a metric ton in Alberta from C$90 in May, provincial data show. Some areas may run out of supply, the agriculture ministry’s Pearson said.

While it can take as long as two years to expand the cattle herd, rising costs are helping to fuel a temporary increase in meat supplies as ranchers try to cut costs by selling more animals to processors in Canada or in the U.S.

Sales Surge

Almost 16,000 head were sold in June on the Calgary-based TEAM Auction Sales and Direct Livestock Marketing Systems, up from about 8,000 a year earlier, according to Canfax, a livestock industry researcher. Sales are up 50 percent, said Jeff Jameson, cattle buyer at Jameson, Gilroy and B & L Livestock in Moose Jaw, Saskatchewan.

That’s helped boost meat output. In the first four months of 2015, Canada increased exports of beef to the U.S. by 7 percent to 77,900 tons, government data show.

“If that means a bigger flow from Canada, that’s a good thing,” said Steve Sunderman, who owns a feedlot south of Norfolk, Nebraska.

Increased sales south of the border creates higher prices in Canada, where processors already are paying 14 cents more per pound than buyers in the U.S., said Brian Perillat, a senior analyst at Calgary-based Canfax.

Feeding Costs

Ranchers will continue to sell cattle to shrink their herds and cut feeding costs, with some using straw and canola meal if no hay is available, said Dave Solverson, board president of the Canadian Cattlemen’s Association.

In Alberta, Freimark said conditions are the driest he’s seen since 2002, when a widespread drought forced him to sell his entire herd.

“Nobody knows where they’re going to source feed,” he said. “I’ll be lucky to break even this year.”