Canadian feeder cattle exports seen surging after Tyson move

Reuters

By Rod Nickel and Theopolis Waters

WINNIPEG, Manitoba/CHICAGO, Oct 25 (Reuters) - A decision byTyson Foods Inc to stop buying slaughter-ready Canadiancattle looks to accelerate the movement of lighter Canadiancattle to U.S. feedlots, industry sources say, damaging thealready fragile Canadian beef sector.

A Tyson spokesman said on Thursday that the biggest U.S.meat processor halted purchases of slaughter-ready cattle fromCanada as of mid-October due to higher costs associated withmandatory country-of-origin labeling (COOL).

Tyson will continue buying Canadian feeder cattle that arefinished for market at U.S. feedlots, however.

As a result, Canadian feeder cattle exports to the UnitedStates should accelerate while shipments of Canadianslaughter-ready cattle should drop off, said Brian Perillat,senior analyst at CanFax, the market analysis division ofCanadian Cattlemen's Association.

Tyson's decision highlights the stress on the Canadianlivestock industry and U.S. packers linked to COOL, a set ofU.S. rules intended to give consumers more information aboutwhere their food comes from.

Canada and Mexico are challenging COOL before the WorldTrade Organization as a U.S. trade barrier. They prevailed in anearlier WTO case against COOL, which led to revised regulationsissued in May and that are now under dispute.

Canadian ranchers have been hit hard in the last decade by avariety of factors including COOL, high feed grain prices andmad cow disease. The Canadian cattle herd was 13.54 million headas of July 1, 2013, up slightly from 2012, but down 20 percentfrom its peak in 2005, according to Statistics Canada.

For Canadian feedlots, which fatten cattle for slaughter,Tyson's move is a double whammy. They lose a large buyer oftheir finished cattle and also face new competition from U.S.feedlots to buy lighter Canadian cattle and fatten them south ofthe border to sell to Tyson.

"Certainly, this is going to impact the ability of(feedlots), what they can pay for my calves," said Doug Sawyer,who raises cattle at Pine Lake, Alberta.

Exporting more feeder cattle hurts the whole Canadian cattleindustry, including ranchers, feedlots and farmers who sellgrain to fatten cattle, he said.

"There's a lot of negative stuff when we're exporting feedercattle versus finished cattle."

Canadian feedlots typically earn seven to 10 cents per poundless per finished animal than U.S. feedlots because the WesternCanada herd exceeds the region's slaughter capacity, meaningsome cattle must move south, said Brent Chaffee, operationsmanager at Strangmuir Farms, a 24,000-head feedlot nearStrathmore, Alberta. That price difference may now grow withTyson no longer buying, he said.

The demand for Canadian feeder cattle by Canadian feedlotsmay decrease slightly, while demand by U.S. feedlots forCanadian feeder cattle rises slightly, said Jim Robb, directorof the Livestock Marketing Information Center in Denver,Colorado.

The two biggest Canadian cattle processors are Cargill Ltd and JBS USA Holdings Inc, both of which haveplants in the main cattle-producing province of Alberta.

A Cargill spokesman could not immediately comment on whetherthe company would now process more cattle at High River,Alberta, while a JBS spokesman could not be reached.

By next summer, feedlots expect to have another market fortheir finished cattle when a new cattle slaughter plant opens atBalzac, Alberta, offsetting somewhat the loss of Tyson.

The movement of Canadian feeders south is already in fullswing, thanks to a shift in feed costs.

Canada exported about 225,000 head of feeder cattle - whichweigh up to about 1,000 pounds - to the United States in 2013,as of Oct. 12, double the pace of a year earlier, according tothe U.S. Department of Agriculture. Shipments ofslaughter-weight steers and heifers were down modestly to286,000 head.

The increasing movement of Canadian feeder cattle to theU.S. earlier this year reflected the cheaper price since 2012 ofcorn, used to fatten cattle in the United States, versus barley,which is used in Canada, Perillat said.

Live cattle futures prices, on a continuous spot-month basisat the Chicago Mercantile Exchange on Friday spiked to anall-time high of 134.900 cents per lb. The upswing was driven inpart by the U.S. cattle herd being at its lowest in 61 years.

On Oct. 11, CME feeder cattle futures peaked at arecord high of 168.475 cents.

Multi-year droughts in the United States damaged crops,which last summer catapulted feed costs to all-time highs. Thosehigher feed costs forced ranchers at that time to downsize theirherds, resulting in fewer cattle for feedlots to draw from now.

Agri Beef Co. in Toppenish, Washington, and a JBS plant atHyrum, Utah, have also been buyers of Western Canadian finishedcattle. An Agri Beef official could not be immediately reached.

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