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Beware too many slaughter plants: analysts
this document web posted: Wednesday April 13, 2005 20050414p3
By Sean Pratt
Saskatoon newsroom
Cattle analysts are beginning to wonder if the industry may be moving out of the frying pan and into the fire.
In an attempt to address a chronic shortcoming in Canadian slaughter capacity, producers and processors have hatched a long list of projects that could be steering the industry to a new kind of problem.
"There's a concern that we would have overcapacity here to the detriment of long-term viability," said Dale Engstrom, head of Alberta Agriculture's agri-processing branch.
Canfax reported a 28 percent increase in Canadian slaughter capacity in 2004 to 4.1 million head, up from 3.2 million in 2003. The agency expects a further 12 percent increase in 2005, to 4.6 million head.
A trade delegation from the U.S. National Cattlemen's Beef Association pointed out that would represent nearly a one million head increase from 2002, which it sees as a disturbing development.
"That compares to (1998-2002) average U.S. imports of Canadian fed cattle of 642,000 head and suggests that Alberta feedlots will no longer need to market nearly as many of their cattle on a live basis in the United States," the association said in a Feb. 2 summary of its fact-finding mission.
Engstrom is pleased Canada is becoming less reliant on American slaughter facilities, but he is starting to worry the industry may overcompensate for its past deficiencies.
"If the border remains closed for a couple of years, then we need cow killing capacity in particular. But if it opens in a few months, it's a different story."
The competition for animals from south of the border is expected to be fierce so Alberta Agriculture is advising plant developers to budget on cow prices in the traditional range of 45-55 cents per pound versus current prices of 20-25 cents a lb.
"Try to survive under that scenario and if you can't, boy you've got to be careful," warned Engstrom.
U.S. cattle analyst Steve Kay said Canadian plants should indeed expect stiff competition from their American counterparts once the border opens, which he believes will happen later this year.
A combination of the smallest U.S. cattle herd in three decades and the absence of live cattle imports from Canada have American slaughter plants salivating for more animals.
"Pretty much all of the major packers are running at only 70 percent of capacity or less," said Kay, editor of Cattle Buyers Weekly newsletter.
"We've got a very serious situation here that is only going to be partially alleviated by the reopening of the Canadian border to live cattle."
While firms like Cargill and Tyson, which have plants on both sides of the border, will face a balancing act once trade resumes, other big players like Swift & Co. won't hesitate to siphon cattle into the U.S. market through price premiums.
"I dare say they will buy as many cattle as they can at a price that works," said Kay.
And that is exactly why Canadian developers must proceed with caution, said Gordon Cove, leader of the meat unit in Alberta Agriculture's agri-processing branch.
"If everybody builds everything (that is proposed) across the country, we're talking millions more head of capacity."
Expansions already under way at the Cargill plant in High River, Alta., the Tyson plant in Brooks, Alta., and the XL Beef plant in Moose Jaw, Sask., will add 700,000 head in annual slaughter capacity.
The proposed Rancher's Beef Ltd. plant northeast of Calgary and the Ranchers Own Meat Processors Inc. plant west of Edmonton will bump the total up another 400,000 head. Both projects are well on their way to securing the necessary financing, said Cove.
Together those five projects represent 1.1 million head of additional capacity. There is easily another few million in the offing if prairie developers follow through on the dozens of business plans that are out there.
But that doesn't concern independent cattle industry consultant Christoph Weder.
"We're a long ways from having any situation where we've got a surplus of kill capacity because I still think that 90 percent of the plants that are proposed will never get off and get going," said the former Alberta Agriculture beef specialist.
Kay said with the "very real danger" of overcapacity appearing in Canada, Weder is likely correct in his assessment.
"I think some of those projects will die on the vine," said the American analyst.
this document web posted: Wednesday April 13, 2005 20050414p3
By Sean Pratt
Saskatoon newsroom
Cattle analysts are beginning to wonder if the industry may be moving out of the frying pan and into the fire.
In an attempt to address a chronic shortcoming in Canadian slaughter capacity, producers and processors have hatched a long list of projects that could be steering the industry to a new kind of problem.
"There's a concern that we would have overcapacity here to the detriment of long-term viability," said Dale Engstrom, head of Alberta Agriculture's agri-processing branch.
Canfax reported a 28 percent increase in Canadian slaughter capacity in 2004 to 4.1 million head, up from 3.2 million in 2003. The agency expects a further 12 percent increase in 2005, to 4.6 million head.
A trade delegation from the U.S. National Cattlemen's Beef Association pointed out that would represent nearly a one million head increase from 2002, which it sees as a disturbing development.
"That compares to (1998-2002) average U.S. imports of Canadian fed cattle of 642,000 head and suggests that Alberta feedlots will no longer need to market nearly as many of their cattle on a live basis in the United States," the association said in a Feb. 2 summary of its fact-finding mission.
Engstrom is pleased Canada is becoming less reliant on American slaughter facilities, but he is starting to worry the industry may overcompensate for its past deficiencies.
"If the border remains closed for a couple of years, then we need cow killing capacity in particular. But if it opens in a few months, it's a different story."
The competition for animals from south of the border is expected to be fierce so Alberta Agriculture is advising plant developers to budget on cow prices in the traditional range of 45-55 cents per pound versus current prices of 20-25 cents a lb.
"Try to survive under that scenario and if you can't, boy you've got to be careful," warned Engstrom.
U.S. cattle analyst Steve Kay said Canadian plants should indeed expect stiff competition from their American counterparts once the border opens, which he believes will happen later this year.
A combination of the smallest U.S. cattle herd in three decades and the absence of live cattle imports from Canada have American slaughter plants salivating for more animals.
"Pretty much all of the major packers are running at only 70 percent of capacity or less," said Kay, editor of Cattle Buyers Weekly newsletter.
"We've got a very serious situation here that is only going to be partially alleviated by the reopening of the Canadian border to live cattle."
While firms like Cargill and Tyson, which have plants on both sides of the border, will face a balancing act once trade resumes, other big players like Swift & Co. won't hesitate to siphon cattle into the U.S. market through price premiums.
"I dare say they will buy as many cattle as they can at a price that works," said Kay.
And that is exactly why Canadian developers must proceed with caution, said Gordon Cove, leader of the meat unit in Alberta Agriculture's agri-processing branch.
"If everybody builds everything (that is proposed) across the country, we're talking millions more head of capacity."
Expansions already under way at the Cargill plant in High River, Alta., the Tyson plant in Brooks, Alta., and the XL Beef plant in Moose Jaw, Sask., will add 700,000 head in annual slaughter capacity.
The proposed Rancher's Beef Ltd. plant northeast of Calgary and the Ranchers Own Meat Processors Inc. plant west of Edmonton will bump the total up another 400,000 head. Both projects are well on their way to securing the necessary financing, said Cove.
Together those five projects represent 1.1 million head of additional capacity. There is easily another few million in the offing if prairie developers follow through on the dozens of business plans that are out there.
But that doesn't concern independent cattle industry consultant Christoph Weder.
"We're a long ways from having any situation where we've got a surplus of kill capacity because I still think that 90 percent of the plants that are proposed will never get off and get going," said the former Alberta Agriculture beef specialist.
Kay said with the "very real danger" of overcapacity appearing in Canada, Weder is likely correct in his assessment.
"I think some of those projects will die on the vine," said the American analyst.
Wow this crew of experts needs a raise. They have definately pointed out things that Canadians need to consider and be cautious about???