An 'awful wreck': Analyst says falling beef prices are hurting cattle operators

One of Canada's largest cattle feeder operations says it's winding down its cattle ownership and cattle feeding operations.

Western Feedlots, which operates sites near Strathmore, High River and Mossleigh, says shareholders made the decision due to "strong head winds" in the cattle industry, as well as what it calls a "high-risk/low-return environment."

The company said its decision was also based on what it called the "poor political and economic environment in Alberta."

Feedlots are under pressure because of declining prices.- Kevin Grier

Western Feedlots said it will continue to feed and market its existing cattle but will suspend feedlot operations once all have been sold. The company will not be hiring employees, or purchasing feed grain or feeder cattle after that time.

It said farming operations will continue for the "foreseeable future."

Responding to the company's observation about the political environment in Alberta, the provincial NDP government's Minister of AgricultureOneil Carlier said it may well have been a factor.

"People make decisions for all kinds of reasons," Carlier said Wednesday. "I'm not going to disagree with them. They've made a decision. But I think it's much more to do with the profit margins that feeder cattle have right now."

Industry analyst Kevin Grier said Western Feedlot's move is a reflection of tough times in the cattle business.

"It's symptomatic of what's happening in the industry overall," Grier said Wednesday. "Feedlots are under pressure because of declining prices."

Grier noted that beef prices rose dramatically in 2014-2015 and a recent price drop has been similarly fast.

"It's the volatility in this particular turn that probably caught them on the wrong side of things," he said.

Herd size was declining

According to Grier, the price increases were tied to a 12-year-long trend of declining herd size in North America.

"The herd has been declining for a long, long time and by 2014-2015, it pretty well reached a tipping point," he said. With a smaller herd and strong demand, beef prices "skyrocketed" he said.

Grier said that as cattle operators responded, by increasing herd size, they found that the industry had already downsized and the price for cattle dropped.

"A lot of these operations would be losing 300, 400 or more dollars per head," he said. "And that's an awful, awful wreck that's occurring right now."

Grier noted that consumer demand for beef remains strong.

"We may have been eating less beef, in recent years, but that's because there's been less around," he said. "At the same time we've been paying more for beef and willing to do so."

He said maintaining that demand will be important to stabilizing the industry.

• Cattle producers getting less for beef but retail prices not dropping accordingly

Grier said that while industry prices have been through stark swings, at the retail level the prices increases and drops have been more gradual.

"Beef is a very, very important item [at the retail level]," he said. "Grocers know that if a consumer has a roast or a steak in the basket, they're going to have a lot of other items in the basket as well. So, beef prices going down is going to be part of the competitive [retail] battle."