041208 Closed Border Takes Toll on Processors

December 4, 2004

Twin Falls, ID - Since mad cow disease closed the United States border to live Canadian cattle over a year ago, the cattle and beef industries have felt both the boom and bust of a changing dynamic.

As the beef industry has consolidated over the decades, so have processing plants, making them few and far between. A redeeming feature is the enormous number of cattle large facilities can process in a given day, churning out tons of red meat to American consumers.

But supply and demand never fail to be a hard task masters. To turn a profit, big packing plants need big numbers of cattle. Since the flow of Canadian cattle came to a standstill, profit margins for beef packing companies have gotten tighter.

"It's very real," said Jim Herlihy, spokesman for Swift & Company, one of the nation's largest beef processors. "There is a critical lack of access to cattle right now."

Facilities in the Northwest have felt the pinch more severely than other parts of the country due to their close proximity to Canada and the ready availability of Canadian cattle.

"It's just to expensive to transport cattle from across the United States, especially when processors are losing money," he said. "Some areas in the Northwest can't get cattle at any price," he added.

Herlihy said packers face narrow profit margins when "it costs more to buy the raw material than we can realize in the finished product."

Packing plants have seen employee layoffs, and rumors are afloat that processors will move their facilities to Canada to cash in on a burgeoning herd.

Darcy Davis, finance chairman of the Canadian Cattlemen's Association, said one Canadian processor expects to complete plant expansion by spring, boosting a 4,000 head per day kill facility to 5,000 head a day. In addition, a 49-member producer group, Ranchers Beef, is starting up a packing facility near Calgary. The plant will harvest about 750 animals per day.

"The BSE situation was a bit of a wake-up call for us," Davis said. "We (Canadian producers) found out how truly integrated our industry was with the United States. We relied on U.S. packing plants, mostly in the Northwest, to do the processing."

Canadian producers were hit especially hard after the BSE incident, because the same time cattle were prohibited from export, so was beef, he said.

"Once boxed beef got moving again, there was a place for cattle to go," he said. "But it was a cash cow for the packers because cattle were so cheap."

U.S. producers have been enjoying relatively high prices in the face of a shortened supply. That could change, too, once the border re-opens to live cattle, said Jim Robb, economist for the Livestock Marketing Information Center. Robb said he expects the border to re-open, it's just a matter of when.

"The longer, we wait the bigger the shock could be to the U.S. market," he said.

And for processing facilities in the Northwest, it's not necessarily a fix-all.

"It depends on how the Canadian cattle flows will work," he said. "They could come to feedlots and slaughter facilities in the High Plains. Canadian cattle will be under tight restrictions as to where they go. The economics of feed costs will play a part, too. Where they can be fed more cheaply is likely where they will end up."

Even if the borders open soon, four to six months is a long time for survivability in the packing-plant business, Robb said.

"It may be tough times for everybody once the border opens, but then again it could increase competition for the product and for the producer, that would be good," Davis said.

The Canadian cattle industry has had to "use a lot of ingenuity up here in the face of economic hardship," he said.

"I think there is room for the United States and Canada to find an economic balance," he said. "We have a lot more in common than we have differences."


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