Plant closures force cattle producers to juggle inventory

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The suspension of three beef processing plants in Ontario will force more cattle to be processed outside the province, costing producers in both higher transportation costs and lower returns for their animals.

The CFIA cancelled the three licenses earlier this month after initially suspending them in September.

Inadequate processing capacity

Following the closure of three beef processing plants in Ontario, farmers are feeding cattle longer and at increased costs.

The Beef Farmers of Ontario says the province already had too few processors, so the closure of the three plants increases the backlog.

Meanwhile, the Canadian Cattlemen’s Association notes the lack of capacity has hurt both the beef and dairy industries, and estimates the economic impact is approximately $174 million for eastern Canada.

Ontario Federation of Agriculture says as a result of the plant closures, farmers are feeding cattle longer and at increased costs.

Longer hauls

Western Canadian plants will likely absorb much of Ontario’s packer capacity shortage, says Ryan Copithorne, president of Cows in Control, a financial and risk management consulting company.

Some Ontario cattle will also head to the United States, but either way, transportation costs will be higher.

Cattle hauled to the U.S. also face additional export and inspection costs, Copithorne notes.

Shrink

Longer transportation distances also mean greater cattle weight loss. The traditional three to four per cent lost in transit will now reach seven to eight per cent or more, Copithorne estimates.

“Overfat cattle will shrink more on the trucks, and you can’t get as many on the trucks,” he says.

Western and Atlantic producers hit

With Alberta plants likely taking up much of the slack, it will soften finished cattle prices in that province as its feedlots are already well stocked, Copithorne says.

He recommends Alberta producers contract prices or hedge with the Western Livestock Price Insurance Program to alleviate the risk of added supply to western plants.

Nathan Phinney, chair of the New Brunswick Cattle Producers, doesn’t discount Ontario cattle also migrating to Atlantic processors.

It happened last year, and local producers felt the effects.

“It has a huge impact on feeder prices... if those spaces are being maintained by fat cattle, the desire to buy feeders is low,” Phinney explains. “We saw prices last year - and it’s starting again this year - just plummeting. Producers are really feeling the crunch.”

Bottom line

Beef producers across the country may feel the impact of the closure of three beef processing plants in Ontario. Experts recommend farmers in the west use contract pricing or hedging to alleviate risk. In Ontario, cattle will likely be shipped out of the region for processing, while in Atlantic Canada, feedlots are expected to keep fat cattle around longer, bumping out space for feeders.

Article by: Richard Kamchen