On the surface, it might look like a great time to be a cattle rancher. The U.S. price of cattle hit record highs earlier this year while Canadian producers—namely in Alberta—have also enjoyed impressive gains. But high prices usually result from one of two things: rising demand or short supply. And unfortunately for ranchers, today’s windfall likely has more to do with a brutal past decade than a growing interest in beef among consumers.
The industry has been hammered in recent years by one disaster after another, causing many producers to flee the market. “For the first time in many years, the total receipts from grain and oilseed farming has surpassed that for livestock,” wrote Todd Hirsch, an economist for Edmonton-based ATB Financial, in a recent report. “It was a serious blow to an industry with a long, proud history of producing the best beef in the world.”
Beginning in 2003, cattle ranchers were hit with the mad cow scare after a handful of cattle tested positive for the disease, causing the U.S., Japan and other countries to shut out beef imports. That was followed later in the decade by a move in the U.S. to require country of origin labelling (COOL) on beef, which proved costly for the industry. It had the effect of reducing cattle trade altogether, Hirsch argues. Add to that soaring feed prices, severe droughts on the Prairies and a stubbornly high Canadian dollar which makes exports more expensive, and it’s easy to see why herd levels have dropped.
Even with rising prices, there’s scant evidence to suggest the industry is poised for a big rebound. In recent weeks, demand has begun to waiver following the devastation caused by Japan’s earthquake and the fight to bring damaged nuclear reactors under control, although some observers suggest radiation fears could lead to a temporary increase in Japan’s food imports. “Feed prices are rising once again, and other input costs (especially fuel) are eating into profit margins too,” Hirsch says. “America’s COOL legislation hasn’t changed a single bit, and North American consumption of beef is slipping—there are some who don’t believe the good prices we’re currently seeing will last.”