Where's The Beef??? How The Cattle Market Works
“Megascale agrifood-processing facilities in Canada have become commonplace as the result of two main factors: the first and most obvious is the drive for greater efficiency in the pursuit of increased profitability,” Jared Carlberg.
By Robert Thomas
Part Two In A Series
In a perfect marketplace supply and demand is said to determine prices.
As consumers or industries demand a certain good or service the price of the good increases with demand. Additionally as the price of a good increases the number of that good produced also rises to a point where the supply exceeds demand.
At that time where there is an oversupply the price of the good starts to fall and there is a correction from suppliers who reduce their production in correlation with the reduction of demand and price fall.
The same generally applies in the slaughter beef cattle market but because cattle are a living organism the market has a biological element attached to it.
Calf To Market
The majority of calves marketed from ranchers and farmers go through the same process.
Calves are born on the farm and then raised on grass (in a pasture) as cow calf pairs.
In the fall, when between six and eight months of age calves are weaned from the cow. Calves are in most cases taken to a separate pen or holding area where they are usually fed hay and additionally chop (which is a combination of usually feed barley, oats and minerals) that is run through a grinder to better increase digestion and weight gain.
Some time after weaning calves are either sold to feedlots - through an auction or directly - where the animal is put in pens where they are fed until they reach market weight at which time they are sold to the slaughter/processing plant.
A calf in a pen at the Moose Jaw Exhibition Grounds - MJ Independent photo
Some producers - if they have enough available cheap feed - will feed their calves over the winter and sell them, where they usually end up in feedlots for finishing (ready to butcher). Producers often do this because they believe holding onto their calves will earn them larger dollars as they sell into the market later and at a higher weight.
Depending on the feed and price situation producers will cull (reduce their herd size) based on anticipated prices. The bottom of the cattle market usually sees producers culling to reduce costs of feeding less valuable animals.
Cattle kept past their slaughter and processing prime still need to be fed and they are not putting on additional meat. They are in fact putting on fat. Fat is less desirable and will not earn the feedlot or producer more money to compensate for the feed and labour costs.
Slaughter Cattle Price Cycle
Pricewise cattle is said to be on a 10 to 12 year cycle for farmers and ranchers. It is driven by supply and demand plus also a biological factor.
The biological factor causes the slaughter cattle supply and thus the price to wander past demand highs.
Producers have surplus animals raised during higher priced times that come to market after a drop in consumer demand and the price they receive is lower than anticipated while raising the animal.
The price producer's receive for their cattle rises and falls with not just with demand but the speed at which prices encourage farmers to increase their herd size.
This is called the biological lag in the market.
The biological lag is the amount of time it takes breed a cow, have a calf and deliver that calf to the slaughter market.
The lag can be up to three years.
When the supply of slaughter cattle saturates the market producers cut back the size of their herds.
When cattle market prices start to fall ranchers and farmers have excess animals due to the biological cycle. They cannot immediately stop production as they have living animals to care for and sell.
What the SSGA and other producers are asking in their calls to investigate pricing is the traditional pricing cycle is, in their opinion, out of skew from its traditional cycle.
Megasize Processing Plants
A major factor in not just the beef processing industry but the meat - and increasingly the protein industry - is the emergence of a few processing players who, because of their size, are able to offer beef at a cheaper per animal amount as well as a better hygienic product.
In Canada the majority of cattle or beef processing, 85 percent in 2020, occurs in three plants.
Two of the plants are in Alberta and one in Onrtario.
Cargill has a processing facility in High River, Alberta and JBS Food Canada in Brooks, Alberta. The two plants were responsible for processing 70 percent of the cattle in 2020.
In Ontario Cargill has a facility in Guelph, Ontario.
At High River, Cargill has approximately 2,200 employees and daily about 4.700 head of cattle are processed.
In Guelph, Ontario (Dunlop facility) Cargill has approximately 950 employees and processes 1,500 head of cattle a day.
While in Brooks JBS Food Canada has more than 2,800 employees and processes 4,200 head of cattle a day.
Workers process beef at the JBS Foods Brooks, Alberta facility - photo credit Facebook JBS Foods
In 1975, when there were calls to consolidate certain sections of the industry, a Public Commission found in 1974 a total of 57 packing plants responsible for 88 percent of the federal plant kill. In 2020 three (3) plants were responsible for 85 percent of the beef processed in Canada.
An interesting fact about the cattle processing industry is that it is standard that the byproducts pay for the processing costs.
Byproducts of the beef industry supplies numerous products that go further than leather (see below). To some extent the beef byproducts market helps to influence the price of live cattle.
Workers in the beef processing industry will tell you nothing or very little is wasted at a slaughter plant. Everything can be marketed.
According to a December 2020 report Vulnerabilities And Benefits Of Megascale Agrifood Processing Facilities In Canada by Jared Carlberg the move towards larger processing plants has occurred because of economic pressures for increased profitability and food security.
On the economic side larger plants take advantage of what is called economies of scale. A drive towards greater efficiencies in pursuit of increased profitability.
In layman’s terms as the processing plants grow larger the labour and other costs drops on a per animal basis meaning the potential for higher profit is there.
On the food security side the argument is, according to Calberg, all about food security. By processing cattle - all meat animals in fact - in megascale facilities the decreased costs to processors allows for beef to be retailed at a price affordable to consumers.
To some extent governments at all three levels - municipal, provincial and federal - also help to encourage megaplants through tax incentives. Governments in search of jobs for residents as well as increasing their tax base offer incentives to capture the firms looking to set up shop.
The problem for many is the “natural” consolidation in the beef processing industry (and the meat and now the protein processing industry) is the control of a major essential to human life is now in the hands of a few firms.
Consolidation has lead to a few players who process cattle who can, because of their size, control prices and the supply of beef, thus skewing the marketplace - that is according to their critics.