WINNIPEG, Manitoba/CHICAGO, Oct 25 (Reuters) - A decision by Tyson Foods Inc to stop buying slaughter-ready Canadian cattle looks to accelerate the movement of lighter Canadian cattle to U.S. feedlots, industry sources say, damaging the already fragile Canadian beef sector.
A Tyson spokesman said on Thursday that the biggest U.S. meat processor halted purchases of slaughter-ready cattle from Canada as of mid-October due to higher costs associated with mandatory country-of-origin labeling (COOL).
Tyson will continue buying Canadian feeder cattle that are finished for market at U.S. feedlots, however.
As a result, Canadian feeder cattle exports to the United States should accelerate while shipments of Canadian slaughter-ready cattle should drop off, said Brian Perillat, senior analyst at CanFax, the market analysis division of Canadian Cattlemen’s Association.
Tyson’s decision highlights the stress on the Canadian livestock industry and U.S. packers linked to COOL, a set of U.S. rules intended to give consumers more information about where their food comes from.
Canada and Mexico are challenging COOL before the World Trade Organization as a U.S. trade barrier. They prevailed in an earlier WTO case against COOL, which led to revised regulations issued in May and that are now under dispute.
Canadian ranchers have been hit hard in the last decade by a variety of factors including COOL, high feed grain prices and mad cow disease. The Canadian cattle herd was 13.54 million head as of July 1, 2013, up slightly from 2012, but down 20 percent from its peak in 2005, according to Statistics Canada.
For Canadian feedlots, which fatten cattle for slaughter, Tyson’s move is a double whammy. They lose a large buyer of their finished cattle and also face new competition from U.S. feedlots to buy lighter Canadian cattle and fatten them south of the border to sell to Tyson.
“Certainly, this is going to impact the ability of (feedlots), what they can pay for my calves,” said Doug Sawyer, who raises cattle at Pine Lake, Alberta.
Exporting more feeder cattle hurts the whole Canadian cattle industry, including ranchers, feedlots and farmers who sell grain to fatten cattle, he said.
“There’s a lot of negative stuff when we’re exporting feeder cattle versus finished cattle.”
Canadian feedlots typically earn seven to 10 cents per pound less per finished animal than U.S. feedlots because the Western Canada herd exceeds the region’s slaughter capacity, meaning some cattle must move south, said Brent Chaffee, operations manager at Strangmuir Farms, a 24,000-head feedlot near Strathmore, Alberta. That price difference may now grow with Tyson no longer buying, he said.
The demand for Canadian feeder cattle by Canadian feedlots may decrease slightly, while demand by U.S. feedlots for Canadian feeder cattle rises slightly, said Jim Robb, director of the Livestock Marketing Information Center in Denver, Colorado.
The two biggest Canadian cattle processors are Cargill Ltd and JBS USA Holdings Inc, both of which have plants in the main cattle-producing province of Alberta.
A Cargill spokesman could not immediately comment on whether the company would now process more cattle at High River, Alberta, while a JBS spokesman could not be reached.
By next summer, feedlots expect to have another market for their finished cattle when a new cattle slaughter plant opens at Balzac, Alberta, offsetting somewhat the loss of Tyson.
The movement of Canadian feeders south is already in full swing, thanks to a shift in feed costs.
Canada exported about 225,000 head of feeder cattle - which weigh up to about 1,000 pounds - to the United States in 2013, as of Oct. 12, double the pace of a year earlier, according to the U.S. Department of Agriculture. Shipments of slaughter-weight steers and heifers were down modestly to 286,000 head.
The increasing movement of Canadian feeder cattle to the U.S. earlier this year reflected the cheaper price since 2012 of corn, used to fatten cattle in the United States, versus barley, which is used in Canada, Perillat said.
Live cattle futures prices, on a continuous spot-month basis at the Chicago Mercantile Exchange on Friday spiked to an all-time high of 134.900 cents per lb. The upswing was driven in part by the U.S. cattle herd being at its lowest in 61 years.
On Oct. 11, CME feeder cattle futures peaked at a record high of 168.475 cents.
Multi-year droughts in the United States damaged crops, which last summer catapulted feed costs to all-time highs. Those higher feed costs forced ranchers at that time to downsize their herds, resulting in fewer cattle for feedlots to draw from now.
Agri Beef Co. in Toppenish, Washington, and a JBS plant at Hyrum, Utah, have also been buyers of Western Canadian finished cattle. An Agri Beef official could not be immediately reached.