The cattle value chain has undergone significant pressure both to the upside and down since 2019. A major fire at a plant in the U.S. caused a backlog of processing. Soon after, COVID-19 hit. During 2020 and 2021, demand both at home and abroad skyrocketed.
In short, for an industry that has to plan for 3-plus-year cycles, ranchers, feeders, and processors have all had to endure swings in prices and volatility.
These conditions have also meant that there have been some mighty fine margins in some circumstances, but not necessarily equitably along the chain. In the U.S., there is legislation in the works to dictate a certain amount of cash trade to inject some transparency into the market. Even a Canadian senator has an opinion on the state of the processing value chain, and suggests something needs to be done to level the playing field. There are also class action lawsuits underway in the U.S. and just beginning in Canada, levelling charges of wrong-doing at meat packing companies.
Kevin Grier of Kevin Grier Market Analysis doesn’t agree with the angle of the lawsuits or that legislation is required to “fix” what isn’t broken.
As he lays out in the audio below, market factors already guide the cattle market — and that if retail demand weren’t so strong even at high prices, we wouldn’t even be having this discussion.
For example, just a few years ago, there was a large number of cattle but packing capacity had been reduced. Why? Because packers had been losing their shirts. Now, the cattle cycle is turning as the number of cows is declining in both United States and in Canada.
That means that market leverage will be shifting more and more towards the cattle feeder in the coming years, a function of an open market. Grier adds that the U.S. pushing for added capacity could end up coming on line at exactly the wrong time — further skewing the market balance.