Good afternoon, Mr. Chairman and committee members. Thank you for the opportunity to present.
My name is Russell Evans. I'm the manager of policy and research for the National Cattle Feeders Association. I am joined by Ms. Terri Holowath, who is a partner with Catalyst, an accounting, assurance, and consulting firm in Calgary. She focuses on cattle feeder clients and will provide a little detail on some of the things that are not working in the program, and possibly some of the things that are working.
I'll try to cover some of the same things with a different flavour. The National Cattle Feeders Association represents cattle feeders from across Canada, with operations that vary in size from 1,000 head up to and possibly exceeding 40,000 head of one-time carrying capacity. NCFA is funded through voluntary contributions from provincial member organizations.
These feedlots are considered intensive livestock operations and are for the most part operated by multi-generation family run businesses. While there are not as many feeding operations in Canada as there are cow-calf operators, cattle feeders account for a significant amount of value-added production in the cattle industry and the cropping sector.
Cattle feeders typically purchase cattle from the cow-calf operations. They grow and purchase feed and feed cattle in confined lots for between 60 and 250 days, fattening them until they're ready for slaughter. They are then sold through a bid process directly to packers.
A significant amount of cashflow is required to complete the feeding process from purchase to finish and then restock inventory. This is one of the most important details that current BRM programs do not address in the feedlot sector. I think you've heard that from the other sectors as well.
In consulting with our members, they say cash is king: BRM programs are good, but cash is king, and we need to have predictable programs.
Cattle feeders are a key link in the transfer of wealth throughout the beef value chain, plus they are the single largest purchaser feed grains on the Prairies, adding significant value to that sector as well. This is especially true during catastrophic events such as drought or, worse, early frost, where crops destined for human consumption no longer meet the grade.
Cattle feeding is also very labour intensive. We estimate that a typical operation will directly employ one employee for every 1,500 to 2,000 head of capacity, depending on the skill of the operation and the integration the feedlot has with their cropping enterprise. Many feedlots are also some of our largest farmers.
In addition to the capital investment required for facilities and equipment, feedlots have cash requirements for cattle inventory, feed, and supplies, plus a significant amount for labour. That's why cash is king. There are a lot of opportunities for cash to leave the farm.
Cattle feeders are margin operators, operating in an open, free market. They make a little bit of money on a large volume of inventory turnover. They can make a lot of money in a day, but they can lose double that the next day, and the next day after that as well. They accept this risk and for the most part manage it very well. They know their cost of production and utilize a wide range of tools, such as hedging dollars and forward contracting, to manage this risk. But as primary producers, they're vulnerable to the same elements as producers in other agricultural commodities.
When we ask our members where they are most at risk, they say the number one area is that they're vulnerable on the sales side, where they have no control over the price received for finished cattle. They have some control over input costs, but once their cost-per-pound production is locked in, extreme weather and volatile commodity markets can create unmanageable risks on the sale side. They have no way of passing these losses on through the market system.
The second area is catastrophic weather events. The floods of 2010 and 2011 across the southern prairie damaged infrastructure and also created a significant financial burden due to the loss of production. Cattle standing in mud up to their bellies don't eat much, they don't finish fast, and they don't go to market. Normally, operators would move these to higher ground, but the flooding was so extensive that there was no higher ground. This is certainly reflected in the caps part of the AgriRecovery program. Most feedlot operators are well above the caps that exist and were extended to help that, but they were still well beyond that.
The other catastrophic event related to market closures was due to things such as BSE. We hope that won't happen again, but we need to be prepared for that in the future. Certainly, animal health insurance would be appropriate.
Ms. Holowath will provide some details on programs.