Tariff Trouble: What it means for Canadian cattle producers

Are looming U.S. tariffs about to shake up the cattle industry? 

Kara Mastel sits down with Brenna Grant, Executive Director of Canfax Research Services, to explore the potential impacts of a proposed 25 per cent U.S. tariff on Canadian goods. 

They discuss the deep integration of the beef trade between the two countries, potential market shifts, and strategies producers can use to navigate uncertain times. 

From fluctuating exchange rates to exploring alternative markets like Japan and Korea, Brenna provides insightful analysis on what cattle producers can expect and how they can prepare. 

Listen For:
2:19 | The deep integration of the U.S.-Canada beef trade
5:11 | Exchange rates and their ripple effect on producers
10:40 | The complex web of U.S.-Canada beef processing
14:34 | Canfax resources to support producers

GUEST: BRENNA GRANT
Brenna Grant is the Executive Director of Canfax Research Services, where she monitors data from national statistics; oversees the development of new economic models to make annual outlooks and evaluate the impact of management decisions on cost of production. Brenna grew up in SW Saskatchewan on a cow/calf , yearling grasser operation where her family still operates. She holds a BA in Agricultural Economics from the University of Saskatchewan and a Masters in Applied Economics from Montana State University.

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Chapters

• 2:19 The Deep Integration of the US-Canada Beef Trade
• 5:11 Exchange Rates and Their Ripple Effect on Producers
• 10:40 The Complex Web of US-Canada Beef Processing
• 14:34 Canfax Resources to Support Producers

Transcript

Brenna Grant (00:01):

It is two-way trade. We are importing about 300,000 head of feeder imports annually and have been basically since 2019.

Kara Mastel (00:10):

Wow. And that's an incredible number. We often just think about the export side of this, but the imports are huge too. Hey everyone. Welcome back to my new season of the Bovine, brought to you by Alberta Beef Producers. I'm your host, Kara Mastel. That's right. It's a new year and we're kicking off season three, so very excited to be here today. We're diving into the complex world of tariffs. I know we're tired of the word tariffs, but they have a far reaching effect on industries and economics. We'll specifically be focusing on the potential for tariffs from the US and what their impact could be on both sides of the border. As many of you have heard newly inaugurated, Donald Trump has recently reiterated his threat to impose a 25% tariff on all Canadian goods with a potential implementation date set for February 1st, 2025. Now, this move is part of a broader strategy to overhaul the US trade system and address what President Trump sees as unfair trade practices.

(01:19):

To help us unpack this topic, we have Brenna Grant with us today. Brenna is the executive director of Canfax Research Services at Canfax. She keeps a close eye on national statistics, develops new economic models, and provides annual outlooks to evaluate the impact of management decisions on production costs. Brenna's cattle connection runs deep. She grew up in southwest Saskatchewan on a cow calf yearling grasser operation, which her family still runs today with a BA in agricultural economics from the University of Saskatchewan and a master's in applied Economics from Montana State University. Brenna is uniquely positioned to provide insights into how these potential US tariffs could impact the industry. Welcome to the show today, Brenna, and thanks for joining us.

Brenna Grant (02:06):

Thanks for having me, Kara.

Kara Mastel (02:07):

So let's dive right into it. It has been a bit of a wild ride the last little while. Do you want to just tell us about the significance of beef and cattle trade to both sides of the border?

Brenna Grant (02:19):

Yeah, absolutely. We've had a longstanding relationship with the US and this goes back to 1989 and the Canadian US Free Trade Agreement that was enhanced in 1994 with the North American Free Trade Agreement bringing in Mexico. But last year we saw 44% of Canadian beef production exported to the US either in boxes or as live slaughter cattle. But one of the things we need to remember, even though we have this really unique and integrated industry, is that the majority of our production, 66% goes either to the Canadian market or to the rest of the world. And I should point out that it is two-way trade. We are importing about 300,000 head of feeder imports annually

(03:11):

And have been basically since 2019.

Kara Mastel (03:13):

Wow. And that's an incredible number. We often just think about the export side of this, but the imports are huge too.

Brenna Grant (03:19):

Yes.

Kara Mastel (03:20):

So what have the markets done during the yo-yo of these tariff discussions? Anything?

Brenna Grant (03:26):

We've seen really strong prices throughout the last two years, and that has really continued coming in to January and we're seeing new record highs be made and really strong leverage for the cow calf producer in terms of feeder prices. And so right now the market is really responding to where we are in the cattle cycle of the tightening of supplies across North America following the 2122 drought and the fact that we just have smaller calf crops coming forward, really across all three countries.

Kara Mastel (04:04):

So talk about how potential tariffs could affect trade between Canada and the us.

Brenna Grant (04:10):

Yeah, so the first thing point of an import tariff is to actually reduce the volume going into the us and therefore the expectation is that the first thing would be a higher price in the us. This is going to be reflected in their cash market, but also in the futures market in terms of the Chicago market andile exchange. But it's probably going to be fairly modest just because in the US they are predominantly self-sufficient with some trade in terms of carcass utilization. But the other piece we need to all remember is the exchange rates and the fact that once you put import tariffs in on such a broad range of products, the expectation is that the US dollar will strengthen. And it really has strengthened since October 1st against a broad number of currencies out there. But it also means that you are expecting the Canadian dollar to weaken and the Canadian dollar is down 6% since October 1st.

(05:11):

So there are questions of how much of those expectations are already built into the marketplace with those exchange rate moves. But on top of that is you're going to have an impact on the Canadian economy. And so the conference board of Canada and the Chamber of Commerce have done some studies that also then impacts demand for Canadian products. But you got to remember that weak dollar has a really big ripple effects any feedlots importing corn or DDGs that impacts what they're paying in terms of cost of gain, but also remembering that this is going to be on more products. So there's also possibilities of things like canola meal that's currently being exported into California dairies, having more of that available at a lower price in the domestic market. So lots of things that would all be happening at once.

Kara Mastel (06:09):

Would you expect a further decline in the dollar? Or kind of too hard to say on that.

Brenna Grant (06:14):

It's really hard to say at this point of frequently markets build these things in advance. It's really a question of how much has already been built in and what the final announcement truly is, or if that final announcement ever comes.

Kara Mastel (06:34):

Yeah, absolutely. That uncertainty just kind of remains with us. So if something like this, and I mean there's the big, but if something like this would be implemented, is there alternative markets that Canadian cattle producers could actually be exploring to offset the potential loss of the market?

Brenna Grant (06:52):

Yes, there is. You've got to remember, those exchange rate fluctuations are going to make Canadian beef more competitive and more attractive into other markets. We compete directly with the US in several markets, but primarily places like Japan, Korea, and other Asian markets where we're seeing really strong demand for grain fed high quality beef as well.

Kara Mastel (07:19):

And now let's take just Japan for instance here. There's a lot of demand there, but what challenges maybe arise as well when you look at some of these other markets?

Brenna Grant (07:31):

Well, this actually comes back to packer expectations and are they expecting this to be short-term or long-term? And what are some of the trade-offs that they're going to face as individual companies? So for example, if they are looking historically and saying, well, if you go back to 1971 and the Nixon shock, which was the 10% tariff on the world that lasted four months, and if they're expecting that this to be a short-term impact, they're going to say, you want to know what? We're going to take the price hit and we're going to continue to export our product. We want to show our customers that we're loyal to them, that Canada is a reliable supplier and we're going to see them through this. That's sort of the short term implications, and that probably has a slightly larger price impact for Canadian producers. But if they're expecting this to be more of a long-term thing, so some of the tariffs that Trump put on China in his first administration, then they might say, you want to know what we need to start shifting and looking at some of these other things of actually having product move to other markets.

(08:49):

And we need to remember that one of those other markets is our domestic market and the fact that the Canadian population has increased by 2.4 million people. In the last two years, we've had a large number of immigrants and we haven't really seen our total beef consumption numbers increase in our domestic market. In contrast, we've seen milk consumption increase 7% because quota numbers actually increased proportionately with the population growth, whereas we're looking at beef. And yes, some of those immigrants may be from different countries that historically have lower beef consumption, but the reality is we're expecting them to acclimatize to some degree, to more of a Canadian diet while holding on some of those more traditional culinary traditions. And so there's actually room to grow the domestic marketplace as well.

Kara Mastel (09:48):

So right now with how many producers there are, approximately does the supply outweigh the demand?

Brenna Grant (09:56):

We've got to remember there's a large volume that goes to the US and there's also integration because across North America, we have an incredibly integrated and efficient system for combo bins of trim because we have 80% of our production coming from youthful fed cattle that have 50% trim that we need to send there. And we tend to import them lean trim in terms of mixing and blending for patties and ground beef. And this is one of, it's really hard to move away when you've got these really integrated systems and making those adjustments come at a cost.

Kara Mastel (10:40):

Absolutely. Is there certain packers, is there certain parts of the US that a lot of Canadian cattle goes to?

Brenna Grant (10:46):

So in terms of live cattle trade, Western Canada exports are going into Washington state as well as Nebraska, we also see out of Eastern Canada going into

Kara Mastel (10:59):

Pennsylvania. So do you want to talk a bit about what economic impact these tariffs could have in terms of revenue and employment on again, both sides of the border?

Brenna Grant (11:09):

I would say on the Canadian side, they are definitely significant. They're not the full tariff amount. There is that offsetting impact of the aspects that I mentioned with the exchange rate as well as the slightly higher US price. And a big part of what that impact is really depends on what kind of a hit we take on our domestic market and our domestic demand on that side. So really even with those cushioning effects, it is still large and significant. And that's one of recognizing that downside risk and the volatility, really, producers should be looking at risk management opportunities, whether that's price insurance or whether that's hedging the dollar, hedging the futures, looking at options for that.

Kara Mastel (12:03):

Absolutely. And it can feel a little helpless, and there really isn't a ton that we can do. You're sitting on the farm and you're going to the coffee shop and everyone's saying, oh my gosh, these tariffs, they could really cause a lot of issues. But in terms of potential for major trade or supply chain disruptions through your work, maybe particularly with the cost of production network, do you have any suggestions for cattle producers?

Brenna Grant (12:30):

So this is one on the cow calf side of things? Yes, prices would be down, but we're also starting at record high prices for cow calf producers. And so as we've been telling everyone with our cost of production network is it can be really difficult to control cost structures in an inflationary environment, but doing that work now is well worth it, of taking really close looks at your costs, making sure that you are keeping costs under control with that in order to protect that margin. Absolutely. I think really as we go forward, there are going to be things particularly at the cow-calf level where they're more concerned about weather and whether that's restocking of their herd postroute, if they're in one of the regions where that is feasible, considering what they want to do with heifers and what that looks like for them moving forward in terms of if they're purchasing heifers, at what price do they want to be purchasing at, what is a viable purchase price for heifers so that those heifers are profitable during their lifecycle.

(13:48):

Four feed lots. As I mentioned, risk management is going to be really key. We have ample supplies of cattle here, but I would say this is one of every feed lot is going to have a different risk exposure to the US market. Yes, I mentioned the 44% in terms of national, but every individual feedlots exposure is going to be unique to them where they're going to have to take that into consideration. But there's also things that is outside of the producer's control or influence, and one of those is recognizing the fact that our slaughter numbers are down from the peak in 22, and that means there is possibilities and flexibilities within the supply chain in terms of what packing plants do,

Kara Mastel (14:34):

What resources are available to producers through canfax. Maybe that will help them with some of these risk management decisions.

Brenna Grant (14:43):

Yeah, so in our capax weekly report, we have on page two, the price insurance coverage levels each week that you guys can take a look at those and see those. But you can also then look at what we're seeing for projected prices based on historical basis levels for both fed cattle and feeder cattle on pages two and three. And that's really based on the historical basis and what the futures market is telling us in terms of fundamentals at this point, that at this point we don't have a tariff. And hopefully that's still true when this airs.

Kara Mastel (15:26):

Yes, absolutely. Okay. Is there anything else you'd like to add when it comes to things, producers should just be keeping in mind,

Brenna Grant (15:34):

Focus on the things you can control. There's only so much we can do in terms of protecting ourselves.

Kara Mastel (15:42):

Absolutely. I think that's a great note to end on. Let's just focus on what we can control. Risk management is so important, but there's only so much risk we can prepare for, so Absolutely. Well, thank you very much for your time, Brenna. I appreciate it very much. You bet. And if producers are looking for specific information from canfax, you mentioned the Canfax report, but if they're not currently Canfax members, how do they become a member?

Brenna Grant (16:09):

Yeah, you can go to our website canfax.ca and you can sign up to become a cow calf or a feed lot member whenever you are.

Kara Mastel (16:18):

Perfect. Okay. Thank you very much. B Brenna.

Brenna Grant (16:20):

Thank you, Kara.

Kara Mastel (16:26):

Okay, that brings this episode to a close. Stay warm and safe and don't forget to check in on your mental health too. It's a tough time of year. And with the looming economic and political pressures on top of everything else, we recognize anxiety levels may be higher than normal. There are plenty of resources available, and if you're looking for a comprehensive list, you can visit abp daily.com. You are not alone. In fact, I'll tell you right now, I've personally used some of these resources before and I'll blast that out to the universe because I think it's important to share vulnerabilities too. Thanks for coming along on this journey with us. Stay tuned to ABP Daily and your favorite podcast apps for our next episode. And hey, maybe you even have an idea for a future show or you just have a burning question you'd like us to answer. Get in touch on social by tagging Alberta Beef Producers and using the hashtag ABPs the bobbin. Or you can personally catch me on my email karam@albertabeef.org. Bye for now.