Tyson Foods Inc. (TSN:US), the biggest U.S. meat processor, halted purchases of Canadian cattle shipped directly to their beef plants to reduce costs.
Tyson stopped buying in mid-October after U.S. rules that require labels to show where an animal was born, raised and slaughtered signaled higher expenses, Worth Sparkman, a spokesman, said today in an e-mail. The company (TNS:US), based in Springdale, Arkansas, doesn’t have enough warehousing capacity to accommodate those products, he said.
“These new rules significantly increase costs because they require additional product codes, production breaks and product segregation, including a separate category for cattle shipped directly from Canada to U.S. beef plants without providing any incremental value to our customers,” Sparkman said in response to questions from Bloomberg News.
The Canadian Cattlemen’s Association says Tyson is the third-largest buyer of Canadian cattle. The company will continue to buy Canadian-born animals sent to U.S. feedlots. Sparkman declined to say how many animals were bought for U.S. beef plants for processing.
Tyson bought about 3,000 cattle weekly from Canada, and the nation’s exports probably will decline more than 150,000 head a year, Brian Perillat, a senior analyst at Calgary-based Canfax, a market-research unit of the cattlemen’s group, said in a telephone interview.
Tyson’s Pasco plant in Washington state is a large buyer of animals from British Columbia and Alberta, and producers in parts of the Prairies will have to pay more to ship animals elsewhere, Dennis Laycraft, the executive vice president of the cattlemen’s association, said in a telephone interview from Calgary.
For U.S. processors, “the best way to avoid extra costs is simply to avoid the product,” Laycraft said in a telephone interview from Calgary. “This is precisely what we were afraid was going to happen.”
Feeder-cattle exports may increase by 100,000 head if U.S. companies decide to buy them as a substitute to fattened animals, Perillat of Canfax said.
In the U.S., feedlot operators typically buy 1-year-old cattle that weight 500 pounds (227 kilograms) to 800 pounds, called feeders, which are fattened on corn until they weigh about 1,300 pounds and are sold to meatpackers.
Canada’s feeder-cattle weekly exports to the U.S. have climbed to 7,000 to 9,000 from 1,000 to 2,000 a year earlier, Perillat said.
“We lose another buyer” for animals from Canadian feedlots, Perillat of Canfax said. “A carcass is broken into so many pieces. To keep all of that separate all the way through a plant is not even logistically possible.”
Live-cattle exports to the U.S. have declined as much as 40 percent since the original label rules were effective in 2009, Laycraft of the cattlemen’s association said. Canada shipped 709,000 head this year as of Sept. 14, including 500,000 directly to processing plants, he said.
Exports are “clearly going to go down,” Laycraft said. Tyson is “pretty significant in Western Canada,” he said.
The association joined a group of meat and livestock groups in Canada and the U.S. that filed a lawsuit in July against the U.S. Department of Agriculture to block the amended label rules. The rules cost Canadian producers as much as C$40 ($38.37) per head, or C$640 million a year, the association said in May.
Cattle futures for December delivery rose 0.1 percent today to close at $1.32875 a pound on the Chicago Mercantile Exchange. The price has advanced 4.6 percent in the past 12 months.
Feeder-cattle futures for January settlement declined 0.5 percent to $1.667 a pound. On Oct. 14, the price reached a record $1.6995. The commodity has climbed 12 percent in the past 12 months.
JBS SA (JBSS3) and Cargill Inc. are the biggest buyers of Canadian cattle for the U.S., according to the cattlemen’s association.
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