Cattle prices will continue to decline until 2018, but will remain profitable, says a livestock marketing expert.
“2016-17 will not be the same as last year and our long-term forecast is that we are in a cyclical decline,” said Jim Robb, director of the Livestock Marketing Information Centre, who spoke on the current price situation and market outlook for 2016 at Ag Days in Brandon on January 20.
Robb said cattle prices will continue to decline in 2016 but that decline will be less dramatic moving forward.
“The biggest adjustment has happened here in late ’15, early ’16. The markets will still be cyclically lower through 2018, but we are not going to keep getting this huge decline, the largest portion of fluctuation has already occurred,” said Robb.
He says the exchange rate, changes in the chicken and pork industries, and the slowdown of the U.S. herd growth will all impact the market landscape in 2016.
“We saw a dramatic decline all at once because these factors — the U.S. cattle feeders, the world economy — came together all at once, in the beginning of the fourth quarter of 2015,” said Robb.
The expected cyclical decline through 2018 is normal for the industry, he said.
“This is a highly cyclical business. You can see the long-term graphs go up and down, both in Canada and the U.S., that hasn’t changed,” said Robb. “This will just be a different management time for producers.”
As long as Canadian producers keep management practices tight they will be able to remain profitable, especially in the cow-calf sector.
“Long term, this is still a fundamentally good year in cow-calf country. 2016 is going to be our third best year ever in terms of producer income,” said Robb. “But, the coming year will still pale in comparison to 2013-14.”
Summer stocker programs are forecast to have the toughest margins in 2016.
“This is the sector that is most vulnerable to widely variable prices,” said Robb. “Growing cattle from calves to yearlings before they enter feedlots is sort of the shock absorber in the system and that becomes where prices are the most unstable. Those who rely on these programs have to be the best marketers, managers and buyers of cattle.”
Robb said the beef demand profile hasn’t been this high since 1991 due to growth in the restaurant industry and consumers’ willingness to continue to purchase beef, even at premium prices.
“Beef is very much influenced by the restaurant trade. The restaurant trade has picked up enormously throughout the world but especially in North America,” said Robb. “But also, consumers didn’t switch to pork and chicken to the extent they historically would have for cheaper prices. They have kept paying a premium for beef, which tells you a lot about what they think of the taste and quality of the product.”
On a global scale, Robb forecasts the Canadian herd to stabilize in 2016, but doubts growth.
“The Canada herd could grow a little bit but it will be difficult to grow in a lower-price environment,” said Robb, adding that Canada’s long-term export demand remains very positive.
“When we look at the exporting countries, Brazil and North America are really best positioned to fill some of the converging consumer demand overseas.”