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Recession Slows Cattle Industry Recovery

“Until we see economic recovery, it’s going to be a challenge.”

– SCOTT MCKINNON, CANFAX

Canada’s long-suffering cattle producers, still smarting after BSE, may have to wait a little longer to start making money again.

Cow-calf producers could start to see profitable margins by late fall. Feedlot operators may, too, depending on feed costs, said Scott McKinnon, a market analyst with CanFax, a division of the Canadian Cattlemen’s Association.

But even that isn’t a sure thing.

A global recession and a general industry malaise will make recovery slow and difficult for the beleaguered beef sector, McKinnon told a producer audience during Manitoba Ag Days.

“Until we see economic recovery, it’s going to be a challenge,” he said to reporters following his presentation.

Some producers who haven’t forward contracted and sell finished cattle for cash are losing $150 per head, he said.

The immediate problem for beef producers is the recession. Low consumer confidence in the economy has sharply reduced the demand for beef, said McKinnon.

But even an economic turnaround won’t solve structural problems in the beef industry, he added.

“Even if we see increased demand, we’re going to have to see significant changes in the industry,” he said. “There’s no use producing more product unless you’ve got somewhere to sell it to.”

Canada’s cattle producers have never fully recovered from the after-effects of BSE in 2003. The

world shut its door to Canadian beef and market prices plummeted. Some countries still limit Canadian beef nearly seven years later and prices have never fully recovered.

But BSE is only one factor in a litany of problems affecting the beef industry.

Corn futures, which drive feed grain costs, hit record highs in 2008, moving in tandem with crude oil prices. Corn prices dropped sharply in 2009 but are on the rebound again.

The Canadian dollar is on the move again, nearing parity with the U. S. dollar after dropping in late 2008. A strong loonie is negative for exports which drive Canada’s beef industry. Canada exported 58 per cent of its total beef and cattle production in 2002 before BSE shut exports down. Last year, exports totalled 47 per cent of production, well below historical levels.

The U. S. country-of-origin meat labelling rule further hampers Canada’s beef and cattle exports to its largest customer.

Above all else, the current global recession is battering consumer confidence, lowering beef consumption and hurting prices.

“Despite reduced global supplies, cutout values have struggled in 2009 due to global economic downturn and competing meats,” McKinnon said in his presentation.

There are some promising signs, McKinnon added. Beef cow numbers continue to decline after peaking in 2005. The global economic recovery, when it occurs, will increase beef demand. Reduced cattle inventories in Canada, the U. S. and globally should eventually improve prices for cattle and beef.

Increased production likely won’t occur until 2011 or 2012, making short-term shortages positive for prices, said McKinnon.

But producers are leaving the industry in growing numbers because of systemic problems which predate BSE, he said.

“We’ve been telling them one more year for 14 years and they’re just not going to buy it. We’ve cried wolf too much.” [email protected]

SLOW RECOVERY: Recovery will be slow for cattle producers in 2010, says Scott McKinnon, a CanFax market analyst.

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