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Three Cs still affecting cattle prices

“Consumers continue to choose to eat beef, but we see a change in eating habits in favour of less expensive meats.”

– LYNDSAY SMITH

Don’t pin your hopes on a quick recovery in the cattle market just yet.

Although the Canadian cattle herd has been shrinking by leaps and bounds over the past year, volatility in other aspects of the market may still cancel out the more favourable supply-demand situation.

“I’m a little hesitant to say that’s necessarily going to translate into profitability, when we have the wild cards of the volatility in the dollar and ongoing unknowns with country-of-origin labelling,” said Lyndsay Smith, a cattle market analyst with Gateway Livestock Marketing in Taber, Alberta, in a presentation at Ag Days 2009 last week.

Cow slaughter numbers in Canada last year were the highest since 1986, and 155,000 head were shipped south over the same period, she said, a clear indication that cow numbers have dropped sharply.

In July of last year, StatsCan pegged Canada’s cattle herd at 15.2 million head, down 10 per cent from the peak of 16.9 million in 2005, an even lower number than in 2000.

Cow numbers down

Looking further back, in January 2008, beef cow numbers were 4.98 million, down six per cent from the peak in 2005.

The new beef cow numbers due later this month are expected to show a further fall of six per cent, to 4.68 million head, as heavy culling over 2008 saw 770,000 head slaughtered, plus 155,000 cows exported, resulting in nearly a million head taken out of the herd last year.

“Reduced cow inventory is therefore going to reduce feeder inventory, which will impact the number of cattle going on feed, and eventually the beef supplies that are available,” said Smith.

On the bright side, she said that given the smaller herd, an economic recovery within the near future might result in better prices for beef producers who choose to stick it out through the lean times ahead.

High costs

United States cattle numbers are expected to be down two per cent from last year’s July figure of 33.1 million head, as drought, high input costs and the lure of higher prices due to stronger demand for hamburger led to higher culling rates.

The impact of COOL on Canadian feeder cattle exports can be clearly seen in the fourth quarter of the year, as the number dropped by half over that period compared to 2007. Changes to the final rule have yet to narrow the basis spread, as packers await signals from the new administration.

Alberta and Saskatchewan feedlots picked up the slack in yearlings, however, and those animals will likely be moving into the market in first quarter of this year, she said.

Consumer demand

Judging by past recessions, Smith said, consumers will likely continue to eat beef despite a barrage of gloomy economic news in recent months.

“Consumers continue to choose to eat beef, but we see a change in eating habits in favour of less expensive meats,” she said, pointing to U. S. rib-eye price decreases that began in July and ran until November, before recovering in December.

Chuck cuts, on the other hand, rose over the same period, and hamburger prices are expected to stay strong throughout the new year.

Byproducts, such as offal and hides, were hit hard by the economic slump, and packers saw prices plunge.

“Supply looks fairly manageable moving forward, but demand from consumers is really going to depend on how long the recession is going to be,” she said, adding that the most optimistic predictions see a turnaround by the second half of 2009.

Swings

Although the exchange rate on the Canadian dollar has been experiencing unprecedented swings, the cost of gain outlook has brightened, with corn prices in the middle ground after soaring to a high of $8 per bushel last summer and rising from a low of around $3 later in the year.

The recent USDA world ending stocks report cast a bearish pall on corn, which when combined with a poor outlook for oil prices and a strong U. S. dollar, may dampen the traditional March price rally.

“In past years, we have seen the corn-barley relationship stay intact, but this year it may not take place. If we see a seasonal increase in corn, it may not necessarily follow through with barley,” said Smith.

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