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Consumers won’t want for meat supplies this year

‘Exceptional’ demand in 2018 supported fed cattle prices

Manitoba’s cattle auction yards remained quiet over the week ended Jan. 4, with activity set to start back up at most locations during the first full week of the month.

Live cattle futures in Chicago ended 2018 at some of their highest levels of the past year, but subsequently spent the first days of 2019 backing away from those levels. Feeder cattle futures also finished 2018 on a firmer note, but within the range of the past year.

“The demand was exceptional in 2018,” said Herb Lock of FarmSense Marketing in Alberta. A relatively strong economy on both sides of the Canada/U.S. border helped fed cattle prices hold up, despite the large supplies available, he said.

However, higher barley prices in Western Canada put a damper on calf prices, causing them to finish about 10 to 15 cents/lb. below the year-ago levels.

Looking to 2019, Lock saw potential for higher interest rates and a slowing economy, which means consumers will have fewer dollars to spend.

Beef production is on the decline in Canada, while the U.S. beef herd is also slowing, according to Lock. However, there is still a bigger supply of cattle on the ground in the U.S. waiting to be fattened than there was at this time a year ago.

There will be lots of meat around in 2019, with domestic consumption likely flat at best, according to Lock. As a result, the Canadian cattle sector will remain dependent on export markets for prices to improve.

“It will take exceptional demand to keep prices steady, given the higher supply of beef, pork and chicken heading into the new year,” said Lock. “It would be hard to make a case for (prices) to be above a year ago.

“If you see a chance to sell this year’s production at last year’s prices, it should probably at least be considered.”

As for exports, uncertainty over trade relations between the U.S. and China continues to keep some caution in all markets.

However, for Canada, the implementation of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) means that Canada has gained more access to Japanese markets, which should be somewhat supportive.

From a cyclical perspective, the cattle cycle has seen four or five years of growth and supplies are getting heavy. “That’s when prices start to tip over,” Lock cautioned.

Lock was wary that some cow-calf producers may throw in the towel, which would create a snowball effect and exaggerate the problem before the cycle eventually resets.

About the author

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Phil Franz-Warkentin writes for MarketsFarm specializing in grain and commodity market reporting.

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