Large domestic feed grain supplies should help underpin the Canadian cattle sector for the time being by giving it a competitive advantage compared to the U. S., according to an industry analyst who thought the Canadian cattle market was looking reasonably well supported heading into the new year.
Market analyst Herb Lock of Farm$ense Marketing in Alberta noted margins rather than prices are the big issue when it comes to the cattle market. He said burdensome barley supplies in Western Canada were keeping the costs of gain lower in Canada compared to the U. S., where corn prices are considerably higher.
“Barley is relatively cheap compared to U. S. corn,” said Lock, “and that’s the true competitive advantage of the Canadian cattle industry – having access to grain that is cheaper, relatively speaking, than U. S. corn.”
However, cheaper feed grains are unsustainable in the long run, as grain farmers will simply plant less barley if they’re not happy with prices, noted Lock.
Uncertainty over U. S. country-of-origin labelling (COOL) legislation also remains one element of concern in the Canadian cattle sector, according to Lock, who thought the uncertainty was hurting current cattle prices by as much as C$100 per head. However, regardless of how the COOL issue sorts itself out, Lock expected the U. S. demand for Canadian cattle would remain. He said the U. S. slaughter and feeding industries were seriously overbuilt, and will need Canadian cattle if they want to keep operating.
While catt le-on-feed in Canada are up on the year, due to the favourable feeding costs, the Canadian cattle herd overall is still in the midst of a downsizing period, said Lock. He said one concern was that the market pendulum would eventually swing so far that there wouldn’t be enough Canadian cattle to meet the domestic demand. He added that in the bigger picture it makes more sense to slaughter the cattle domestically and then export the meat, than to be exporting live cattle.
Lock was optimistic overall for the Canadian cattle sector. He thought there was more room for improvement in the cattle industry than in other sectors, such as pork or poultry, which are already further advanced.
Lock said World Agriculture Supply/Demand Estimates were also looking generally favourable for the cattle sector heading through 2009, with the best opportunities for prices arriving in the last quarter of 2009.