Canada’s cattle herd should keep shrinking for several years, making it tough for the No. 3 beef exporter to fully capitalize on new overseas opportunities, according to the head of the country’s new beef industry group.
The Canadian herd fell to an 18-year low of 13.87 million head midway through last year, even as Chicago live cattle futures prices were trading near-record highs and export opportunities are increasing, most notably to South Korea, which recently ended a nine-year ban on Canadian beef. But while there are more potential overseas buyers for cattle and beef than in nearly a decade, Canada does not have enough of either to supply them all.
“It’s going to take time to rebuild that herd and the market signals are going to have to stimulate that investment on behalf of the producers,” said Robert Meijer, president of Canada Beef Inc., who expects the Canadian herd to keep shrinking for two to three more years.
“We only have so much meat to go around.”
Domestic, U.S. and Mexican buyers are Canada’s priority markets for their close proximity and favourable currency trade-offs. Before exporters ship scarce supplies to new overseas markets, they want to ensure it is worth their while and that risks are low of new non-tariff barriers emerging, Meijer said.
“The reality is, going into any of those export markets means displacing another export market or our home turf,” he said. “It remains to be seen how aggressive the Canadian packers and the exporters choose to (move) back into some of these markets.”
Long-term herd decline
As Canada’s herd shrinks, U.S. cattle inventory also has fallen to its lowest level since the 1950s. While severe drought in Texas has accelerated the U.S. decline, Canada’s herd has slipped due to factors such as the strong dollar and high grain prices.
Aging demographics are also holding numbers in check, as Canadian ranchers retire and may not have children to continue the business, Meijer said.
Canadian packers are also running slaughter plants under capacity because their cost of buying cattle has risen faster than meat prices, he added. As a result, demand for cattle from beef packers and exporters such as Cargill and XL Foods might disappoint farmers eager to cash in on high prices after leaner years.
“It takes time for the industry to react (to improving conditions), but from my perspective, there’s some rightsizing going on too,” said Meijer.
Although Canada lacks the beef and cattle supplies to satisfy all its markets, the industry is eager to open more of them to avoid reliance on only a few.
Japan is one of the highest priorities, Meijer said, since the high-paying market currently accepts only Canadian beef from cattle under 21 months of age.
“It is frustrating when we’re dealing with trade barriers that fall way, way outside of science,” he said. “There’s huge potential in Japan.”
Japan said last month it was reviewing its ban on certain cuts of beef from several countries, including Canada and the U.S. China committed in 2010 to resuming trade in Canadian beef and tallow. However, commercial trade has not resumed because of its standing restrictions on beef containing the growth promotant ractopamine.
Canadian plants owned by Cargill and XL Foods are cleared to ship to China, but to do so, they would have to incur the expense of segregating ractopamine-free cattle from other types, Meijer said.
“So when you’re short cattle in the market like we are, why would you go to the effort to chase China? You could sell it into the U.S. and make more money.”