“The value of the dollar is going to drive the market.”
– RICK WRIGHT
January cattle herd numbers show that even with the massive sell-off of cull cows last year, the Canadian herd has only been brought back to 2003 levels – effectively quashing hopes that a shortage may boost prices this year.
Cow kill projections are set to soar to the highest level seen since 1997, with an estimated 927,000 head going to slaughter this year. But even that figure is just a reflection of the ongoing liquidation of excess inventory that began when the United States border closed to Canadian cattle, according to Rick Wright, a cattle market analyst with CattleEx.
“We’ve still got lots of cattle around. That big surplus of old grannies that we held on to for so long with BSE, and all those replacement heifers that we carried over because they weren’t worth nothing – all those volumes are still really high,” said Wright at a meeting last week in Melita.
“We’re back to 2003, and that is a surprising thing for most people when they get looking at the facts and figures.”
More cattle are moving to the U. S. as slaughter capacity in Canada continues to shrink.
Even with more hooks available north of the border now than before BSE, the number actually being used has fallen and most of the smaller packers have closed their doors, he said.
In 2008, 1.4 million head were sent south, but that figure represented a rise of just 1.9 per cent, mainly due to the COOLinduced lull during the latter part of the year.
Feeder cattle exports were up 6.4 per cent, but the real eye-opener was the 157,000 cull cows that went to slaughter last year in the U. S., up a whopping 1,008 per cent over last year, along with 43,300 bulls, representing an increase of 1,800 per cent.
The advantage offered by age verification was evident, he added, with paperwork offering a $100 to $225 price boost per head. More cows and bulls will be going to market this year, as more Canadian ranchers are dusting off their record books and printing out papers for animals born after March 1999.
Depending on the exchange rate, Wright predicted that American buyers will be a major factor in the domestic market in the spring and fall as they look for yearlings to fill feedlots that are currently running well shy of capacity.
“The value of the dollar is going to drive the market,” he said. “Our cattle would not be selling nearly as well if we were running at a 90-cent dollar.”
The new Washington administration’s pending review notwithstanding, the COOL final rule due to be set in stone on March 16 is unlikely to change, given pressure from that country’s feeder and packing industry, said Wright.
With Canadian cattle amounting to just three per cent of their total production, fears of a backlash over “blended” meat may be overstated.
“We’re just a needle in the haystack,” he said, adding that the American buyers he deals with say that the exchange rate and the overall economic picture is more significant than obstacles due to COOL.
U. S. cattle industry economists have warned that with 64 per cent of their total exports going to Canada and Mexico, adopting a more protectionist stance by toughening up COOL rules could end up costing U. S. producers up to $50 to $60 per head if it provokes retaliatory measures.
Mexico’s threatened delisting of 13 American packing plants for “sanitary” reasons got their attention, and the situation was only resolved after Washington dispatched a trade delegation to patch things up.
Losses last year due to wild swings in commodity markets with corn soaring to nearly $8 per bushel hit U. S. feeders hard, with losses for all of 2008 averaging some $113 per head.
“If you guys aren’t making any money in the cow-calf business, the feedlots aren’t making any money, and the packers certainly aren’t making any money,” he said.
“The only money being made today is at the retail level. But because demand for beef is starting to come down, the retailers aren’t going to be making much money, so we’re not looking at a real bright finishing market throughout 2009.”
Although fast-food retailers are doing a booming trade selling low-priced hamburgers, statistics show beef continues to lose market share to other meats, with per capita beef consumption at 43 kilograms (kg) in the U. S. compared to 70 kg per year for chicken.
On the bright side, Wright said that futures market signals this spring are showing that 900-pound yearlings coming off grass could be worth as much as $1.15 a pound, which is why good calves going through the ring locally have recently brought as high as $1.20 per pound.
He urged producers to get on board with the proposed government traceability programs because they stand to give sellers of age-verified, knife-cut calves a price advantage in the auction ring, noting that currently, only about 14 per cent of the cattle in Manitoba come to market with papers.
“Everybody complains that they don’t get paid for it. Well, it doesn’t cost you anything. When you castrate your bull calves, you don’t get a cheque from the nut fairy,” he joked.
“If you want your calves to make the top of the market for that day, it’s going to be part of the price formulation. We’re getting more and more feedlots wanting age verification because the packers want it.”
With age-verified animals, packers have the ability to reap big gains exporting other cuts such as tongues to South Korea, where they fetch $6 to $7 each instead of $1.10 in North America.
“We kill 60,000 head a week. That’s 60,000 tongues. Do the math. It adds up,” said Wright, who also sits on the CCIA board.
The government’s goal of European-style full traceability and cattle movement reporting by 2013 is necessary for the Canadian industry to compete on the world stage, he said.
Niche market packers which started up with high hopes post-BSE are “absolutely done,” he said, adding that even the industry giants are struggling under the regulatory burden of dealing with specific risk materials (SRM) removal, which adds $120 to $180 in extra costs per head over their American competitors. [email protected]