CYPRESS HILLS PROVINCIAL PARK, Sask. —Producers can expect a continuing wild ride through the cattle markets as prices remain strong and supplies stay tight, says analyst Anne Dunford.
The president of Cattle Trends Inc. told the Saskatchewan Stock Growers Association annual convention that the volatility and risk of the current market is bound to continue. In the past, a producer could recover from a wrong move, but in the current environment a similar wrong step could wipe out a producer.
“Betting wrong can be costly,” she said. “This market has so many swings in it.”
Dunford said the bullish trend on prices will hold and the 20 percent increase in prices last year is likely to be topped. Strong seasonals on feeder cattle suggest the bottom of the market was May and the tendency to go higher in August and September should follow.
“Higher highs are still ahead for the feeder cattle market,” she said. “Expect prices to move higher. Demand is going to be strong, supplies are smaller and you’ve got feedlots that I think are going to be getting signals from a futures market into late 2012 and early 2013 that are going to say higher prices ahead.”
The lowest U.S. cow number in history, at less than 30 million head, combined with smaller herds in Canada mean limited supply. Dunford said some stabilization is occurring in Western Canada where heifer retention has begun, but it’s too early to say the same in the U.S.
In Canada last year, 646,000 slaughter cows went to market. This year, that number should be about 609,000.
She said it will likely be 2016 before steer and heifer supplies return to about three million head.
“It’s a long process even if we do start to change the production phase we’re in today into an expansion phase,” she said.
However, she noted that since 1975, on an annualized basis, average steer carcass weights have increased seven pounds per year. In 2011, a new record high of 857 pounds was set. That is up 45 pounds since 2000.
If that continues, the number of cattle will not need to rise as much to meet demand.
“It seemed to be a bit of a surprise out there that cow numbers were down since 2005 but it really took until 2011 to see production down,” she said. “We produce seven percent more beef with the same number of cows. Do we need to go back to the numbers we were at before from a tonnage perspective?”
Tighter supplies of cow and manufacturing beef will result in more imported beef.
Non-NAFTA imports are up 14 percent overall this year to date.
On the export side, Canada shipped 26 percent less in volume and 14 percent in value in 2011.
“This year, we are running a little bit better trade with the U.S.,” Dunford said. “Currently, we’re up seven percent for the first three months of this year.”
She suggested Canadians may ship more feeder cattle south this year, reversing a trend of the last 18 months.
Already this year, the same number of cattle have moved south — 78,000 head — as during all of 2011.
The feed cost advantage typically enjoyed in Western Canada is not as significant as it used to be, Dunford said, as barley and corn prices have moved closer and corn futures show a big decline.
“It could be cheaper to put a pound of gain on in Nebraska than it will be in Lethbridge or Picture Butte this fall,” she said.
However, the smaller feeder supply will be a factor, too. It will be quiet through the summer and who knows what will happen in fall, she said.
Dunford predicted that calf prices will “blow any previous records out of the water” this year and fat cattle prices should rally in the fall.
Despite the strong prices and optimism within the industry, Dunford noted there is a struggle between high feeder prices and the high cost of gain. All the strength doesn’t create profitability.
Trends in the industry such as increasing demand for Choice and AAA cuts, higher land values, difficulty accessing capital and credit and the resulting consolidation, cost-of-gain challenges and tight global supply all point to volatility and risk.
“We’ve got some strong prices but who makes the money is really dependent on what costs are, inputs, and how we are able to handle some of this volatility,” Dunford said.
“There’s no question this is a great time to be in this business. Just hang on for the ride.”