This isn’t what cow-calf producers want to hear, considering they have finally been able to make money over the past couple years.
However, any way you look at it, the Canadian beef industry is facing big challenges.
The most immediate is a continuation of the U.S. drought. Steve Meyer of Paragon Economics told the recent Tiffin Conference at Lethbridge College that 150 to 230 millimetres of moisture are needed to bring many areas of the American corn belt back to normal soil moisture reserves.
Another year with reduced corn yields will keep prices high, which is good news for Canadian grain producers but bad news for livestock producers.
The 2012 spike in corn prices renewed the financial problems plaguing the hog industry and dramatically reduced calf prices.
Meyer points out that the U.S. beef herd is the smallest since 1946. Feedlot placements are down in the United States and Canada. Beef supplies in North America will be short, increasing pressure on retail beef prices that are already high.
That should be good news, except that per capita beef consumption has been dropping and high prices contribute to that trend. As Meyer says, personal disposable income in the U.S. isn’t rising quickly, which hurts the demand for meat.
Of course, it’s certainly possible that the U.S. will receive ample rain, allowing better corn production and lower feeding costs. If that happens, cow-calf producers could see improved profitability this year. Still, there are serious longer-term threats.
Structurally, the Canadian supply chain isn’t healthy. The vast majority of Canadian processing capacity rests with two foreign-owned companies: Cargill and JBS.
It was good news for the industry when Brazilian-owned JBS agreed to take over beleaguered XL Foods, but it’s never healthy to have just two main buyers.
It also isn’t healthy to have 85 percent of our beef and live cattle exports going to just one country: the U.S.
As we all know, the U.S. economy has serious challenges. The country needs to raise taxes and/or cut government spending to get their massive deficit and debt under control. Unfortunately, it seems unable and unwilling to make the tough decisions.
Its only other option, other than defaulting on loans, is currency deflation. The country has already been practicing quantitative easing, which is basically printing money to lend back to itself.
We’ve become used to the idea of the Canadian dollar being approximately on par with the U.S. greenback. Imagine a trading environment in which the Canadian dollar is worth $1.10 or $1.15 American. Beef and live cattle export values would be seriously eroded.
Canada is working on trade deals with many nations that could potentially lower the trade barriers imposed on Canadian beef. That provides long-term hope for more diversified exports, but it isn’t going to happen soon. As well, we’ll have a tough time competing for sales if the American dollar carries a much lower value than the Canadian dollar.
There’s another risk that no one wants to talk about, but it’s real all the same. What are the odds of another serious disease outbreak? Foot-and-mouth disease is the most feared. Most observers thought BSE would never happen in Canada.
How long would it take to recover from a foot-and-mouth outbreak and at what cost?
There are risks in any business, but the beef sector has more than its fair share.
Kevin Hursh is an agricultural journalist, consultant and farmer. He can be reached by e-mail at firstname.lastname@example.org.