Tight supply drives prices | COOL restricts access to U.S., discouraging Canadian expansion
Cow-calf producers could be in the money for the next couple years, but outside influences are keeping Canadian prices lower than what they should be.
A dollar at 95 to 96 cents US and the impacts of mandatory country-of-origin labelling set back Canadians by $20 to $25 per head compared to U.S. feeders, says one market analyst.
People may not realize the extent of the negative impact of the labelling law because prices are generally better than they were a year ago, said Brian Perillat of Canfax.
“They see prices are better and think we must be OK, but our prices should be higher than they are,” he said.
“Our calf prices aren’t high enough for expansion at all. They may be holding steady at best.”
Extremely tight cattle supplies in the U.S. resulted in record fed cattle prices of $132-$134 per hundredweight across much of the United States for the last two weeks. Canada also set a record for the same period with fats selling for up to $124 per cwt.
“In Canada, we did set a record but at quite a discount. If you consider the dollar, we had over a $16 discount to the United States,” he said.
Traditionally, Canadian fed cattle are at the steepest discount, or widest basis, in early autumn but the basis narrows and Canadian and U.S. prices get closer in November.
“This time of year we start strengthening the basis, and that will be a better test to see if this COOL is having an impact. September to October is generally the time of our weakest basis and our biggest discount,” he said.
Another factor weighing down Canadian prices is Tyson Foods’ announcement that it would no longer accept “C class” cattle from Canada, citing COOL as the reason. These are cattle exported direct for slaughter to the U.S.
The company will still accept Canadian born cattle that were fed in the U.S. but is likely to pay less for them. The reduced price is passed on to primary producers.
However, the small North American cow herd is the greatest problem for the industry.
Perillat predicts the Canadian cow herd numbers will be down again when Statistics Canada issues its next livestock herd report in January. Meanwhile, drought in the U.S. dramatically reduced the beef cow herd in that country.
Texas has the largest beef herd in the United States and its cow herd is about four million head, down from more than five million three years ago.
Slaughter numbers in the fall are usually supplemented by increased kill of culled cows, but that that is not happening this year.
The supply of beef cows for slaughter is expected to remain tight through the end of the year and into next spring, said the analysis firm Paragon Economics.
With fewer fed and non-fed cattle available, the total U.S. kill in the last part of October was the lowest since 1971, according to Paragon.
U.S. Department of Agriculture statistics for the week ending Oct. 19 showed the cow slaughter for the week was 118,650 head, down 12 percent from a year ago.
Total U.S. cow slaughter for the year is down 20 percent compared to the previous year.
The slaughter situation is similar in Canada.
Canfax reported that weekly fed slaughter in Western Canada was less than 30,000 head last week for the first time in 10 weeks.
So far this year, Canadian fed and non fed slaughter is down three percent and total beef production is down four percent.
With the reduced slaughter and smaller carcass sizes, beef supplies are tight and prices have been high all year.
The U.S. wholesale price in the spring hit an all time record at $210 US per cwt. on the Choice cutout. This fall it is around $205 per cwt.
Canadian AAA cutouts topped $200 Cdn late this spring, about $20 per cwt. higher than the previous three year average.