Renewed profitability | Expansion slow as producers look to regain lost equity
CHARLOTTETOWN, P.E.I. — The year 2014 will be celebrated for its phenomenal bull-run on cattle prices.
“We are looking at prices a dollar higher a pound than a year ago,” said Brian Perillat, senior market analyst of Canfax.
“There is a great appetite for producers to enjoy what they are doing right now,” he said at a Canadian Cattlemen’s Association town hall meeting in Charlottetown Aug. 16.
The fall feeder run could result in profits of $600 an animal at the cow-calf level, he said.
“Some people say that is conservative, but profitability is phenomenal.”
Chicago’s October futures market recently came down to $145 from $160 per hundredweight. At other times that would be cause for concern, but cash prices have remained strong and the market did not show signs of weakening.
But the renewed profitability has not fuelled expansion in Canada. People are still recovering the equity lost during the early stages of the post-BSE years, said Perillat.
The cow kill has slowed somewhat, even though it is tempting for producers to sell when culls are worth $130 per cwt. Heifers are not being held back for breeding at a rate that is needed to spur growth in the national herd.
About 500,000-600,000 stayed home this year but that is not enough to fuel growth, say analysts.
“We are looking at pretty flat breeding stock numbers for Canada,” said Perillat.
The cow herd is the smallest in decades. The low supply of cattle is a threat to the stability of feedlots and packers, currently struggling to find enough cattle to run sustainably.
In addition, about a million head could be shipped to United States feedlots and slaughter plants this year. Canadian feeder cattle exports are up 40 percent over last year and 2014 is far from over.
Better weather with more abundant feed supplies in the U.S. appear to be encouraging expansion there, but overall North American growth will be slow to moderate.
Reduced barley acres in western Canada are tightening feed supplies at the same time the U.S. is anticipating a record corn crop of 14 billion bushels. The result could be $3 corn in Nebraska. That would create an advantage for American feeders over their Canadian counterparts.
Canadian forage supplies are also tight, another factor that may limit expansion plans here.
“If we have to start bringing in corn, that will not really be a solution,” he said.
Another change in the beef complex are shifts in export demand and consumer preferences.
China has become a major beef importer and is drawing in meat from all over the world, most notably Australia.
Domestic consumer tastes have also changed.
Grinding beef is supporting the entire complex. End meats like roasts are less popular than they once were and are ending up as hamburger.