Cattle profit possible despite price dip

A buildup in the U.S. herd, along with heavier carcasses from feedlots pushed fed and feeder prices down

Record high cattle prices have come and gone, but next year could remain profitable for the average cow-calf producer, says a market analyst.

“Let’s assume the Canadian dollar is similar to where it is today, my argument would be yes (to a profitable year),” said Anne Wasko of Gateway Livestock Exchange in Taber, Alta., and president of Cattle Trends, during a grain and cattle market outlook information session in Perdue, Sask., Oct. 8.

“Cow-calf producers are still in a (profitable) position, assuming Mother Nature co-operates next year. We don’t need another dry year back to back.”

Wasko said the weak loonie is cushioning falling cattle prices.

U.S. fed steer prices have dropped to about US$120s per hundredweight from the $150s in seven weeks. Calf prices have also fallen.

“Even at these lower calf prices today, the situation is … not as profitable as a year ago but still certainly profitable,” she said.

“The Canadian dollar gave the Canadian cattle producer that extra time of some record prices. That’s changing now because the dollar has been sitting in the mid 70 (cents) for some time now.”

She said several factors have combined to create today’s market situation.

For starters, the U.S. cow herd is expected to increase by at least three million head.

“It’s anticipated by the time their January 2017 data comes out that they will have added as many beef cows to their inventory as we have in all of Canada,” she said.

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“That is a big story.”

Canada’s beef ranchers are not in expansion mode yet, she added.

“We’ve been very, very flat with little fluxes up and down, but for the most part a very flat herd,” she said.

Such a massive buildup in U.S. cow-calf numbers will directly impact prices in both countries.

“The fact that the U.S. has moved into an expansion phase certainly means the highs are behind us,” she said.

“Their highs were in 2014. The Canadian highs were earlier this year. The difference was the weakness of the Canadian dollar.”

Wasko said the spring drought in the western Prairies and resulting higher forage prices affected producers’ decisions this fall to keep extra heifers.

Global economic uncertainty is also taking a toll, particularly in key Asian consumer markets.

“China is kind of taking a step backwards, and a lot of the demand forecast was built around some of the Asian pickup,” she said.

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Another negative factor are record heavy carcasses. Feeders preferred to add more weight to existing inventories rather than bring in high price calves.

“Bottom line, cattle feeders were losing money, dragged their feet and made them bigger, and at the end of the day producing more beef per head than we were expecting,” she said.

“So all of these things have come together and really caused the U.S. market to go in a very quick decline here in the last few weeks, and that’s being felt here in Canada as well, simply because our prices follow the U.S. trend. U.S. fed cattle prices are going to drive U.S. feeder cattle prices, which is going to drive the calf price.”

Wasko said cattle producers understand they go through these cycles every eight to 12 years, and the present phase has been a good time at the cow-calf level.

“Whether it’s paying down debt, fixing corrals, improving the herd, improving the genetics, there’s different ways that you can use profits to prepare for the next cycle that will come down the road,” she said.

“Going forward, we plan for what we’re going to go through, which will be lower prices, smaller margins and possibly negative margins as we get there.”

She anticipated that beef export potential will grow in the next few years because of recent deals such as the Comprehensive Economic and Trade Agreement with the European Union and the Trans-Pacific Partnership.

“We still know that from a global perspective the population is growing, generally becoming more affluent and adding protein (to their diets). Those things are still all part of this discussion.”

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