Beef markets giveth, beef markets taketh away

U.S. analyst estimates the American feedlot sector lost $1.6 billion last year after record prices in 2014

The fastest upward move in the beef markets starting in 2013 has been followed by a shocking reversal in fortune.

Feedlots in Canada and the United States earned record profits and then faced disastrous losses, said market analysts from Canfax and Cattlefax.

“The feedlot industry has given a lot of that profitability back with some of the largest losses they have ever seen,” said Brian Perillat, senior market analyst for Canfax, at the Canadian beef industry conference held in Calgary Aug. 9-11.

“I think we have been through the worst of the pain but that is not to say there (isn’t) more downside in this market,” he said.

He anticipates more red ink this fall.

The U.S. is suffering even greater devastation. Randy Blach of the U.S. analysis firm Cattlefax estimated the American feeding sector lost $1.6 billion in a single year.

“I have never seen so much money made so fast and I have never seen so much money lost so fast,” he told the conference attended by about 650 people.

Profitability is returning and calves bought at the beginning of the year are likely going to make money.

The record prices two years ago encouraged American producers to expand their national herd by about four percent.

The herd will continue to grow and Blach anticipates another 650,000 head will be added, but growth is slowing. Probably a third of producers are not making money at this point, he said.

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Meanwhile, Perillat said Canada’s numbers remain flat.

“Who would have thought $3 calves would not do that. It has presented a challenge to the industry. We have got expectations so high, $2 calves are not exciting anymore. It used to be what they wanted,” he said.

Nevertheless, Perillat expects Canadian cow-calf producers should enjoy another year of good prices but the market may be short of expectations.

He is predicting 550-pound steer calves could fetch $2 per lb. this fall but the market will be volatile depending on the exchange rate, feed supplies and the cattle futures market.

While producers enjoyed unheard of prices for live animals, consumers were also paying plenty for beef at the retail case. Beef re-mains fairly high.

Consequently, the beef industry is losing market share to escalating pork and poultry supplies. Canadian beef consumption is around 18 kilograms per person per year while pork and poultry are making gains.

The U.S. poultry and hog sectors were hit hard by avian influenza and porcine epidemic diarrhea so there was not enough meat available in 2014.

That has turned around, said Blach. Pork has been very profitable and production this year has climbed to record levels.

In response, four packing plants are coming online this year in the U.S.

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Poultry is also growing every year with record production anticipated in 2016.

“We will have the largest production in history over the next several years,” he said.

In 2015, Canada and the U.S. experienced the largest increase in domestic protein supplies since 1950. Packers suffered and retailers made no money selling beef.

“The market is worried about the big protein supply and prices will be discounted to move it,” Blach said. “We won’t have as wild a market compared to what was experienced in the last 18 months, but there is incredible supply to work through.”

North American freezer space was at capacity but more product is moving so stocks are slowly coming down.

“That is part of the reason these markets have underperformed to the degree they have because there is so much protein available.”

More exports are needed to help use this big supply, he said.

However, U.S. meat exports went from 16 billion pounds down to 14 billion pounds of total meat resulting in increased domestic supplies.

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