Livestock market analyst Anne Dunford has a key message for cattle producers in 2012: fasten your seatbelts.
“Volatility. Get used to it. If you can’t stand it, leave the room now. It’s not going to get any better.”
Record high prices are likely this year, Dunford told producers Jan. 19 at the Lethbridge College Tiffin Conference.
However, increased market volatility could make for a wild ride in markets driven by cattle supply, corn and barley prices, dollar values and weather conditions.
“It was an exciting year, prices were good and that’s kind of setting the stage for marching ahead,” said Dunford about 2011.
She predicted the Canadian cow herd will shrink by another two percent this year, making it the smallest since 1994.
In Alberta, the herd is 25 percent smaller than it was in 2005 and 19 percent smaller than 2002. It is the smallest herd since 1991.
Although there was a seven percent increase in heifer retention last year, resulting in 42,000 more heifers, that was more than offset by 90,000 cows sent to slaughter during times of record high cull cow prices.
However, Dunford said the culling rate is now below 10 percent for the first time in years, which could indicate a turning point in herd size reduction.
“The herds have been liquidated to the level that I’m going to go ahead and suggest that next year’s cow kill might not be a whole lot different.”
Severe drought in the southern United States resulted in herd shrinkage, and although drought conditions have eased somewhat, Dunford expected another two percent decrease in the U.S. herd in 2012.
On the fed marketing side, 2.9 million head were sold in 2011, fewer than the previous year. She predicted 2.8 million head of fed cattle marketed in 2012, which could drive further industry consolidation as feedlots and slaughter plans run below capacity.
“We’re not all going to be able to run the hotels full. It ain’t going to happen,” Dunford said.
She warned producers about low stocks-to-use levels on corn, which will add market volatility. Southern Alberta has a good feed advantage, with costs lower than those in the U.S., but that can quickly change depending on weather conditions and exchange rates.
The price advantage is now resulting in record low feeder cattle ex-ports.
Feeder cattle and beef exports were down in 2011 compared to 2010. Dunford said 138,000 more feeders stayed in Canada in 2011 and beef exports were down 19 percent, making them similar to 2003 numbers.
“That will be difficult to change in the short run,” she said.
On the demand side, Canadian data for 2011 is not yet available. In the U.S., wholesale beef demand was up seven percent, largely because of an increase in U.S. exports.
Dunford said the price spread be-tween cuts has narrowed, with hamburger and steak drawing closer in price per pound. Fast casual dining, exemplified in chains such as Fatburger and Five Guys Burgers and Fries, is on the increase.