Market analysts may be bullish about improved calf prices due to tight supplies, but that does not necessarily mean the good times are back for the beef industry.
“Bullishness in markets and in grains doesn’t guarantee profitability,” Brian Perillat, senior market analyst at Cattlefax, said during the Alberta Beef Producers annual meeting Dec. 7 in Calgary.
The global industry is in decline and cattle numbers, beef production and consumption are down almost everywhere, said Travis Toews, president of the Canadian Cattlemen’s Association.
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“Our hope would be that even if consumption declines due to lower production, that in fact, the demand equation will increase because we will be selling product at a much higher price,” he said.
The right market signals have been delivered to U.S. producers to rebuild their herds but instead growth has been non-existent for nearly a decade, he said.
Land use policies that restrict grazing, competition for land to grow more corn, aging ranchers and tight capital hold back expansion plans.
Encouraging signals are coming for Canadian producers hurt by BSE restricted markets since 2003. Calf prices have improved and the fed cattle market is at its annual high at about $98 per hundredweight.
“Within a calendar year we have gone from $76 to $98 on fat cattle in the right direction, so that is $300 a head on fat cattle right now,” Perillat said.
Canada’s cow slaughter is above the long-term average of 10 percent a year.
“We are pushing at 12 percent, which is still liquidation mode,” he said. “We will be down another three or four percent in cow numbers given our high marketing and low heifer retention this past year.”
There are about 500,000 breeding heifers, which is a 30 year low for replacements. That means a smaller calf crop for at least 2011 and 2012.
The United States also has fewer calves, resulting in overcapacity in its feed yards and processing plants. There is demand for more cattle, but Canada is exporting fewer feeders and is not likely to crack the 200,000 head mark.
When the cattle stay home, it is good news for domestic packers whose slaughter is up five percent over last year.
In addition, the large amount of feed wheat and other grain damaged in this year’s poor prairie harvest continue to hold down barley prices.
“If it wasn’t for feed wheat right now, it would be a very different story,” he said.
Because the cost of gain is lower than the U.S., some western Canadian feedlots have imported U.S. feeders. Canadian Border Services reports about 6,500 arrived, but Perillat suspects that number is too low.
Canada is also bringing in beef from the U.S., Australia, New Zealand and Uruguay, but the tariff rate quota of 76,000 tonnes from non-North American Free Trade Agreement countries is at a record low.
So far this year, about 45,000 tonnes have arrived and most goes for manufacturing type beef.
Canada’s beef exports continue to improve. Most flows to the U.S. but inroads have been made elsewhere.
Mexican beef imports increased 50 percent by volume and 70 percent by value for the first half of 2010, said Chuck McLean, ABP chair and promotions chair for the Canada Beef Export Federation.
For the first nine months of this year, Russia accepted about 4,600 tonnes of beef and veal worth $8.4 million compared to 2009, when it imported 5,100 tonnes worth about $5.7 million for the entire year.
“It is clear that our business is no longer based on liver exports for sausage production,” he said.
Sales should be positive once technical negotiations are completed with China, but it will not be the kind of game changer that it was when Canada gained access to Hong Kong and Macau, said Dennis Laycraft, executive vice-president of the CCA.
Once market access is normalized, sales to the three markets could be worth $130 million per year. Recovering tallow sales could push that up to $175 million.
China consumes more pork and poultry than beef , but as the population becomes wealthier that is likely to change.
China was a net exporter of beef products at 3,000 tonnes in 2009.
“When you think about the Chinese market, you have to think longer-term,” Laycraft said.
