THE freefall of farm commodity prices in 1998 felt like a collision of the planets in some sectors.
At least the beef trade saw it coming.
The cattle cycle is now in its second year of reduction. Cow inventory numbers peaked in 1996 and started sliding downward after that. The cycle runs on a 10-13 year loop.
“This cycle so far is panning out very similar, barring economic and trade woes. From a numbers perspective it is not too unlike cycles of the past,” said Anne Dunford of Canfax. “From what history has suggested we’re not far off from what we were expecting.”
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The cycle of the 1970s spiked, followed by an absolute collapse. However, one difference this time is the absence of government assistance.
The cattle industry is nearly subsidy free. Feed freight assistance, beef top-up programs, red meat tripartite stabilization and the Crow Benefit grain transportation subsidy are gone.
Cattle feeder Ben Thorlakson of Airdrie, Alta., feels the economic bruises.
“People are hurting and we’re in a bad part of the cycle,” said Thorlakson, who is also president of the Canadian Cattlemen’s Association.
The feedlot sector has lost money every month for more than a year. Feedlots are volatile businesses at the best of times, experiencing tremendous profits and dips.
Part of their recent problem is high prices they must pay for calves as the supply grows tighter. To get the most out of each animal, they are finished at heavier weights to earn a few extra dollars per hundredweight.
Finished cattle were sent to slaughter at heavier than normal weights, adding more beef to the mix. Deductions of $4 per cwt. resulted.
All slumps in the cattle cycle carry unique features and this year, disabling financial events in Asia and Russia contributed to falling prices.
For example, Russia has traditionally bought large amounts of North American beef livers. The country can’t afford them now and the livers have to be sold elsewhere for less money.
Hides found extra value in South Korea but a downturn in the Asian economy affected its ability to pay. Resulting depreciation in hides and offal value takes $25 off per head.
“Those levels have not recovered from the hit we took late last year and this year,” said Dunford. “We have not seen any improvement in hide and offal product values.”
IN a typical liquidation phase, animals are culled rather than kept as breeding stock, leading to more beef on the market and lower prices.
Meat consumption trends add to the problem.
For the last 20 years, each Canadian has eaten about 170 pounds of meat a year. However, the kinds of meat they eat have changed. Poultry and pork have knocked beef from its throne.
But cattle producers are now thinking about expanding because prices are expected to peak in 2000 or 2001.
“Today is the time to talk about getting ready for better prices down the road,” Dunford said.
In this industry, producers must make a commitment for the long term and recognize the cyclical nature of the business. To analyze one year is a mistake, she said.
This year, with prices lower than the cost of production, more producers are protecting themselves with contracts and by using futures markets for cattle that finish in the new year.
