The U.S. border is expected to open March 7 to exports of young Canadian cattle but the impacts of BSE in Canada continue to be felt.
As Canada’s major livestock producing province, Alberta farmgate cattle receipts dropped from $3.87 billion in 2002 to $2.55 billion for 2003.
There is no firm calculation for declines in support industries, nor have longer range structural impacts been determined, said Sean Royer of the Alberta Agriculture economics unit.
Boneless beef exports resumed in September 2003.
“BSE reduced 2003 cattle and beef exports by about $1.2 billion (for Alberta) but in 2004 it recovered quite a bit,” Royer said.
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A recent Bank of Montreal analysis estimated total Canadian losses to the cattle sector were at least $5 billion. For the first six months of 2004, cattle producers faced poor markets and experienced cash receipt drops of 30 percent lower than the average for the five years ending 2002.
Other commodities felt the impact as well.
Pork cash receipts in the United States were good. With no beef exports to Asia and avian influenza resulting in millions of slaughtered chickens, pork replaced the lost beef and poultry requirements in those markets.
Canadian producers did not fare quite as well as the dollar appreciated in value and a 14 percent tariff was slapped on hog exports to the U.S.
Grain sector affected
Losses for the grain industry are still being calculated. A poor harvest turned a large share of the wheat crop to feed quality that can be fed to a larger than average cattle herd.
A report from the American marketing analysis firm, Agra Informa Co. looked at the North American BSE impact assessment and possible scenarios when trade normalizes.
“The impact on the Canadian cattle and beef industry has been far in excess of what could have been imagined prior to the outbreak,” said the report prepared for the British Columbia agriculture ministry.
The largest impact on the Canadian beef and cattle market was loss of American markets for live cattle and beef products.
It was compounded by the loss of Mexican and Asian beef trade.
Canadian cattle and beef prices dropped to unprecedented discounts to the U.S. market with record spreads between the two countries.
The spread remained mostly in the $30-$50 US per hundredweight range through the fall of 2003. As slaughter levels increased in 2004, the spread narrowed into the $25-$30 region in the first quarter but then widened back to the $30-$50 range through much of the spring and summer.
U.S. prices held in the $75-$80 range and exceeded $100 in October 2003 for fed cattle. Choice beef cut-out values soared past $200 per cwt.
The second case on Dec. 23, 2003, in Washington state created a short lived market drop in the U.S. to about $70 per cwt. but quickly recovered and for most of the calendar year traded from $80 to $93 cwt for U.S. cattle.
When Canadian live cattle trade resumes it is hoped prices for fed and feeder cattle will rise in Canada but it is difficult to predict how much the price spread may narrow. The industry will have to determine the impact of restrictions imposed by rule.
“There could be some ‘hassle’ factors imposed by the new rule that would prevent the spread from getting back near historical levels within the first six to 12 months,” said the report.
If the border opens in March, the report suggests Canadian cattle exports could hit 1.6 million head of fed and feeder cattle. In addition, increased slaughter capacity of more than four million head per year could reduce the Canadian cattle herd size by five percent by the end of 2005. However increased slaughter will not entirely resolve the backlog of cattle on Canadian farms.
Slow and steady
Some Americans are concerned a potential flood of Canadian cattle could appear when the border reopens. This could create a setback in the U.S. live price. Adjustments to control the flow may be imposed.
If weekly live cattle shipment volumes are limited to 15,000 to 20,000 per week, it would be realistic to expect a $2-$4 per cwt. negative impact on U.S. cattle prices in the short run as the American packing industry adjusts to the added supply and recovers a more normal margin posture.
“On the other hand, one could expect a $20-$30 per cwt. rise in Canadian cattle prices as live cattle arbitrage once again takes place,” said the report.
Globally Australia has been the largest beneficiary of Canada and the U.S. being removed from the market. Exports to Asia are up 30 percent and cattle prices up nearly 20 percent over last year even as the Australian dollar strengthens.
