GUELPH, Ont. – Fed cattle supplies remain tight, keeping feeder and fed prices higher than average.
Canadian markets for fed cattle have remained stronger than expected throughout the spring and much stronger than normal relative to American prices.
Factors keeping the prices strong are poor use of domestic packer capacity, strong domestic demand for Canadian beef, reduced U.S. supplies combined with American carcass weight drops and reduced margins for packers, distributors and retailers.
“It is about supply and demand and U.S. prices,” said Kevin Grier, a Guelph agricultural economist and analyst with the George Morris Centre.
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He said distributors and retailers in Western Canada require Canadian beef to meet nationally branded product demand and that meat is in tight supply.
The consumer demand for Canadian beef is lower in the East but overall the spring demand is strong for the product, tightening supplies.
Grier said price spreads between Canada and the U.S. are $3 to $4 per hundredweight. Pre-BSE spring price spreads would have been closer to $8, while off-season spreads might be $15.
“We are seeing exceptionally strong Canadian prices relative to American (prices for fed cattle and boxed beef) and domestic demand is very good relative to supply,” he said.
Grier said packers are operating at about 75 percent capacity in part because of tight labour supplies. The per head margins have dropped to a few dollars or even to the point of minor losses.
“Packer margins are almost always tight. It’s part of the ebb and flow of that business. But they are lower right now,” he said.
USDA cattle on feed inventory reports show an overall decline of 2.3 percent lower than May 2006, with net placements of calves into American feedyards falling 4.4 percent in April.
Grier said Canadian demand for domestic supply is strong enough that a lower than average number of live animals are heading into the U.S.
