NEPAWA, Man. – A recent plunge in the Canadian dollar to below 80 cents US should have sent American cattle buyers scrambling to fill their orders north of the border.
One reason that hasn’t happened is uncertainty over the implications of country-of-origin labelling in the United States. COOL has forced packers there to back off from importing Canadian cattle, said Bob Gwyer of Manitoba Agriculture.
“A lot of the gains made with our dollar dropping have been totally lost in reflecting any price change here, and COOL has had a lot to do with that,” said Gwyer, who spoke at a recent beef industry meeting in Neepawa, Man.
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The other reason is that tightening credit may be forcing buyers to ante up more of their own money. Where previously they might have been able to put down only 20 percent, now in some cases that figure has doubled to 40 percent.
Although U.S. cattle prices rose sharply in recent weeks, producers north of the border missed out on that short-lived rally, even as the Canadian dollar sank to well below 80 cents U.S. in late October.
The loonie shot back to 85 cents as of Nov. 7, and in the meantime, feeder prices have settled back.
Earlier this fall, many in the industry expected the impact of COOL to be less than they feared, and that calf prices would be the same or better than last year. But the global economic meltdown has pulled the rug out.
The new labelling rules, however, have widened the Alberta-U.S. cash basis price to around $16 from $10 to $12 per hundredweight, as American buyers factor in a discount to compensate for additional paperwork under COOL.
Other proof that it is having an effect can be seen in feeder cattle exports, which for the year to date are up 24 percent, while fat cattle are down 20 percent over the same period.
The election victory of Democrat candidate Barack Obama, who has spoken in favour of COOL, may not bode well for Canada’s export-dependent beef industry, Gwyer added.
Canada is the world’s largest exporter of grain-fed beef, but 77 percent of the country’s exports go to the U.S. As economic woes worsen south of the border, the effect on beef consumption is difficult to predict.
More people might switch to cheaper hamburger instead of steaks in a recession.
“I think most people think it’s going to take at least six months to get a real good handle on what the longer term implications of it are going to be,” said Gwyer.
“The dollar in isolation doesn’t seem to matter anymore. It used to be that if it dropped by a cent, you’d probably gain a cent or more on your cattle price,” he said.
Cow-calf, backgrounding and feedlot operators are unlikely to turn a profit under present pricing conditions.
The only bright side to the cattle market is that all segments have a reasonable chance of covering their operating costs and labour.
For cow-calf operators, Gwyer estimated that the break-even price for a 575 pound calf to be sold next fall will be $1.44 per lb., compared to $1.36 last year. To cover operating and labour costs, producers would need to get $1.10.
“So we’re not within a country mile of covering all the costs on that side. I don’t think that shocks anyone too much. Most guys in the cattle business are used to it being a low-profit type business on a lot of years,” he said.
However, some forecasts for next year, based on shrinking herd numbers on both sides of the border, have pegged fall calf prices in the $1.14 range, which should at least cover operating and labour costs with a few pennies left over.
In Manitoba, home to about 13 percent of Canada’s herd, compared to 29 and 40 percent for Saskatchewan and Alberta respectively, cattle numbers have been falling steadily.
Expected further declines in Manitoba’s herd could range from three to five percent or higher this year as more acres are switched to grain production.
“I’ve heard that a lot of people have taken the opportunity to cull really heavily, and there have been some pretty big sales, with guys selling as many as 500 to 600 cows off,” said Gwyer.
“I think our cattle numbers in the province are going to be down a lot more than we think by the time the smoke clears.”
