CALGARY – While many North American cattle producers are struggling to climb out of the trough of low prices, one analyst said it’s time to expand.
Randy Blach of Cattlefax said there is a bull market ahead as the cattle cycle dips out of the doldrums and starts its upward climb. Cattlefax tracks livestock market trends in Canada, United States and Mexico.
“If there was ever a time you were going to expand your numbers, the next 12 months is the time to do it,” he said.
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“The absolute lows in prices are behind us,” he said at the recent Western Stock Growers Association convention.
However, many people are under financial pressure to spend less so they fail to expand when cattle are cheaper.
Study the cycles
Producers need to study the cattle cycle and analyze whether it is in an upward or downward trend to make wise selling and buying decisions.
“The cycle can create a lot of wealth and it can take a lot of it away,” he said.
The last four cattle cycles have consistently shown a 30 percent difference between high and low prices. Cycles traditionally last 10 to 12 years and generally reach their lowest point during the sixth year. Even when producers think each cycle will be different, the last four cycles since the 1960s have proved highly predictable, said Blach.
This cycle was different because of overheated expansion of herds and subsequent record high beef production, said Blach. The surplus of cattle came at a time when beef consumption in North America was already flat.
American inventory peaked Jan.1 at 105 million head and will decline steadily through the balance of this decade. The sharpest decline will occur by January 1998 when about two million head are expected to be liquidated.
Blach anticipates the Canadian herd will see a proportionate decline. The Canadian beef herd is slightly more than one-tenth the size of the American herd.
“We’re driven by the same market forces,” he said.
Major reductions are already happening on the female side in both countries. In the U.S., 36 percent of heifers were placed in feedlots this fall. More than 11 million American heifers will be killed by the end of this year, said Blach.
Since many heifers are normally kept for breeding, an increase in the number sent to slaughter indicates many producers are cutting herd size.
As of Nov. 9, the U.S. had slaughtered almost 31 million head of cattle. This is a 2.4 percent increase over last year at this time.
American cow slaughter by year end should total more than seven million which is expected to be the peak kill.
So far this year, Canada has killed 2.4 million head, a 13 percent increase over last year.
Numbers steady
Canada’s July 1 census showed a total of 14.3 million head, a reduction of less than two percent compared to the July 1995 report.
The greatest decline was noticed in beef heifer numbers. Statistics Canada reported 973,000 heifers compared to 1.08 million the year before. In 1995, 793,900 were shipped compared to 868,200 in July 1996.
On the feeder cattle and calf side, Blach said the first sizeable reduction will be noticed in the latter part of 1997. Don’t expect prices to go up because animal supplies are still high, he warned.
There are still a lot of cattle to move through the system and Blach predicted fed cattle would be bid at $64 per hundredweight, basis to the U.S. market. For Canadians that means cattle should trade around the $80 mark this winter.
There should be less volatility in cattle bids because feed grain prices have stabilized.
Beef production in the U.S. for 1990 was 22.5 billion lbs. and in 1996 at least 25.5 billion lbs. will be on the market. This ties the record high for beef supplies and Canada may exceed its record beef production.
Blach expects U.S. beef supply will be down to 23 billion lbs. at the end of the decade.
Exports look better each year but are not enough to pull producers out of the trough.
This year, American beef exports will reach $5.19 billion.
Up to the first week in November, 946,106 slaughter cattle and 405 million lbs. of beef entered the U.S. from Canada.
Canada imported 19 million lbs. of beef from the United States.
