There was a lot of optimism at this year’s Canadian Western Agribition and rightly so.
After several years of crisis brought on by the discovery of BSE here, the beef industry is recovering and planning for the future.
With most access to the U.S. restored and indications that Japan and other Asian nations will grant partial access in 2006, market prospects are good.
The Chicago live cattle futures market is also sending good signals.
The February and April contracts are in the mid $90s US per hundredweight and the rest of the 2006 contracts are in the mid to high $80s. This signals a year of much needed strong profits for producers, but some analysts like the George Morris Centre’s Kevin Grier warn that the futures prices might be a little optimistic.
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The prices reflect the current cattle cycle and expectations of a partial resumption of American beef exports.
The United States is in the rebuilding stage of the cattle cycle, so heifers are being redirected from slaughter into the breeding herd.
While total slaughter in 2006 is expected to be up a little from last year, it will still be much lower than the norm in the late 1990s and early 2000s.
But Grier noted that doesn’t necessarily mean reduced beef supplies. Carcasses are slightly heavier and beef imports are expected to be strong. The result will be record beef supply in the U.S. -13.69 million tonnes compared to 13.23 million in 2005 – at the same time that large supplies of competing pork and chicken will also be available.
Domestic demand for meat has been incredible in the last few years, thanks in part to the popularity of low-carb, high-protein diets. But the diet fad is waning and while still popular, the participation rate is down.
So to recap, we are looking at record supply, perhaps reduced domestic demand and yet exceptional futures prices. Clearly, the validity of those prices rides on getting the export market on its feet.
The American Meat Institute said Dec. 2 that its officers had met with Japan’s ambassador to the U.S., Ryozo Kato, who told them that the Japanese market would reopen in mid December.
It was welcome news, but because the opening is limited to beef from cattle younger than 21 months, in reality it will mean only small trade, particularly because many Japanese are still suspicious of the safety of U.S. beef.
And until borders actually open, nothing is guaranteed. On Nov. 29 it was widely expected that South Korea, the second largest Asian beef import market, would announce a date for resumed trade. But the committee making the call delayed its decision until mid December.
South Korea might jump out as the most important Asian beef customer in 2006 because indications are that it plans to accept beef from cattle younger than 30 months. Let us hope it is not rethinking this position.
But even if all the pieces of the puzzle don’t align perfectly to generate record prices, 2006 should see good cattle prices and manageable feed costs, leading to profits for cattle producers and feeders on both sides of the border. After years of struggle, Canadian producers deserve an optimistic forecast.
