Additional slaughter capacity and plunging inventories could combine to open the door for Canadian producers
The drop in U.S. beef cattle inventories was expected, but the depth of the low caught many people off-guard.
A recent report by the U.S. Department of Agriculture showed beef cattle numbers at a 60-year low. The 3.6 percent decline recorded as of Jan. 1 has left the United States with less than 29 million head, the lowest since the 1960s.
Those are numbers people are paying attention to, said Lance Zimmerman, senior animal protein analyst with Rabobank’s food and agribusiness section.
“A year ago at this time, everybody thought the 2014 lows would hold with the beef cow herd, but nobody expected the drought to be as widespread and as bad as it ended up being as we navigated through 2022,” said Zimmerman.
Read Also
Outdoor farm show a trade supercharger
Canadian Chief Trade Commissioner Sara Wilshaw says international buyers love the chance to see farm equipment in the field in Saskatchewan.
As the seriousness of the drought hit home during the year, indications suggested inventories would slide.
“We culled 13.4 percent of the U.S. beef cow herd as we navigated through last year,” said Zimmerman. “And that was a record high by nearly a full percentage point.”
That, combined with the largest amount of heifers on feed in the last two decades, equated to producers not feeling enthusiastic about rebuilding herds.
“It just wasn’t a possibility,” said Zimmerman.
The situation comes as strong demand continues with record highs recorded in 2021 with slightly less in 2022.
Even with better weather and moisture expected for 2023, herd rebuilding is years away, said Zimerman.
“Hay stocks are at the lowest levels we’ve seen since the early ’90s, forage prices are incredibly high right now,” he said. “Producers are going to need more than one good year of weather to have confidence in making that $2,000 a head investment in bred heifers or that $1,500 a head plus investment in bred cows.”
Processing capacity is building rapidly in the U.S., Mexico beef cattle inventories are rising and better conditions in Canada are expected to continue. Combined, this should mean the news is not all doom and gloom in the integrated North American market.
“In total, all of those (U.S. processing) expansions, whether they are up and running today or in the works, represent, basically, 15,000 head a week of additional cattle slaughter,” said Zimmerman.
With U.S. inventories expected to continue to decline before recovering, that additional capacity opens the door for Canadian producers.
“It means the U.S. is going to be more active in the import market and in all three classes; beef fed cattle, feeder cattle and calves,” said Zimmerman. “Today, Canadian producers have been struggling, especially on the feedlot side with prices that have been far more depressed than the underlying futures market would suggest.”
That situation has been because of challenges in processing and abundant front-end supply, he added. But Zimmerman said that situation will change as the U.S. draws more and more from north of the border.
