BRANDON – After hearing the Canadian cattle market outlook for 2008, farmer Robert Smith of Austin, Man., had one question.
“Why shouldn’t I sell all my cows, take the poor land and sell hay, and put the rest into grain,” he asked analyst Andrea Brocklebank of Canfax, the Canadian cattle industry market analysis firm.
“Is there any hope?”
Brocklebank didn’t offer Smith or the 200 other producers at the Manitoba Ag Days session much short-term optimism.
“There will be exit,” said Brocklebank. In other words, some farmers have to quit the business.
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“We expanded during a time period when we shouldn’t have expanded,” she said about the recent increase in the Canadian cow herd because of the BSE border lockdown. The high cow numbers created by the BSE crisis were followed by record cow slaughter numbers once the border began opening. But Brocklebank said the North American cow herd will likely shrink this year even though cattle numbers, taken in isolation, suggest it should be expanding.
The reason is that the corn price boom that has followed the ethanol industry expansion has squeezed cattle producer and processor margins. Fed cattle prices have not been bad, averaging $88.47 in 2007 compared to $86.76 in 2006. But rising feed costs have made it hard for the beef industry on all levels to make money.
Barley prices increased an average of 52 percent in 2007, to $185 per tonne from $122. Corn rose to $148 from $103, or 44 percent.
The sudden increase in value of the Canadian dollar compounded problems for producers and processors here. As the dollar rose, the value of calves fell by about the same amount. From prices around $115 per hundredweight in Alberta in the first half of the year, they ended above $90.
Packers steadily lost money and cattle feeders found themselves constantly in the red.
High feed prices are likely to remain through the year. There is little reason to believe that the loonie will weaken enough to help Canadian producers.
Brocklebank expects to see Canadian feeder calf exports to the U.S. continue at a high pace and to see domestic packers operate at well under capacity and at a loss.
Farmers will liquidate herds and national beef production will likely fall.
But Brocklebank said the long-term outlook for the Canadian cattle industry is excellent.
“Globally, growth in beef demand is large,” she said.
People in countries such as China like Canada’s grain-fed beef and have a high opinion of Canada. That bodes well for future demand.
“This is the kind of beef that those high value markets are looking for,” she said.
Smith didn’t get a direct answer to his question about whether he should stop raising beef and convert his land into hay and crop production. But to him, the outlook said one thing loudly: “It doesn’t make sense to raise cattle these days.”
