Although there are concerns about demand, analyst Kevin Grier predicts a steady year for U.S. fed cattle prices in 2008 and that should provide good stability for Canadian prices.
“In the first half I suggest will average about $92 US per hundredweight. … In the second half I’m suggesting $95 per cwt.,” Grier said of the U.S. market
He gave the cattle outlook at GrainWorld in Winnipeg last week.
The market analyst at the George Morris Centre in Guelph, Ont., said stable domestic demand in the United States, combined with stronger U.S. exports, will keep prices steady to slightly higher. Last week U.S. cash cattle were trading at just under $92 per cwt.
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Grier also sees a steady market for U.S. feeder cattle, predicting a price of $106 per cwt. for the second half of the year.
U.S. feeders have been in the $100 to $105 range in recent weeks.
The stable U.S. market should keep Canadian prices steady, said Grier, because prices here are largely determined by American prices and the exchange rate.
Grier noted CIBC World Markets’ foreign exchange outlook predicts the Canadian dollar will trade at $1.05 US by the end of 2008.
Grier sees the strength in the North American market coming from declining cattle numbers in the U.S. and Canada, consistent domestic demand and rising exports.
However, he was reluctant to forecast a steady to stronger market. The weakening U.S. economy and increased packer margins could drag prices lower, but he decided to go with conventional wisdom.
“There’s a bit of a herd mentality among market analysts,” said Grier, noting that most market watchers predict steady cattle prices for 2008.
James Hilker, professor of agricultural economics at Michigan State University, said he believes supply side fundamentals are strong, but like Grier, he sees demand risk from the declining U.S. economy.
“(Producers in) the U.S. and Canada have lowered their breeding herds,” said Hilker, who attributes the cut in U.S. herds to drought and lack of hay supply. But Hilker is unsure of how much the struggling U.S. economy will affect meat demand. He said not enough research has been done to quantify lower spending power and how it relates to steak consumption.
“But it can’t do it (the industry) any good,” he said.
The U.S. Department of Agriculture reported beef cow numbers of 32.6 million as of Jan. 1, 2008, down one percent from 2007. Calf numbers also fell one percent.
In Canada, cattle on cow-calf operations also dropped one percent from 2007 to 2008, but the big loss in Canada was feeder cattle, courtesy of a strong Canadian dollar and high feed prices.
According to Statistics Canada, there were 1.43 million cattle in feedlots Jan. 1, 2008, down 123,000, or 8.6 percent, from Jan. 1, 2007.
Grier produced charts that illustrated a rapid increase in feeder cattle exports to the U.S. From September to December 2007, shipments jumped up to 20,000 head a week. In comparison, 2006 shipments for those months averaged 5,000 per week.
“Our guys can’t keep their feeder cattle on the Prairies,” said Grier.
