Harlan Hughes delivered a more uplifting message to Canadian cattle producers in early September than he did during his Feb. 6 speech at Cattle Congress 2004 in Saskatoon.
In the fall, the livestock economist and professor emeritus at North Dakota State University was convinced live cattle would enter the United States by January and that Canadian producers would be tapping into U.S. cattle prices nearing the peak of a 10-year cycle.
“There’s potential to make some fairly decent money,” he told producers attending an economics and marketing seminar in Rosetown, Sask., Sept 2.
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But since the Dec. 23 announcement of a BSE-infected cow in Washington state, everything has changed. There is no sign the U.S. border will reopen for live cattle younger than 30 months anytime soon and prices for feeder and slaughter cattle are sliding downward.
As a result, Hughes has changed the tone of his speech and is now delivering a different message to producers.
In Saskatoon last week, he counseled them to devote their energy to decreasing production costs, challenging them to reduce the cost of producing a hundredweight of calf by five percent a year over the next three years.
“I’ve heard ranchers say, ‘God, I can’t do that.’ The hell you can’t,” he said.
Costs are the only part of the revenue equation producers can control, he added, and everyone needs to consider it because the price news isn’t encouraging.
“The post open-border prices will be under the pre-BSE prices,” he said.
“It’s not going to go back to where it was pre-May 20th. The Canadian dollar will ensure that.”
Hughes said three components dictate what producers get for their cattle: Chicago futures prices; basis levels and the exchange rate. None of those factors are working in producers’ favour.
Slaughter and feeder cattle futures are dropping and BSE will lower them by an average of 16 percent over the next year.
Basis levels, which represent the cost of doing business, are rising because of increased testing, inspection and segregation expenses. He expected the basis to rise $5 U.S. per cwt. for slaughter cattle and $10 per cwt. for feeder cattle and calves.
Perhaps the most daunting factor is the strengthening Canadian dollar, which has already taken a substantial toll on cattle prices. It is also the most unpredictable element.
Hughes said the dollar’s future is uncertain, but he wouldn’t be surprised to see it continue to rise over the next year. Its value is heavily influenced by the American dollar, which he believes will continue to weaken.
“We’ve got a war to pay for. At the same time we’ve got a major tax cut.”
When all three factors are taken into account, he thinks Alberta slaughter cattle will fetch somewhere around $81.55 per cwt. if the border reopens in 2004. Feeder cattle would average $92.42 per cwt. and feeder calves $111.85 per cwt.
Those are 12-month averages based on a much broader range. His forecast for slaughter cattle, for instance, shifts from $97 per cwt. in January to a low of $76 per cwt. in the summer.
Hughes said another lesson is that cattle prices always trend down dramatically in the summer when most producers sell their calves.
He encouraged them to try to change their calving dates so they can market their animals at a more lucrative time of the year.
