Canadian beef packer margins have dropped over the last few weeks due to a shortage of fed cattle younger than 30 months and several other factors.
Lee Nilsson of XL Beef in Calgary, Alta., said a poorly functioning market for fed cattle has created the shortfall and is affecting packer margins.
“There is market chaos with the border being closed and right now there is short-term shortage of fed cattle of the right age and weight, driving up fed cattle prices,” he said.
“There’s no telling how long it will last, but it’ll be here for a little while.”
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The wholesale value of beef in U.S. markets has dropped in August and September and a stronger Canadian dollar has lowered returns for packers’ exports to the United States.
These and other factors have combined to lower the value of the Canadian cutout, saleable meat from each slaughtered animal.
Packers have been criticized for reaping high profits since the discovery of BSE.
Consumer demand for beef has remained high in the U.S. and prices for meat and fed cattle have also been relatively strong.
Canadian packers have the option of selling all the boxed beef, the boneless cut meat, they can process into the U.S. at those high prices.
Canadian cattle feeders are not so lucky. With the border closed they have only one market, the Canadian beef packer.
This lack of competition has kept Canadian fed cattle prices low.
Anne Dunford of CanFax said the price reflects the realities of the market.
“The product is priced in Canadian, U.S. and Mexican markets at U.S. beef prices. And those are high, near record high, so Canadian packers collect the difference between the U.S. beef market and depressed Canadian fed cattle,” she said.
Kevin Grier of the George Morris Centre in Guelph, Ont., said the Canadian boxed beef market is slipping slightly while fed cattle prices have been rising marginally.
His weekly reports, which track the prices that packers receive, show significant gross margins topping $600 at points this summer and spring.
The centre estimates that it costs packers in the range of $170 to $200 to process an animal for the boxed beef trade.
U.S. packers’ costs are estimated at about $160.
Last week Canadian gross margins slipped to about $450 by Western Producer estimates. As of Sept. 13, margins had slipped to $380.
“It is a sharp drop from only a month ago,” said Grier.
Dillon Feuz, an economist with Nebraska State University, said lower prices for fed cattle are being projected through the fall and early winter and this would likely be reflected in the packer margins on both sides of the border.
U.S. packers, unlike their northern cousins, have seen some of the poorest margins in recent memory with many weeks in 2004 showing losses.
Feuz estimates that fed cattle prices in the U.S. will remain below $85 US per hundredweight through much of the winter and this “would tend to keep boxed prices down. It would mean lower prices for exporters into the U.S.”
Jim Laws of the Canadian Meat Council, an association to which the Canadian packers belong, said a seasonal softening of the wholesale beef prices and uncertainty about the new government set-aside program may also be lowering packer margins.
Canadian fed steer prices continued higher from about $75 per cwt. range last week to $79 on Sept. 13, further softening Canadian packer margins.
