Despite the decline, Canadian cattle prices remain high

Over the past few months, cattle prices have retreated from the record highs set in 2015 and early 2016 and will continue to trend lower through 2020. But despite the decline, prices are still historically strong.

So, what’s causing this decline and where are prices heading?

Short-term challenge: Herd expansion, increased supply, competition

The U.S. herd increased 3% in January and is expected to continue to expand, according to the United States Department of Agriculture. With the U.S. cattle herd 10 times that of Canada, trends in the U.S. drive the Canadian market.

The low Canada/U.S. exchange rate is helping to buffer the Canadian market from the declines in the U.S. price. Carcass weights in North America have also reached record highs in 2016, resulting in an increased supply of beef. While these have begun to trend lower in recent weeks, they still remain historically high.

Competition, primarily from poultry and pork, is also weighing on cattle prices as North American consumers remain price sensitive.

Long-term challenge: Cattle prices to follow traditional cattle cycle

The cattle cycle suggests that prices increase for 3 to 5 years and peak for 1 - 2 years. During this period, strong prices promote herd expansion. Prices decline for 3 - 5 years and sit at a near-term low for 1 or 2 years.

According to Agriculture and Agri-Food Canada’s Agriculture 2016 Outlook (AAFC), cattle inventories will continue to increase over the long term and cattle prices will decline. Higher volumes of beef will put downward pressure on consumer prices, which will increase consumption. Cattle and beef prices are expected to decline for the next five years through 2020 before prices begin to recover.

Despite challenges, prices remain historically high

Although cattle prices are expected to decline, AAFC prices are projected to remain historically strong and continue to support a strong Canadian cattle sector.

AAFC 2016 Canadian Agricultural Outlook provides a current look and 10 year forecast of farm income and long-term trends that could impact the agricultural sector. Stay tuned for future outlooks posts from the Ag Economist team.

What are the factors influencing farm equipment sales in 2016-17? Find out in the FCC Ag Economics farm equipment report – out June 28.