Higher feed prices may outweigh benefit of a low loonie
Feed costs are always one of the two largest expenses for a livestock operation - as much as 55% for farrow-to-finish hog operations, and up to 60% of lamb production. Tighter supply of feed grains at home and globally will lift feed costs and may pressure margins of livestock operations.
Lower production of feed grains to disrupt trade patterns
Dry conditions in Alberta and Saskatchewan reduced barley production nearly 10% from last year, while Canadian corn production increased approximately 5% due record acres and yields. In the U.S., corn production is expected to decline 4% from last year due to reduced acres harvested and despite record corn yields. Internationally, declines in production of feed grains in Ukraine and Russia are resulting in a decline of 3% for world supplies of coarse grains. Areas that are dependent on Russian grains will be looking to other suppliers, possibly the U.S. Despite tight barley supplies in Canada, Chinese buyers are likely to ramp up their imports of feed barley.
Feed demand slightly higher
World demand for coarse grains is forecast to be relatively unchanged from last year; however, slightly lower production will result in lower ending stocks and help to support world feed grain prices. In North America, demand for feed grains will likely increase as livestock production expands on increased domestic consumption and export opportunities. Continued improvements in the Canadian and U.S. economies and labour markets will be supportive of consumer spending and increase the demand for meat proteins. Investment in hog slaughter facilities in Canada and the U.S. will be supportive of a larger hog herd.
Tight supply can lead to higher feed prices
USDA forecasts that U.S. corn prices will average US$ 3.20 per bushel for the 2017/18 crop year. The Canadian corn market should move in tandem with the U.S. market; however, the barley market will continue to trade at a premium due to tighter supplies and potentially increased exports. Interestingly, Canadian livestock operations may be forced to import corn from the U.S. at a time when barley exports climb.
A low Canadian dollar makes Canadian livestock and meat more competitive globally and raises profit margins. Currently the U.S. has a feeding advantage over Canadian operations due to their large supplies of corn, offsetting any advantage that the lower Canadian dollar may have created for the finished livestock.
Craig joined FCC in 2009 as an Agricultural Economist, specializing in monitoring and analyzing the macroeconomic environment, modelling industry health, and providing industry risk analysis. Prior to FCC, he worked in the livestock branch of the Saskatchewan Ministry of Agriculture. Craig holds a Master of Agricultural Economics degree from the University of Saskatchewan.