Beef supplies up; strong demand forecasted
The 2017 cattle market can be summarized as having larger cattle numbers, more beef production and higher prices. Throw in good profitability through the supply chain, and it is certainly a good news story.
The overall market tone has been positive, and the Canadian cattle market has performed very well relative to the United States market. Alberta cull-cow prices have been stronger than the U.S. virtually all year, and despite the fact that western Canadian feed costs have risen dramatically relative to the U.S., there have been very few feeder exports, and even imports of U.S. feeder cattle. This shift in feeder trade points to a very competitive Canadian feeder market as prices have also been premium to the U.S.
The U.S. cattle herd had a major expansion over the past three years, and this will lead to continued larger production in at least the next two to three years. Beef production hit its low in 2015, and by 2018, it is expected to increase 16.5 per cent - a four-billion-pound increase.
In the U.S., the larger production has been met with increased exports, and not only have the volume of exports increased, the price has also increased, which has been very supportive to the North American cattle and beef markets.
Beef production in 2018 could increase for the third consecutive year as more cattle are fed and processed in Canada.
The Canadian cow herd remained relatively flat around 3.8 million beef cows for the last four years. Although the herd has not grown, however beef production in 2018 could increase for the third consecutive year as more cattle are fed and processed in Canada.
The Canadian cow herd is not expected to show much growth, as current cow markets are near steady with a year ago, and heifer retention has shown only a marginal increase.
If good growing conditions materialize and feed supplies increase next year, this could encourage some herd growth.
The stage is set for 2018. The growing cattle herd and significantly more cattle put on feed in the fall will lead to increased beef supplies, especially in the second half of the year. The current futures markets are pointing to higher prices next summer despite these larger supplies. Strong demand could support the higher prices, but there is certainly some risk in the marketplace heading later into 2018 as feedlot break-evens are well above the prices seen in the summer of 2017.
In addition to watching how the cattle supply and demand factors unfold, other key factors to watch will be the Canadian dollar. A dollar over 80 cents would add further price risk to the Canadian market, while a lower dollar would be supportive. Feed costs are always a key driver on calf and feeder prices, and basis levels between Canada and the U.S. can have a big impact on Canadian prices and profitability.
The high number of cattle put on feed in the fall will lead to increased beef supplies, but futures markets point to higher prices in the summer of 2018.
As the manager and senior analyst at Canfax, Brian Perillat ensures Canfax maintains accurate and relevant market information, as well as provides and oversees market analysis for its members and the industry.