Mixed red meat outlook for 2019

Canadian beef and hog producers benefited from a robust demand for red meats in 2018 in terms of trade, yet prices were quite variable as result of growing supply and trade tensions. Industry experts say the continuation of strong demand – both domestically and abroad – means 2019 might bring profitability.

Canadian beef producers should benefit from continued strong domestic and foreign demand into 2019.

In the event of a global economic downturn and continued trade disputes involving the United States, however, the positive outlook could be dampened.

Porcine profitability

Tyler Fulton, director of risk management with Hams Marketing Services in Winnipeg, says Canadian hog farmers are generally well positioned to have a profitable year, though trade questions create uncertainty.

Optimistically, Fulton says, trade issues between the United States, Mexico and China could be resolved. The subsequent opening of Chinese markets to North American pork would allow Canadian producers to fill the supply gap created by African swine fever, a serious porcine disease currently menacing China’s hog sector.

Fulton adds both potential scenarios are coming in the context of record large pork supplies in North America.

J.P. Gervais, vice-president and chief agricultural economist for Farm Credit Canada, says the true impact of African swine fever remains elusive.

If China loses even one per cent of its herd, Gervais says, the country will need to import 33 per cent more pork to match the shortfall. This would work in Canada’s favour, though a slowing of China’s economy – or the global economy in general – could reduce its purchasing power.

Conversely, the growth in hog exports to other Asian markets under Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and an expectation for the Canadian dollar to average US$0.75, are good news.

“We expect a good year, yet risk management strategies will be critical to protect against downside risks” Gervais says. 

Beef markets

As with the hog sector, Brian Perillat, manager and senior analyst with Canfax, says beef producers, and specifically beef producers in Western Canada, are positioned to make good profits in the coming year. This is particularly true given strong, ongoing demand in domestic as well as export markets.

Because recent years have seen good prices and relative market stability, though, Perillat says Canada and the United States are entering 2019 with substantial supplies of beef cattle. This makes international trade critical.

Record volumes of beef, however, are already being exported – and that’s just within Canada’s usual export markets. Trade deals like the CPTPP have yet to come into effect.

“We haven’t really seen the impact. There’s opportunity to grow,” Perillat says.

Gervais reiterates supply has to match demand – both domestically and as export – for profitability. The risk in 2019 is this may not happen, as hoped, particularly if U.S.-Chinese trade tensions are not resolved.

Gervais also points out feed prices could be a profit-depressing factor in the first half of 2019 given recent issues with grains in the west and Ontario. But likely less so later on.

Bottom line

Strong ongoing domestic and international demand for Canadian beef products is good news for the country's cattle producers for the year ahead. Meanwhile, ongoing global trade issues could give Canadian hog producers the opportunity to fill demand gaps in 2019. 

Article by: Matt McIntosh