The good news is that beef prices are extremely strong, even in the face of record beef production in North America.
“We have record-high wholesale beef prices right now,” CANFAX manager and senior analyst Brian Perillat said at the recent (and virtual) Canadian Beef Industry Conference.
Unfortunately, cattle prices are just not responding.
“That’s been frustrating for a lot of producers and the industry,” he said. “But tides will change. The typical cattle cycle is: We overproduce, plug the system in terms of bottleneck at processing, and then we shrink. This will rebalance over time as the market readjusts.”
For most of the year, the beef cut-out price relative to pork was cheaper than it has been for quite a few years (largely because pork prices have risen, too).
“Overall, red meat prices have been extremely strong,” said Perillat.
And strong demand looks set to continue. The impact of African swine fever, which decimated China’s pig herd, still lingers as the nation attempts to build it domestic supply. As well, drought hit Australian production hard (dropping it from the world’s No. 2 exporter to the No. 5 spot).
Those and other factors mean there were declining global meat supplies in 2019 and 2020, which hasn’t been seen before, said Perillat.
“We’re seeing some shifts around globally. All of that is supporting the beef market and supporting our wholesale meat prices.”
One of the biggest drivers is declining cattle numbers in the U.S., where the herd peaked in 2019.
“As we head into 2022, this will be the third consecutive year that we will see smaller cow numbers and smaller cattle numbers in the United States,” said Perillat. “We’ll have about a million less breeding stock at the middle of the year, and about half a million fewer cattle outside of feedlots in the United States.”
American cattle production will be flat this year but “we will start to see the herd decline. Their replacement heifer numbers are down,” he said.
Drought and very high grain prices are major factors, although the need for supply has drawn in some dairy cattle.
“Some of these dairy calves and crossbred calves are coming up in the Canadian industry as well as getting fed and finished and processed in Canada,” he said.
Over the past few years, the United States has shifted between being a net exporter of beef and a net importer.
“They’re back to being a net exporter this year,” said Perillat. “China has stepped up from being a small importer 10 years ago to being the largest beef importer in the world. We continue to see impacts of that.”
Canada has continued to have strong exports, well above 2020 levels, even though last year was a bit of an anomaly because of supply chain issues.
“Even last year, when we saw exports down slightly, we had record-high values. Volume was down last year three to four per cent, but value was fractionally higher.”
Canadian exports are up a billion dollars from 2015 and 2016 (and 10 per cent since 2019) because of strong international demand.
That’s true domestically, too.
“We’ve seen some of the strongest demand levels we’ve seen in the last 30 years,” he said.
“Despite all the rhetoric around cattle, and cattle production, and beef production and markets, consumers continue to spend a lot of their protein dollars on beef.”
However, don’t take those customers for granted, he warned.
“We do see those prices jumping higher and we have to watch how consumers start reacting to these higher prices.”
This year, prices have stayed high but consumption has levelled off.
There was no pullback from higher prices last year, but there were flat consumption levels.
The other big factor to watch is whether the steadily declining Canadian herd sees a big drop in numbers because of the drought. Late-season rains may have stopped as many cows from going to market, and some producers may have found feed, he said.
Aside from the massive decline in the herd in Canada, beef production is strong and healthy, he said.
The industry has the highest slaughter rates in a decade along with larger carcass rates. The feedlot sector has continued to grow, and there are about 15 per cent more feedlots than 2015.