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Currency And The Cattle Market

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With the eternal winter this year, I felt it was a good time to do a little historical review of the cattle market a decade ago. I picked March 1999, as that was the time of the release of the beef cattle inventory report and the accompanying hype that went with it. I was curious – where were we on the inventory stage 10 years ago? What were cattle prices and the value of beef? What influenced those prices?

What I found was a mirror image of the March of 2009 – with one huge difference – the value of the Canadian dollar.

Currency effects trade and the value of commodities. In loose terms, the lower the Canadian dollar, the higher the price of your cattle at home. The closer to par we are with the American dollar, the closer we track American prices. In this situation, there is a strain on export trade. As the dollar loses value, the Canadian commodity becomes very attractive and export activity increases.

Beef cow numbers after the January beef cattle inventory report released in 1999 were almost identical to 2009 at 4.6 million head. The difference was in the replacement heifers. In 1999 replacement heifers were off by three per cent while this past March the replacement heifer numbers were reported down by 9.7 per cent. In both years, Beeflink reported opportunity in the replacement heifers.

During the week of March 17, 1999, fed cattle in Alberta were priced at $92 cwt. just as fed cattle during the week of March 12, 2009 traded at $93 cwt. The fed cattle cash-to-cash basis was a little wider in 2009 at -$9.48 cwt. compared to -5.49 cwt. during the same period in 1999. Cull cow prices in both years were on an average at $56 cwt. on the D1, D2. Slaughter bull prices were identical. All in all, prices were comparable.

The cost of gain was much lower in 1999 as corn prices were at US$2.20 bushel and barley traded at $121 per tonne. That meant that feeder cattle were in demand and prices reflected this. A 600-lb. steer was hovering around $115 cwt. just as it was in March of 2009.

WHAT HAPPENED?

If you are being lulled to sleep by the statistical fairy, this will widen your eyes. The cash bids for fed cattle in the U. S. during March, 1999 were US$64 cwt. How can this be? U. S. cash cattle at US$64 cwt. and the same cattle, in the same environment, a decade later both at bid at $93 cwt. in Western Canada? What accounted for the spread?

The currency (value of the Canadian dollar) was $.6569 in March 1999. That kept prices high in Canada despite the bleak U. S. market. To calculate this, take the U. S. fed cattle price and divide it by the currency, less basis and that gives you the fed cattle price in Canada. US$64/$.6569 = $97.42 cwt. The basis, or difference between the bid price and the value of $97.42 cwt. was -$5.49 cwt. and that is deducted to present the cash bid price on the cattle of $91.93 cwt. in Alberta for the week of March 17, 1999.

If the same scenario would have played out in March, 1999 except with the current exchange of $.7806, then cash cattle bids in Canada would be driven down. (US$64/.7806 = $81.98 cwt.) Deduct the basis of -$5.49 cwt. used in this article and cash cattle bids would be $76.49 cwt.

Taking the currency from 1999 and applying it to 2009 would enhance the cattle prices. In March of 2009 U. S. fed cattle traded at US$81 cwt. Calculate US$81/$.6569 = $123.30 less the 2009 basis of -$9.48 cwt. = $113.82 cwt.

Yes, you read it right. If currency was as low in March of 2009 as it was in the same period in 1999, then fed cattle would have traded for well over a dollar.

That is why cattlemen groan when the dollar gains and are relieved when it loses ground. It is also why risk managers buy Canadian dollars when they dip. The currency has a huge influence on the beef trade and the price of the cattle on your farm and in your feedlot.

Brenda Schoepp is a market analyst and the owner and author

of Beeflink, a national beef cattle market newsletter. She ranches

near Rimbey, Alberta. [email protected]

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