Tight supplies and rising prices give cattle producers a reason to smile

Low herd numbers are expected to buoy cattle prices for three to four years, but COOL is taking a bite from the bottom line

Man in cowboy hat standing with cattle.
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Cattle prices are the best they’ve been on a per-head basis in the last 10 years — although how good depends on how you look at it.

“The market right now is fantastic,” said Herb Lock of Farm$ense Marketing. “Cow-calf producers right now are in their second world, floating around in the sky compared to other years at least. Not saying they’re making a lot of money now, but they’re losing a lot less or making more money than they’ve made in several years.”

Duane Movald is among the many cattle ranchers breathing a sigh of relief because of higher prices.

“The cattle market usually moves slowly, but that being said, we ourselves moved a package of steers at the end of November,” said the Breton rancher. “That same pack of steers 50 days later are 50 cents a pound higher. That’s never happened before (and) shows you a little bit about end-product demand.”

Prices for cull bulls are also the best he’s seen, said Movald, who raises mixed and purebred commercial Simmental cattle.

“I think the demand driving that is your grind, the hamburger markets,” he said.

Lower feed prices are big drivers right now and a good cereal crop in 2014 should continue to bolster profits, said Anne Wasko, market analyst and consultant with Gateway Livestock.

“If moisture continues to be favourable for Western Canada, this should lead to long-needed profitability in the sector,” she said.

But things could be better, said Lock.

Washington’s country-of-origin labelling (COOL) law has artificially pushed down prices in Canada, which means the basis — the difference between U.S. and Canadian prices — is growing wider.

“This has plagued and widened basis levels since 2009, so it has been a frustration point,” said Wasko.

Canadian cattle producers may see prices rise further, but it’s unlikely the COOL effect will be diminished, added Lock.

More from the Alberta Farmer Express website: Many factors to consider with cattle price insurance coverage

“In terms of prices, the saying right now is, ‘Where’s the beef?’” he said. “The Americans are so engrained in this and this is protectionist at its best in the U.S.”

But Wasko points to dramatic herd reductions on both sides of the border.

“In Canada, there are probably 1.5 million fewer beef cattle than there was in 2005, so that’s a 25 per cent reduction,” said Wasko.

“When cattle supplies are this tight, you can’t wave a magic wand and produce more beef next year. It takes time.”

Bad weather, a rise in feed costs or a rise in the Canadian dollar could change the profitability picture, but it’s safe to say cattle numbers are going to be tight for three to four years, both experts said.

“There are so many things that can change prices, but we can confidently say that supplies are going to be smaller,” Wasko said.

Moreover, global demand for beef is expected to rise.

“We’ve got declining production and increasing demand, which always means that there are higher prices ahead,” Lock said. “That’s the good news, but what percentage of the higher prices are we as Canadian producers going to get? In the short term, we’ll get a fair chunk of that but the crunch years will come five or six years in the cattle cycle when prices decline.

“When prices decline, our industry will be pushed below the water level two or three years before the Americans.”

 

About the author

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Alexis Kienlen

Alexis Kienlen lives in Edmonton and has been writing for Alberta Farmer since 2008. Originally from Saskatoon, Alexis is also the author of two collections of poetry, a biography, and a novel called "Mad Cow."

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