If you asked any rancher their Christmas wish the last few years, there was an easy answer — higher cattle prices!
Well, this year they got that wish, and then some. In fact, 2014 will go down in the record books for “beyond imagination” market returns. Bred heifers that people balked at being too pricey at $2,500 last spring now look like they would’ve been a great deal.
For those who’ve suffered through the BSE price bust, the implications of COOL trade battles in the U.S. and even burger recalls of the past, it’s an encouraging turnaround. Yet those financially painful memories are still fresh enough to give many in the cattle community a certain uneasiness about the current boom.
It’s unnatural, how long can it last? What will lead to the next bust? Those are just a few of the questions swirling about beneath the surface.
While the lessons of downturn days are useful for fiscal prudence, there were some reassuring opinions on supply and demand given recently at the Canfax market forum I had the pleasure of emceeing in Calgary.
The assistant chief economist of RBC, Paul Ferley, gave an overview of the Canadian and global economic outlook. He noted job growth is a key indicator to watch as a sign for sustained recovery, and he also pointed to how a lower Canadian loonie could provide greater support for our exports, including beef.
John Nalivka of Sterling Marketing in Oregon examined the question of whether a cattle herd expansion was underway yet in the U.S., after a prolonged and drought-influenced herd liquidation.
To get a sense of what’s happening beyond just the numbers, he talked with some of his larger cattle clients across the U.S. He heard from them the profits they’re experiencing per head are encouraging them to increase their numbers, but that will be a slow process.
The American cattle inventory is still at a 60-year low, but production efficiencies mean the amount of beef turned out can nearly keep pace with consumption, despite the small herd. He also added the fact that the beef business can produce a lot of quality product on less resources is a good story that needs to be told.
While the consumer may start to balk and adjust spending if the retail beef price gets too high, Nalivka pointed out shoppers should see the real price of beef, or the message of its true value never gets back down the supply chain.
As he analyzed cow and heifer slaughter figures, he suggested the U.S. herd liquidation is no longer underway, and it is now the beginning of an expansion phase. But with the cattle cycle being at least a three-year run before extra calves are ready for market, the sentiment was strong that cattle values aren’t going to crash down tomorrow.
The Canadian perspective on cattle numbers was given by Brian Perrillat of Canfax, who described 2014 as a picture perfect year for the market “bulls.” His analysis of the Canadian herd indicates no significant herd growth pattern here yet, but he pointed out that data does lag a little behind the real trend. Cow slaughter was down seven per cent last year, but still 10 per cent higher than in 2012.
Perrillat acknowledged a real pull between the cull cow and breeder market. Cattle producers have some tough choices to make as they weigh what older cows are bringing for cash, and what their potential value is as breeding animals. That’s kept a regulator on the expansion mode.
Perrillat shared an astonishing figure — calf prices are 70 per cent higher this fall than one year ago. The lower Canadian dollar is one of the supporting factors here. It also means exports of Canadian feeder cattle to the U.S. are strong, so it’s a fight to keep them up here to utilize Canada’s beef processing infrastructure.
Margins can still be tight or negative for feeders or the meat plants, so it’s really the cow-calf producer who’s been the biggest winner in this whole bonus round.
There were also indications at the Canfax market forum of strong meat demand and tight supplies around the globe. For instance, Australia has been sending cattle to market because there’s no pasture due to drought.
So what is ahead for cattle producers? An interesting indicator at the conference was the story of a prairie farm supply giant that found itself virtually sold out of fenceposts. Does that signal more grain land will be turned back into pasture, or just that there’s finally some cash flow for fixing fence?
Will new cattle producers emerge, or more heifers go to the bull pasture instead of the feedlot this spring? Have we set new normals for what cattle will bring? It will be interesting to see the answers emerge. In the meantime, the discussions around the ranch family Christmas table this year should be wonder and gratitude for the memorable cattle market year of 2014, and hope the high prices can last a few years longer.
By the way, like the humble shepherds that holy night, may you be filled with great joy about the good news this Christmas!
Dianne Finstad is a veteran broadcaster and reporter who has covered agricultural news in Central Alberta for more than 30 years. From the Field appears monthly in the Advocate.