While American cattle are boxed in by parched pastureland and low domestic demand and Brazil is exchanging its feed surplus to augment its competitive advantage in red meat exporting, North America's number two red beef exporter has problems of its own.

 

Whereas 2015 US beef production is projected to be 14.2% below its 2002 all-time high, Canada's beef output of 1.01 million tonnes will be a whopping 32.7% below its 2004 peak of 1.5 million tonnes.

 

In Canada's case, record high cattle prices and lower feed costs south of the border make it more profitable to export such cattle to the US. In its latest GAIN report on Canadian livestock, the USDA also noted the relatively older demographics and greater indebtedness of Canadian cattle farmers.

  

   

It concluded that, "Many of the older generation producers have seen these as the opportunity of their lifetime to liquidate and retire from business." While sustained high cattle prices would eventually prompt remaining producers to retain more beef heifers and consider expanding, for now, the desire to export unfinished cattle or exit the business exceeds herd replenishment. But even these medium term factors hide secular trends that have turned strongly against Canada's beef cattle sector.

 

Like the US cattle sector, inventories, beef rearing returns and per capita beef consumption went strongly downwards for decades from their mid-1970s peak, when Canada's beef cattle production totalled 14.28 million head. In Canada's case however, while per capita beef consumption fell almost as steeply as it did in America, the 1989 free trade agreement delayed the relentless decline in cattle numbers seen south of the border.

 

Thus, while domestic demand stayed flat, from the Canada-US free trade agreement's inception in 1989 to 2002, exports skyrocketed upwards at a 13.5% average rate of increasing from 108,000 tonnes to 657,000 tonnes.

 

Fuelled by such intensive export growth of which 95% went to the US at one time, Canadian cattle inventories staged a temporary comeback. Even as US cattle numbers fell for the better part of 35 years, the 1990s saw Canadian cattle inventories rise from 10.67 million head in 1986 to new, all-time peaks in the 13.43 million to 14.93 head range from 1995 through to 2004. Thereafter however, the tide turned against Canadian cattle.

 

From the time its beef trade was liberalised in the early 1990s through to 2007, the Canadian dollar was far below its historical US$0.90 to US$1.00 trading range. Canada's currency fell from US 75 cents in the late 1980s to below US 60 cents shortly after 2000, giving its beef a huge competitive advantage south of the border. Then with over two-thirds of beef still being exported to the United States, the Canadian dollar jumped some 55% in just six years, staying in the US$0.90 to US$1.03 range from 2008 through to the middle of this year.

 

Unlike America, which used everything from free trade agreements with Asian countries to US Meat Exporter Federation to diversify its exports, Canada was still relying on the United States to absorb over two-thirds of beef exports when its currency started to skyrocket. While Asian export growth nowhere near enough to make up for lost US market share, its domestic consumption sagged from 1.08 million tonnes in 2002 to a USDA estimated 0.94 million tonnes in 2015. –And this is 24% below the 1.24 million tonnes of beef that Canada consumed in 1976 –when its population was 23 million (as opposed to the 35 million estimated for 2014).

 

All this occurred in an era when feed costs thoroughly outraced cattle prices. Squeezed between a strong currency, sharply falling exports, constantly declining domestic demand and disappearing profit margins, Canadian cattle numbers fell sharply after 2005.

 

From 14.93 million head in 2004, Canadian cattle numbers fell 16%, to 12.53 million head in 2008, as the dollar went from US 60 cents in 2001 to US$1.03 in 2007. Thereafter, with slack demand both at home and overseas, cattle numbers have gradually declined to a USDA estimated 11.8 million head by the end of 2015.

 

If 2015 projections of 1.01 million tonnes beef output of beef production hold out, it will be 22.5% less than its 2008 peak. With the rising dollar hindering their progress, exports did even worse. At 370,000 tonnes, not only are they down nearly 29% from 2008's 495,000 tonnes, this is 46% less than the 2002 record of 657,000 tonnes.

 

In fact, where it not for the fact that the post 2010 pastureland drought left US cattle numbers at 60 year lows, Canada's overall cattle and beef exports would have fallen by more, as that country still absorbs a whopping 80% of the latter.

 

Nonetheless, as a percent of output, Canada's beef exports have fallen from the 45% to 50% range in the early 2000s to 31% to 35%. –In fact, this ratio would have fallen even further, had not production sagged by third in less than a decade.

 

With its relatively low cattle numbers low and same ground-beef skewered consumption preferences as its southern neighbor, the post-2008 drop off in cattle numbers have kept imports, chiefly of ground beef in the 250,000 to 300,000 tonne range. This has created a situation much like we see in the United States:  Canada, despite being the fifth ranked world beef supplier, has seen its beef trade surplus narrow to a near balance.

 

Going forward, this year's record American soy and corn harvests has made it even more profitable to ship the country's feeder cattle over to the US. Along with the previously mentioned tendency for farmers to exit the industry, this will keep cattle inventories from rising.

 

At the same time, exports may well exceed the USDA's forecasted 355,000 tonnes and end up closer to 400,000 tonnes: Not only is a new free-trade agreement with South Korea kicking in, the Canadian dollar, the last two months have seen the Canadian dollar fall below US 90 cents for the first time since 2009.

 

Furthermore, with oil prices falling sharply, Canada's dollar may soon fall below US 80 cents. This may partly restore Canadian beef's competitiveness in both the US market and in parts of Asia.

 

But these are ephemeral, short-term trends: At a time when Asia's desire for red meat is making world beef demand grow for the first time in years, Canada is only exporting half as much beef as it did 10 years ago. While Brazil, Australia, New Zealand and India prepare to take advantage of growing East Asian import demand, Canada's cattle industry has made little of its preferential access to the Chinese and Hong Kong markets.

 

Hence, even if its supply side constraints and the Canadian dollar's fall cuts its international price, Canada must do a far better job of marketing its beef than it currently does.