November 24, 2003

 

 

Canada Is Optimistic On Outlook of Its Cattle Industry

 

Canadian cattle sources are optimistic for the future of the industry only six months after being hit hard by the discovery of BSE.

 

"We've come a long way," said Neil Jahnke, president of the Canadian Cattleman's Association, pointing to the fact that exports of boxed beef are equal to 2002 levels and that the U.S. border is expected to open to live cattle under 30 months in the first quarter of 2004. "So there's a lot more optimism then there was three months ago," said Jahnke.

 

"With the border opening in the first quarter I see a good year coming for the beef industry in 2004," said Jahnke. However, he added, "It will never be the same. Our industry is going to change and we're going to have to do things differently than in the past."

While fat cow and bull prices are still weak, feeder cattle prices are strong, said Jahnke. He expected a reopened border to stimulate the fat cattle market while leaving the feeder cattle unchanged. The 60-day comment period, in advance of a border reopening, will end on January 4. Jahnke said all indications from the U.S. are for live cattle under 30 months of age to be allowed across the border sometime between January and March.

 

Producers are seeing "pretty decent returns given the situation we're in," said Herb Lock, an analyst with Farm$ense Marketing. He noted feeder cattle are moving at or above year ago price levels, although they are roughly C$40 below the U.S. market.

 

Good supplies of forages are dominating calf prices, said Lock. He estimated that feed supplies were "at least twice as good as a year ago, maybe even to the point of surplus." Farmers are able to keep cattle on farm, and some are even willing to purchase cattle in order to make use of the feed they have, said Lock adding, "the surplus feed mentality restricts selling and encourages buying."

 

However, the Canadian winter has started a month earlier than normal and producers are "digging into feed supplies earlier than expected," said Lock.

 

Uncertainties around the publication of rules for live cattle imports to the U.S., and Country of Origin Labeling (COOL) are the two issues that will dominate the next four or five months, said Lock. He added that world coarse grains are in tight supply, and that rising feed costs could be "devastating."

 

"An opening of the border for select kinds of slaughter cattle is not going to be the euphoria we might think it is," said Lock as packers, processors and retailers will all see higher costs when handling Canadian cattle and beef.

 

COOL would certainly have an impact on the industry, especially in the short term, said Jahnke. However, he said the US beef industry is not strongly behind mandatory country of origin labeling as it would just give a distinct advantage to the poultry industry. Jahnke said COOL is not a health issue, rather it's a way some believe they can keep Canadian product out of the U.S. market.

Live Canadian Cattle Needed In U.S.

 

The US market will experience a "double whammy" in the first quarter of 2004, said Chuck Levitt, a U.S. based livestock analyst with Alaron. Demand is expected to be slowing down, while at the same time, supplies available for marketing will be increasing. The possibility of the border being opened to live Canadian cattle in the first quarter, will also increase supplies.

 

U.S. cattle and beef prices are very high right now and will come down in the new year, said Levitt. The only question is the extent of the decline. He did not think prices would drop to pre- May 20 levels, "because we've been liquidating the US cattle herd for the last eight years and the production base is not what it used to be."

 

"The longer it takes for us to reopen the border with Canada for live cattle, the higher our prices are going to stay," said Levitt. With the absence of Canadian cattle the number of cattle outside the feedlots, available to place on feed, is shrinking, said Levitt. He said the US will need a source of feeder cattle from some other place and Canada is the most preferred.

 

Canadian Beef Exports Improving

 

Canada exported approximately 60,000 metric tons of boneless beef from cattle under 30 months of age between September 10 and November 8 to the U.S., according to government data. Prior to the BSE border closure, Canada exported roughly 30,000 tons of all beef products to the U.S. each month. Weekly shipments have been 7% to 40% above year ago levels, said Ted Haney, president of the Canada Beef Export Federation. From October 24 to November 8 roughly 6,000 tons moved into Mexico, which translates to monthly levels of 12,000 to 15,000 tons, or nearly double the traditional rate, said Haney.

 

However, "right now we have a disruption in marketing patterns because we don't have access to those large Asian markets," said Haney.

 

In the absence of Asian markets for certain products, those products are being sold into the U.S. and particularly Mexico. As shipments increase into the Philippines, Macau, and later China and Hong Kong, "I think we'll see exports ramp up, or spike, in those markets, and we'll see a slight moderation in the sales to the U.S. and Mexico," he said. Korea, which is a very large market for Canadian beef products, is also expected to re-open it's border in the first half of 2004, said Haney, which will further moderate sales to other customers. As the process continues Canada is "slowly moving back to more traditional marketing balances," said Haney.