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A year of change

The year is relatively new and it already looks like one of significant change. Modest beef herd expansion in the U.S. might be underway. The battle over country-of-origin labelling (COOL) might be coming to an end. U.S. cattle and wholesale beef prices will break new records again this year. All these actions are positive for Canadian beef producers, as the U.S. markets will drive Canadian cattle prices more than in recent years.

By the time you read this, USDA will have issued its annual cattle inventory report. It was likely to show that the national beef cow herd declined again in 2013 but that cow-calf producers intend to hold back up to 180,000 more heifers than last year for herd rebuilding. Remember though that any number signals an intention only. Last year’s report said producers intended to retain 100,000 more heifers. But they ended up selling them by mid-year. Producers face a similar choice this year, whether to carry that heifer for 18 months or give in to record-high prices and sell her.

Should net heifer retention (i.e., more heifers kept than sold) occur this year, the supply of heifers into feedlots will decline. This will likely force feeder cattle prices even higher, as long as corn prices remain in the $4-$4.50-per-bushel range and cattle feeders feel able to pay more. Feeding margins turned positive last fall after 18 months of heavy losses. But cattle feeders also paid record-high prices for replacements last fall. So losses are projected to begin again this May. How much of a damper this is on feeder cattle prices on both sides of the border will depend on feedlots’ determination to own cattle and how high live cattle prices go.

That U.S. cattle feeders will have to pay more for feeder cattle seems clear from the shrinking supply. Another key figure in the inventory report was the size of the 2013 calf crop. It was expected to be down two per cent or nearly 700,000 head, reflecting the decline in beef cow numbers in 2012. Beef cow numbers declined slightly in 2013 so the U.S. calf crop in 2014 will be even smaller.

Record high cattle prices and the impact of COOL will likely attract more Canadian feeder cattle south this year, offsetting a reduction in exports of slaughter steers and heifers. 2013 saw 315,628 feeder cattle come south, up 234 per cent or 180,788 head on 2012. A total of 343,620 fed cattle came south, which was down 16.8 per cent or 69,754 head on 2012. More feeder cattle and fewer fed cattle were coming south last fall even before Tyson Foods announced it would accept Canadian cattle fed in the U.S. but not cattle finished in Canada.

From the Manitoba Co-operator website: WTO hears new COOL didn’t reduce grief for Canadian producers

Canadian producers will also be able to take advantage of what will be a red-hot market for cull cows. U.S. commercial cow slaughter in 2013 totalled 6.258 million head but might total only 5.363 million head in 2014. This is assuming that the same number of Canadian cull cows or slightly more come south this year than last year. 2013 Canadian cow imports totalled 306,080 head, up 51 per cent or 103,316 from 2013.

As for COOL, more U.S. lawmakers realize a legislative fix is the best way to end the COOL dispute and avoid retaliatory tariffs. But nothing had emerged via a new Farm Bill as I wrote this in mid-January. One can only hope that by now, there is a proposal in place to amend COOL in a way that will satisfy Canada and Mexico. Otherwise, the COOL dispute will drag on for another year.

About the author

Contributor

A North American view of the meat industry. Steve Kay is publisher and editor of Cattle Buyers Weekly.

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