A service for cattle producers from the Canadian Cattlemen’s Association and CATTLEMEN magazine

The January 1, 2010 cattle inventory reports showed further herd reductions in North America as poor profitability and drought in major production regions plagued the industry. The liquidation of the beef sector was joined by the U. S. dairy sector in 2009 as lower milk prices encouraged dairy herd reductions as well.

CANADIAN CATTLE INVENTORIES

Statistics Canada reported January 1 cattle inventories down 1.3 per cent from last year at 13 million head. This is the smallest inventory since 1995 and is 3.3 per cent below 2003 inventories. Total inventories were supported by large steer numbers (>1 year of age) which were up 7.9 per cent, along with an increase in heifers for slaughter which were up 9.1 per cent. Country-of-origin labelling (COOL) and changes in relative cost of gain kept more fed and feeder cattle in Canada supporting total inventory levels. Beef cow inventories were down 3.8 per cent to 4.47 million head, the lowest since 2000 and six per cent below 2003 levels. Soft demand with a global economic recession as well as drought and struggling prices encouraged producers to move cows to market in 2009. In contrast dairy cow inventories were up 0.3 per cent for the first time since 1997.

The largest provincial decline in beef cow numbers from a year ago occurred in British Columbia where the cow herd decreased 7.1 per cent. Alberta cow numbers were down 6.5 per cent, Quebec 3.5 per cent and Manitoba three per cent. In contrast there was an increase of 1.8 per cent in the beef cow herd in Ontario and 0.7 per cent in Saskatchewan. Cattlemen reported 464,500 beef cows born prior to 1999 as of January 1, 2010. This is down 31 per cent from 2009 and represents 10 per cent of total beef cow inventories as compared to 14 per cent in 2009 and 34 per cent in 2006 when they first started measuring this statistic. Only 1.7 per cent of the dairy cow inventory was reported to be born prior to 1999, down from 3.6 per cent in 2009 and 12.6 per cent in 2006 due to more aggressive culling in this sector.

With beef heifer replacement numbers down 3.8 per cent and heifers for slaughter up nine per cent producers are not looking to stabilize the national herd in the coming year. Further reductions in beef cow inventories are expected until cow-calf producers see a large enough margin to signal them to increase heifer retention. Contraction of the beef cow herd is expected to be smaller in 2010 than seen in 2008 or 2009 with tighter cow supplies. A smaller cow herd over the last four years has reduced beef calf numbers, which will result in tighter fed cattle supplies moving forward. The calf crop at 4.3 million head was down 15 per cent on January 1 from the peak in 2005 and down 2.6 per cent from 2009. This is the smallest calf crop since January 2003. Supplies of feeder cattle outside of feedlots on January 1, 2010 increased two per cent from a year ago at 4.41 million head. This is up due to a 55 per cent decrease in feeder exports to the U.S. in 2009 and is now back in line with 2002 levels of 4.45 million head after being higher from 2004 to 2008.

While the national herd is the smallest in 15 years productivity levels over that time have not followed a comparable trend. Steer carcass weights have increased 80 pounds, from 1995 to 2009 — hence the productivity of the current herd is 10 per cent larger than the same-size herd in 1995.

U.S. CATTLE INVENTORIES

The U.S. cattle industry is also reducing its herd with inventories down one per cent or 820,000 head to 93.7 million head on January 1, 2010. This is the smallest herd

since 1959. Beef cow inventories of 31.38 million head were down one per cent from 2009. A smaller cow herd has been the result of strong cow slaughter as well as smaller heifer retention which was two per cent below 2009 levels. Drought has been a factor in recent years with severe drought in Texas and other southern states in 2009. After a slight peak in 2007, U.S. inventories have since continued their long-term downward trend started in 1975. This declining trend has been offset by production gains over time which means that fewer cows are needed to produce the same amount of beef.

While the 2009 U.S. calf crop at 35.82 million head is the smallest since 1950, beef production in the U.S. has not seen that same downward trend. As a result of genetic improvements, feed efficiencies and management changes over the last 50 years there have been significant increases in the output per cow. U.S. beef production in 2009 is projected to come in at 25.82 billion pounds. This is down three per cent from 2008 but significantly above beef production in the mid-1960s when it was around 20 billion pounds and when the number of beef and dairy cows in the U.S. was around 50 million head.

GLOBAL INVENTORIES

The Canadian herd has been shrinking since 2005, but what is happening globally? World cattle inventories have been declining since 2004 and as of January 1, 2010 are now three per cent below 2004 levels according to GIRA. Major exporting countries represent a large portion of this decline, with inventories down from 2004 levels in Canada (-12.3%), Argentina (-6.7%), Brazil (-2.5%), Uruguay (-2.5%), Australia (-2.2%) and the U. S. (-1.2%).

Production decreases lag inventory decreases. As larger cow slaughter temporarily increases, non-fed beef production offsets smaller fed production. Then as cow slaughter decreases, with smaller inventories, smaller total beef production results. Global beef production is down 3.5 per cent since peaking in 2006. Declining inventories over the last two years will result in global beef production declining moving forward. Once countries start to retain heifers, beef production will decline further before increasing.

Major importing countries are seeing domestic herds down or steady. As Canada’s largest export market as well as the world’s largest importer of beef, U.S. inventory declines will be watched closely for opportunities for the Canadian market. Japan is a major importer of beef with a steady herd over the last six years despite population growth and a move by a younger generation towards more protein — pointing towards a need for larger imports in the future. China over the last 10 years has moved from being a net exporter of beef to being a net importer. With declines in their beef herd continuing and with all increases in cattle inventories coming from the dairy herd, this trend is expected to continue. China’s cattle inventories on January 1, 2010 were down 7.5 per cent from their 2004 levels. The long-term trend in emerging countries like India and Indonesia of growing middle-class populations with increasing disposable incomes to spend on protein is still there. While this trend was temporarily negatively influenced by the global recession these long-term trends continue — although at an adjusted pace.

CULLING RATES AND COW PRICES

Despite 2009 cow slaughter being down 20 per cent from the highs seen in 2008, the beef cow culling rate continues to be well above the long-term average of 10 per cent at 12.8 per cent. This is down from 14.75 per cent in 2008 and indicates the industry is still contracting the national herd, although at a slower pace. Moving forward tighter inventories are expected to reduce this further while staying in contraction mode. Dairy culling rates were lower in 2009 at 19.4 per cent compared to 24 per cent in 2008 and a 15-year average of 26 per cent. This is down significantly from Canada’s dairy herd culling rates of 29-32 per cent from 2004 through 2006 and points towards stabilization.

Cow prices averaged $44/cwt in 2009 steady with 2008. Prices peaked in April at $55/cwt, $3 above the 2008 peak of $52. Prices were limited throughout the summer with the U.S. dairy herd retirement programs and drought which kept supplies ample throughout the summer when they are typically tighter. In 2010, cow prices are expected to be supported by strong trim demand by consumers and tightening North American supplies. Prices were $2 per cwt higher in January and February than last year.

HEIFER SLAUGHTER RATIO

It is important to note that culling rates can be high but not result in contraction of the herd if heifer replacement is equally high. It is the relationship between these two that result in expansion or contraction of the cow herd. With that said, heifer slaughter continues to be large with the heifer slaughter ratio at 0.74 in 2009. While this is down from the record high of 0.77 seen in 2008 it is the second largest on record. Heifer placements continue to be large with the 2009 average at 39 per cent. While this is above the 2000-02 average of 38 per cent it is below the levels seen from 2005 to 2008 of 41-43 per cent.

DISPOSAL RATIOS

The female-to-male disposal ratio, measuring the number of females disposed for every male, declined to 1.12 in 2009 from 1.17 in 2008. The 15-year average of 0.99 implies a stable herd, while ratios above indicate herd contraction and ratios below indicate herd expansion. In January 2010, the disposal rate was 1.12 compared to 1.27 in January 2009.

FED PRICES

Alberta fed steer prices in 2009 peaked in April at $99 per cwt before declining throughout the summer on large supplies and soft consumer demand. Large carcass weights in the second half of the year contributed to beef supplies and pressured prices to a low of $77.50 in December. Prices at the beginning of 2010 were $6-8 per cwt lower than a year ago at $78 and $80 in the first two months. Last year we saw a 15 per cent increase from $86 per cwt in January and February to the peak of $99 in April. This year prices have increased seven per cent since January and a 15 per cent increase would put prices at $90 per cwt in April or May.

Ontario saw prices relatively steady at $97-102 per cwt from January to May last year before declining throughout the summer. The annual low was seen in October at $78 and has since come back to $85 in February 2010.

Fed supplies are expected to be the tightest in April and May before increasing throughout the summer with the largest supplies in July through September due to larger placements in January and February. Large summer volumes will pressure prices as this is when fed cattle typically make their seasonal low.

HEIFER SLAUGHTER RATIO

It is important to note that culling rates can be high but not result in contraction of the herd if heifer replacement is equally high. It is the relationship between these two that result in expansion or contraction of the cow herd. With that said, heifer slaughter continues to be large with the heifer slaughter ratio at 0.74 in 2009. While this is down from the record high of 0.77 seen in 2008 it is the second largest on record. Heifer placements continue to be large with the 2009 average at 39 per cent. While this is above the 2000-02 average of 38 per cent it is below the levels seen from 2005 to 2008 of 41-43 per cent.

DISPOSAL RATIOS

The female-to-male disposal ratio, measuring the number of females disposed for every male, declined to 1.12 in 2009 from 1.17 in 2008. The 15-year average of 0.99 implies a stable herd, while ratios above indicate herd contraction and ratios below indicate herd expansion. In January 2010, the disposal rate was 1.12 compared to 1.27 in January 2009.

FED PRICES

Alberta fed steer prices in 2009 peaked in April at $99 per cwt before declining throughout the summer on large supplies and soft consumer demand. Large carcass weights in the second half of the year contributed to beef supplies and pressured prices to a low of $77.50 in December. Prices at the beginning of 2010 were $6-8 per cwt lower than a year ago at $78 and $80 in the first two months. Last year we saw a 15 per cent increase from $86 per cwt in January and February to the peak of $99 in April. This year prices have increased seven per cent since January and a 15 per cent increase would put prices at $90 per cwt in April or May.

Ontario saw prices relatively steady at $97-102 per cwt from January to May last year before declining throughout the summer. The annual low was seen in October at $78 and has since come back to $85 in February 2010.

Fed supplies are expected to be the tightest in April and May before increasing throughout the summer with the largest supplies in July through September due to larger placements in January and February. Large summer volumes will pressure prices as this is when fed cattle typically make their seasonal low.

Beef Watch is prepared by the staff of CanFax and CanFax Research Services, divisions of the Canadian Cattlemen’s Association

FEEDER PRICES

Alberta 850-pound feeder steer prices peaked early in 2009 due to drought drying up grass and bringing yearlings to town early. Prices fell from $100 per cwt in July to $89 in December. Last year prices increased nine per cent from $93 in January to $101.50 in April. Prices this January were basically steady with last year at $93. Ontario 850-weight steers followed a similar trend with prices up nine per cent from $98 in January to $106.50 in April before falling to $88 in December. Feeder cattle prices have been supported by lower feed costs, a smaller calf crop and narrower basis. The 850-pound feeder cash to futures basis narrowed to pre-BSE levels in the second half of 2009. The basis was $8-10 per cwt under in January and February compared to $19-21 under in the same period of 2009. The narrower basis came from lower U.S. feeder prices while the Canadian prices stayed relatively strong with good demand.

Barley prices have been steady around $150 per tonne. In February 2010 Lethbridge barley was $147 ($3.19/bu.) while Omaha corn was $155.50 ($3.94/bu.). This Canadian cost-of-gain advantage has significantly reduced feeder exports to the U.S. this year. Feed grain prices will probably start to rally once the planting intentions report comes out and everyone has a better idea of competition for acres. Poor harvest weather last fall with snow limited the number of acres that went into winter wheat in the U.S. and may result in more acres being available for corn.

Beef Watch is prepared by the staff of CanFax and CanFax Research Services, divisions of the Canadian Cattlemen’s Association

FEEDER PRICES

Alberta 850-pound feeder steer prices peaked early in 2009 due to drought drying up grass and bringing yearlings to town early. Prices fell from $100 per cwt in July to $89 in December. Last year prices increased nine per cent from $93 in January to $101.50 in April. Prices this January were basically steady with last year at $93. Ontario 850-weight steers followed a similar trend with prices up nine per cent from $98 in January to $106.50 in April before falling to $88 in December. Feeder cattle prices have been supported by lower feed costs, a smaller calf crop and narrower basis. The 850-pound feeder cash to futures basis narrowed to pre-BSE levels in the second half of 2009. The basis was $8-10 per cwt under in January and February compared to $19-21 under in the same period of 2009. The narrower basis came from lower U.S. feeder prices while the Canadian prices stayed relatively strong with good demand.

Barley prices have been steady around $150 per tonne. In February 2010 Lethbridge barley was $147 ($3.19/bu.) while Omaha corn was $155.50 ($3.94/bu.). This Canadian cost-of-gain advantage has significantly reduced feeder exports to the U.S. this year. Feed grain prices will probably start to rally once the planting intentions report comes out and everyone has a better idea of competition for acres. Poor harvest weather last fall with snow limited the number of acres that went into winter wheat in the U.S. and may result in more acres being available for corn.

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