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Beef Watch November 2009

Building on the successful CATTLE CYCLE books started in 1981 by Charles Gracey; CanFax Research Services has updated and expanded that publication to include discussion on overall industry trends and changing market dynamics. The 2009 edition titled “TRENDS, CYCLES AND SEASONALITY IN THE CATTLE INDUSTRY” analyzes data from 1960 to 2008 and includes discussion around cattle cycles, why they do or do not occur, historical cycles and trends as well as cycle indicators which are referred to throughout the Beef Watch articles. For more information or to order your copy, contact Brenna Grant at or (403) 275-8558.

The main purpose of the semi-annual Beef Watch articles is to explain the factors affecting the medium-and long-term outlook in the beef industry. This year has been marked by soft domestic and international demand for beef and an uncertain economic situation. Demand for fed cattle remains pressured due to large competing pork supplies and soft consumer demand. This situation will continue through the next three to five months, as pork supplies continue to remain large and with the winter months seasonally seeing softer beef demand, while turkey and ham dominate during the holiday seasons. Smaller fed cattle supplies are expected from December through February compared to last year due to smaller placements of heavy weight cattle in August and September, which should support prices in those months. However a higher exchange rate and continued large pork supplies, with only small reductions in the U.S. sow herd evident, will weigh on the entire protein complex and pressure Canadian beef and cattle prices moving into 2010.

NORTH AMERICAN CATTLE INVENTORIES CONTINUE TO DECLINE

Canadian beef cow inventories were down 5.6 per cent on July 1, 2009 to 4.58 million head. Total Canadian cattle inventories were down 2.3 per cent to 14.84 million head. Continued declines in the Canadian beef cow herd over the last four years have resulted in smaller calf crops, with the July 2009 calf crop reported at 5.0 million head, down 3.4 per cent from the previous year. Current reductions in fed cattle supplies are evidence of not only the smaller calf crops coming forward, but also large feeder exports in 2007 and 2008. With a 50 per cent reduction in feeder cattle exports YTD in 2009, there is some expectation that smaller calf crop numbers will be offset by reduced exports and keep fed marketings relatively steady into 2010. But this is dependent on feeder cattle exports remaining at current levels.

Beef heifer replacement numbers were down 2.5 per cent to 638,000 head on July 1. Heifer slaughter remains high in 2009 at 1.2 million head, up four per cent from 2008, implying producers are not interested in rebuilding the national herd at this time. Poor profitability has been a contributing factor to reduced heifer retention, but drought conditions in many major production regions has encouraged further increases in heifer slaughter due to grass and feed shortages.

In analyzing expected near term trends for the size of the Canadian cow herd, one very important maxim should be remembered — supply determines consumption, demand determines price. Smaller fed supplies this fall have been offset by higher carcass weights and lackluster consumer demand due to recessionary concerns and large pork supplies. So despite reductions in supplies, beef and consequently cattle prices are continuing to face negative pressure, which is further exacerbated by an appreciating dollar. Demand driven improvements in beef and cattle prices are not expected until well into 2010, as economies continue to see recovery from the global recession and results in improvements in beef demand and pork supplies decrease. Consequently inventories are expected to decline into 2010, at which time stabilization and/or expansion of the Canadian herd will be dependent on the extent and duration of beef and cattle price improvements.

In 2009 the U.S. saw improvements in pasture conditions, but due to poor cattle prices there continues to be reductions in the cow herd, which declined by 1.4 per cent on July 1, 2009 to 32.2 million head. Beef replacement heifers also declined 2 per cent to 4.5 million head, while the calf crop was down one per cent to 35.6 million head. Looking forward the U.S. cattle industry is facing similar price and demand trends to Canada, with these playing a role in future industry size. In addition the U.S. industry is facing increasing water and land constraints, with a significant proportion

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