The bloom may soon come off the rose for record-high cattle prices as economic indicators in the United States suggest a coming slowdown in consumer beef demand.
That was the message from commodity market analyst Jerry Klassen to the Livestock Market Association of Canada’s annual convention in Winnipeg earlier this summer.
A roaring bull market for beef cattle in North America has produced prices cattlemen could only have dreamed of a few years ago. “Producers are amazed at the current market value of cattle,” Rick Wright, LMAC executive administrator, said in an interview during the convention. “Everyone who comes to pick up a cheque, their first comment when they open the envelope is, I don’t believe cattle are worth that much.”
But Klassen issued a cautionary note, saying signs of a slowdown are already on the horizon.
Klassen said consumer confidence and beef consumption go hand in hand. Beef demand increases when unemployment is low and consumer confidence is strong. That’s the case at present. The U.S. economy has improved since the recent recession and consumer food spending outside the home has risen. On the other hand, people are not spending any more money on groceries at home. Meanwhile, U.S. housing starts have peaked and the unemployment rate is expected to hover around the current 5.8 per cent for a while. As a result, further growth in consumer spending is probably limited, which is negative for beef consumption, Klassen said.
As well, future beef consumption may be dampened by an aging population. Klassen pointed out 20 per cent of Americans are in the 46- to 64-year age bracket and will likely eat less beef and more functional foods in an effort to maintain their health.
Meanwhile, the U.S. beef herd continues to grow, with two more years of expansion expected. The U.S. Department of Agriculture predicts the 2015 U.S. calf crop will be a million head higher than in 2014. The 2016 crop is predicted to grow by another 800,000 head.
At the same time, feed grain supplies may be tighter. USDA expects corn acres to be lower in 2015 and the market will be very sensitive to weather. In Canada, barley ending stocks will be down in 2015 and the projected average price could be seven per cent higher than the five-year average of $215 per tonne.
With the U.S. economy at the peak of its business cycle, fed cattle numbers climbing and tighter feed stocks foreseen for 2015 and 2016, North American beef prices are likely not sustainable long term, Klassen told his audience.
“We are near the highs, given the current economic situation,” he said.
While the U.S. cattle numbers increase, herd rebuilding in Canada continues to be slow. Wright said few new operations are starting up, some grazing land is being converted to grain and investment costs for beef operations are up 60 per cent or more over last year.
“We’ll be lucky if we can maintain our numbers, let alone expand over the next two to three years,” Wright said.
Stirling Fox, head buyer for JBS Food Canada in Brooks, Alta., said the number of cattle on feed in Canada in 2015 is expected to be 100,000 head lower than in 2014. Feeder cattle exports were up sharply in 2014, despite the U.S. country-of-origin labelling rule.
“We have to keep cattle on this side of the border if we’re going to be competitive,” Fox said during his presentation.
On the plus side, Fox called a decline in cow slaughter numbers a positive sign for the industry. Producers appear to be culling fewer cows and retaining more heifers.
The big factor in all of this, as usual, is the Canadian dollar. Fox said downward pressure on the loonie, spurred by depressed oil prices, encourages exports and could affect cattle numbers here.
In a presentation titled “What is Sustainability?” Ryder Lee, then manager of federal provincial relations for the Canadian Cattlemen’s Association, urged producers to engage with consumers, retailers and animal welfare groups in a “robust process” to show how the industry is sustainable socially and ethically as well as environmentally. Lee has since been appointed CEO of the Saskatchewan Cattlemen’s Association.
Just doing things legally isn’t good enough anymore and producers must establish their credibility with other industry stakeholders, Lee said.
If they fail to do so, customers will go elsewhere and governments could impose regulations dictating how beef should be raised, he warned.
Lee cited CCA’s involvement in the Canadian Roundtable for Sustainable Beef and the National Farm Animal Care Council’s code of practice as examples of producers relating with other groups to promote sustainability and animal welfare within the industry.
The meeting also heard from representatives of View Trak Technologies, an Edmonton-based company that focuses on traceability. View Trak partners with CCA in operating BIXS, a record-keeping system holding carcass and animal birthdate records.
During its annual business meeting, members heard about a recent meeting between LMAC, Agriculture and Agri-Food Canada and the Canadian Food Inspection Agency to discuss livestock auction markets’ participation in Canada’s national livestock traceability system. While individual animal reporting is well established at farms, feedlots and packing plants, group movement reporting at auction markets and assembly yards has a way to go. A study conducted for LMAC several years ago found that RFID readers at Canadian auction marts cannot scan cattle ear tags at the required rate of accuracy.
Wright said auction markets have detailed computer systems to trace animals and clients but not to the extent CFIA wants. Auction markets are willing to comply with full traceability but that will cost money and government must help provide it, said Wright.
“It’s a public good. And if it’s a public good, the government has to pay a big chunk of it,” he said.
The LMAC convention was judged a success, with attendance higher than in recent years, according to organizers. This despite the fact the association is losing members because of a shortage of available cattle. Wright said four markets closed over the last five years in Manitoba alone.
LMAC members elected Scott Anderson of Manitoba to a two-year term as the association’s new president. Elected as directors were Brock Taylor of Melita, Man., Jim Abel of Stettler, Alta. and Kevin McArter of Brussels, Ont.