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A year of green grass and more

Prime Cuts with Steve Kay: from the January 2017 issue of Canadian Cattlemen

Another year has begun and expectations on both sides of the border are for a decent year. Cow-calf producers hope for a mild winter but enough snow to produce a lot of green grass this spring and a good calving season. Cattle feeders hope to see more feeder cattle and a more stable live cattle market. That’s likely to occur in the U.S. But numbers in Canada will remain tight due to lack of growth in the beef herd.

U.S. producers are still adjusting to the dramatic decline in prices for calves and feeder cattle from their record highs in late 2014. Those price levels were unsustainable but few people could have foreseen that prices at the end of last November would be down 25 to 30 per cent from a year ago. The loss of margin for producers has surely put the brakes on herd expansion although numbers are expected to increase slightly again this year.

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The aggressive herd expansion of the past three years means cattle feeders and beef processors have larger numbers to work with. This so far has not helped cattle feeding margins but it meant record large operating margins for packers last fall. Perhaps more important, larger beef production has meant beef is far more affordable for Americans than for several years. Beef has become the meat of choice again because more people can afford it.

This will be true again this year as the industry will produce more beef than in 2016, which saw a hefty increase from 2015. The same will be true for pork and poultry processors. USDA currently forecasts that total U.S. red meat and poultry supplies in 2017 will be up three per cent from 2016’s total, which was also up three per cent from 2015. The biggest percentage increase will be in beef. USDA forecasts that production will be 26.160 billion pounds, up 4.4 per cent on last year’s expected 25.055 billion pounds (up 5.7 per cent from 2015). Total red meat and poultry production will be 100.430 billion pounds, versus last year’s 97.513 billion pounds.

The big story for beef is that aggressive rebuilding by producers of their beef cow herds since 2014 has meant more cattle for processing and a lot more beef produced. USDA’s projected 2017 beef total will be nearly 2.5 billion pounds more than the 2015 total. Last year’s increased production lowered wholesale beef prices significantly. This allowed retailers to reduce their everyday prices and feature beef more aggressively than for at least seven years. Americans responded and rediscovered their love of a good steak. The beef merchandising story of last year was the way retailers aggressively featured steak items all year, not just in the grilling season.

However, beef still has to compete with much cheaper pork and chicken. Their production increases last year were much less than beef’s. But a slight increase made them even more affordable to consumers. That was important, as many Americans still can’t afford to eat beef except on special occasions. A snapshot of last October’s retail prices shows the price relationship of the three proteins. USDA’s All Beef price for the month averaged US$5.58 per pound, down 7.6 per cent on a year earlier. Pork averaged US$3.74 per pound, down 5.8 per cent, and chicken averaged US$1.89 per pound, down 4.1 per cent. With an increase in all proteins in 2017, Americans will enjoy even lower prices.

Both the Canadian and U.S. industries will also rely heavily on beef exports this year. Here, Canada has an edge, as it is already sending beef to China. The U.S. industry is hoping its own exports to China will start very soon.

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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