The North American beef industry is no stranger to crises. From the market-distorting beef price freeze in the U.S. under President Richard Nixon to its first BSE cases in 2003, the industry has rebounded from whatever challenge it has faced.
Canada, though, never fully recovered from its BSE cases. National cattle herd numbers peaked at 14.925 million head on January 1, 2005 but by January 1 this year, the total had declined to 11.220 million head, the smallest in 20 years.
The industries in both countries have had to draw on all their resources to help navigate their greatest-ever challenge, the COVID-19 pandemic and virtual shutdown of both countries for two months. It might be premature to say the crisis is now behind the North American industry. But August begins with a cautious sense of optimism that the markets are returning to normal, i.e. pre-shutdown.
The fate of the feeder and live cattle markets in both countries rests on the ability of packers to process fed cattle on a timely basis and offer an orderly flow of beef to end-users at a reasonable price. All that blew up from late March to mid-May. But a minor miracle occurred in the U.S. in June that has brought sighs of relief from feedlots to retail meat departments.
Weekly slaughter levels had reached a record low of 438,614 head the week ending May 2. This was 64 per cent of available capacity. But they had returned close to capacity by late June. A similar pattern occurred in Western Canada after production halted or slowed at Alberta’s two major plants and then ramped up again.
Yet plenty of supply and demand challenges remain. Both countries enter August with a huge backlog of cattle in feedlots that should have been marketed. The backlog might have been as high as 800,000 head in the U.S. Both backlogs will hang over the live cattle markets until they have almost disappeared. But that might not be until October.
A complicating factor in the U.S. is drought. Much of the western half of the country is under drought conditions that are getting worse each week. July 1 saw just over one million more calves and feeder cattle outside feedlots than on July 1 last year. Many producers hoped these additional cattle would remain out on grass as long as possible so they would not go on feed and then be marketed until the current backlog had fully disappeared.
A concern now is that grass conditions might have deteriorated so much in June and July that these cattle will be placed in feedlots earlier than expected and bunched more together than expected. This suggests the live cattle market might get little respite in terms of market-ready cattle anytime this year.
Meanwhile, U.S. supplies of the three major proteins are ample and their wholesale prices are all below this time last year. This means beef as the highest-priced protein will face increased pressure in the weeks ahead from much cheaper pork and chicken.
Beef production for the year to July 4 was down 3.2 per cent from the same period last year. But weekly production is now running above last year because of increased slaughter levels and record carcass weights for this time of year. Pork production year-to-date is up 0.6 per cent while broiler production is up 3.1 per cent. Boxed beef cutout values will likely remain under pressure because retail meat buyers will use the ample supplies to ignore efforts by packers to raise their beef prices. That in turn will continue to put pressure on live cattle prices.