High calf prices have been a good news story for cow-calf producers, but they’ve done little to help Canada recover its diminished beef herd.

“According to Statistics Canada, we’ve seen a decrease in total cattle inventories in Alberta from 5.225 million on July 1, 2023 to 5.145 million on the same date this year,” said Alberta Beef Producers chair Brodie Haugan. “There are a number of factors at play here, including the recent, widespread drought and good prices for livestock.”

Rick Wright, executive administrator of the Livestock Markets Association of Canada, said it’s a trend he’s seeing across Western Canada.

“By the time we get the numbers in, in December, we’ll probably see another decrease in the number of beef cows,” he said. “We have a number of producers that are close to retirement age that have made peace with the taxman, and they’re dispersing their cows this fall.”

Instead of incentivizing producers to rebuild herds, however, anecdotal reports indicate a surge of producers left the business in recent years.

Official cattle numbers have also slid, helped along by the 2021 drought. There’s been no evidence of a recovery to date. From 2021 to 2024, the number of cattle on Prairie beef farms dropped by 650,000 head, or 7.3 per cent from a total of 8.89 million in 2021 to 8.24 million this July.

National numbers reflect the same decline. Statistics Canada put Canada’s beef herd at just over 10.777 million in 2021. In 2024, the estimated beef herd was 10.079 million.

In terms of proportional hit to the beef herd, Manitoba led the way. Although it has fewer cattle than the western Prairies, the Manitoba beef herd dropped 12.3 per cent from 2021 to 2024, from 1.006 million to 882,600. That outpaces Saskatchewan, which dropped eight per cent in the same window, from about 2.602 million to just under 2.393 million.

Alberta topped the Prairies in terms of total beef animals lost (317,200 head from 2021 to 2024) but, as the biggest beef cattle-growing province of the three, that translated to a six per cent hit to the total beef herd, from just under 5.284 million to just over 4.966 million.

“This is an unheard of scenario,” said Matthew Atkinson, president of Manitoba Beef Producers. “We have record cattle prices, relatively cheap money (low interest rates), and we also have low feed costs and an abundance of feed.”

Atkinson said he is shocked by the number of herd dispersals, even from big, diversified herds. He cited one recent conversation with an auction mart manager. The auction had fielded only one call from a person looking for cows, but a had steady stream of herd dispersals booked for the fall.

“That’s really disappointing,” Atkinson said. “Because everybody’s really wanted this higher price; they wanted to be profitable; they wanted all of this. And now that it’s here, everybody’s getting out.”

That disappointment is shared by the Saskatchewan Cattlemen’s Association. Chief executive officer Grant McLellan said farmers haven’t yet reached the level of comfort needed to regrow the herd.

“Producers are still a bit shell-shocked over the past number of years,” he said. “They’re still hesitant to move back to a market that’s been challenged by drought for the better half of the last decade.”

Demographics are also affecting the industry’s mood, he added.

“Lots of folks are retirement age and there’s probably not a better time than they’ve ever seen in their lifetime to move out of the business.”

Summer prices have been high, and Wright said producers have been aggressively weeding out animals to sell. While the herd decrease might not be as big as it was last year, when drought was hammering harder at the western Prairies, he doesn’t see a turnaround in the near future.

Heifer prices are also quite strong, and that is putting downward pressure on heifer retention.

“It’s pretty tempting for these producers to sell those heifers and turn them into cash flow, and so we’re not seeing heifer retention like we have done in other years,” Wright said.

Most of the Prairies have better forage amounts than in the previous two years. That has lowered the strain of purchased feed costs and potential shortages.

The abundance of feed, combined with strong calf prices promising profit, could ease the pressure to send cattle to market.

“We could see a bit of a correction coming before Christmastime, but certainly, the cow-calf guys are in the driver’s seat again this year and are going to get good returns, and that should encourage guys to take a look at getting their numbers back up,” Wright said.

That’s likely not going to be enough to move the needle on the national herd size in the short term, he cautioned, nor is it enough for American farmers, who suffered many of the same weather stresses as Canadian ranches and are also facing their smallest herd in decades, to start expanding again.

“We haven’t hit the rebuild cycle there yet,” said Wright. “In the cattle cycle, we’re probably at or close to the bottom, and if everything stays true to history, we should start to regain, but I think that this is going to get stretched out a little bit longer than what a lot of people think.”

He estimates that recovery is at least another year away.

That’s partly because of stubbornly high land prices, he argued.

“It’s hard to buy land that you can afford to put cattle on, and that’s been a limiting factor as well. And even though the grain seems to be on the down slide right now, it hasn’t affected the land prices. They’re still very strong,” Wright said.

McLellan is less optimistic than Wright in terms of the recovery timeline. He said he’s expecting to wait three to five years before the herd rebounds.

“This regrowth of the industry is going to require a couple of things. One is that meat prices continue to be stable again and at a more reasonable level than they’ve been in the past,” he said. “And the second thing is, of course, moisture. That is always going to predict how our industry is going to go.”

While beef cattle prices have been slow to deflate, Wright noted that the prospect of a sudden market dip has some producers wary.

“The last time we had a real good bump, it lasted for about 14 months and then we had a major correction. There is a lot of anxiety out there with producers right now as to when the next correction is coming.”

That anxiety isn’t misplaced, he added. There are signs that a correction might already be underway.

“Right now, the harvest price from the packing plants looks like it’s peaked,” he said. “It’s actually dropped considerably here, in the last couple of months.”

And while the export market has been good for beef and demand remains high, Wright says that market may also be close to peaking.

“One of the things that’s going to offset the meat market (demand) is this beef on dairy program we’ve seen become more prevalent over the last 18 months, especially in the U.S. Animals that can be fed and put into the meat program are going to produce a lot more pounds of beef. So, we may be short of cattle as far as beef cattle goes, but we won’t be as short of meat.”

Carcass weights also favour beef supply.

“While there are fewer animals, it’s important to note that both the U.S. and Canada saw larger carcass weights this year,” said Haugan. “This helps offset some of the herd number changes when it comes to total beef supply.”

If that export market has peaked, Wright said the only thing keeping feeder cattle at their current high prices is the prospect of cheaper feed in the fall.

The cattle herd decrease might not be as big as it was last year, when drought was still hammering the western Prairies, but industry officials don’t see a turnaround in the near future.

Atkinson said that better and more affordable business risk management tools would reduce producer anxiety.

That has been a longtime ask of the beef sector. Both provincial and federal industry groups have argued that beef does not have the same publicly supported insurance options as the grain industry, where AgriInsurance premiums are cost-shared with government.

“We have things like livestock price insurance (LPI), but we’ve seen our neighbours to the south go to a cost share on it, like we see with crop insurance, and the uptake on it is amazing,” said Atkinson. “LPI is a great program, but a big chunk of the profit on those calves is taken out to enrol in it.”

The program, which is designed to protect farmers against market volatility, insures calves to a base price and pays out should the market fall below that insured price.

Haugan said Alberta Beef Producers is seeing movement in its calls for equitable business risk management.

“We are hopeful the AgriStability pilot provides meaningful improvements,” he said. “AFSC (Agriculture Financial Services Corp.) recently announced changes that will support new and young entrants to the industry through the Next Generation Loan.”

That program is designed to offer eligible producers with fixed-rate term loans under repayment terms more friendly to farm cash flow and “an option of up to five years of interest-only payments,” according to the corporation’s website.

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Coming into 2024, the beef cow herd was at a 63-year low, the smallest beef cow inventory since 1961, says Peel. This has pushed cattle prices to record levels through 2023 and 2024. Yet there are no indications that any beef herd rebuilding is underway. The question of rebuilding the beef cow inventory is fundamental for cattle markets in the next few years, he says.

A review of historical herd expansions is instructive, says Peel. From 1990 to 1997, the beef cow herd increased by 2.864 million head. During 2014-20, the herd grew by 2.734 million head. The increase wasn’t as great as the previous period, but it was short a year. The herd increased by 1.2 million head in just two years from 2014-16. One of the keys to herd expansion is heifer retention, he says. Beef replacement inventories increased three of four years before the beginning of herd expansion in 1991 and for three years before herd expansion in 2015. Both expansions included one year of very large heifer retention (year 3 in 1993 and year 2 in 2015), with smaller increases before and after, he says.

The industry does not yet have a zero year (low inventory) from which herd rebuilding can begin, says Peel. Beef cow slaughter thus far in 2024 is sharply lower, down nearly 16 per cent year-over-year. But this level of beef cow slaughter, combined with the low beef replacement heifer inventory in 2024, implies that the beef cow herd continues to liquidate by another 0.5 to one per cent in 2024. Beef cow slaughter would have to drop by roughly 22 per cent year-over-year to avoid additional liquidation this year. The current rate of beef cow slaughter indicates a herd culling rate in excess of 10 per cent this year. The culling rate is expected to drop below 10 per cent during herd expansion. Thus 2025 is the earliest zero year for the next expansion to begin. But there is no certainty that additional liquidation will not occur in 2025, he says.

Liquidation of beef replacement heifer inventories in recent years means there is no pipeline or momentum for herd expansion compared to previous expansions, says Peel. Moreover, the level of heifer slaughter and heifers in feedlots in 2024 suggests that the replacement heifer inventory in 2025 is likely to show modest growth at best. Forecasts show a two per cent year-over-year increase in beef replacement heifers in 2025. At that level, the beef cow herd is limited to stable numbers or a very minimal increase in 2025, he says. Beyond 2025, heifer retention could increase more and accelerate herd expansion beginning in 2026. But current conditions do not suggest a high likelihood of sharply accelerating heifer retention anytime soon.

The threat of continuing/redeveloping drought is one factor limiting the beginning of herd expansion at the current time, says Peel. Should developing drought conditions become a reality in the coming months with the return of La Niña, additional herd liquidation is likely. Any herd rebuilding could be pushed off further into the future.

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Investors also squared bets ahead of the U.S. Department of Agriculture’s (USDA) quarterly hog and pig supply report, released after the close, which showed a continued herd expansion that was near trade expectations.

Ample supplies of hogs and pork have overshadowed hog futures in recent months and prompted commodity funds to slash their long bets and build up short positions.

“Tomorrow is the end of the month, end of the quarter. The funds have been pounding this hog market lower for at least the last six weeks so this turn was short-covering heading into this (quarterly hog supply) number,” said Jeff French, analyst with Top Third Ag Marketing.

“But I don’t see anything this number to go ahead and start a bull market. It shows that this market is still full expansion mode,” he said.

USDA said the U.S. hog herd on June 1 was up 3.6 per cent from a year earlier, above estimates for a three per cent rise. The number of hogs kept for breeding increased 1.4 per cent, versus estimates for a 2.1 per cent rise, while hogs kept for marketing jumped 3.9 per cent, above estimates for a 3.1 per cent rise.

CME July lean hogs were up 0.275 cent at 73.825 cents/lb. while actively traded August gained 1.7 cents, to 77.175 cents/lb.

Hog prices were underpinned by solid U.S. pork export sales last week totaling 29,700 tonnes, including 10,400 tonnes sold to China, the most in three weeks, according to USDA data.

China is expected to import much more pork this year as its domestic hog herd has been decimated by African swine fever. U.S. pork shipments have accelerated, but volumes have thus far been below expectations.

Live cattle futures ended slightly weaker in most contracts in a mild profit-taking pullback after early week gains.

Actively traded CME August live cattle ended down 0.025 cent at 105.35 cents/lb. Spot June futures, which expire at the end of the week, were up 1.575 cents at 110.575 cents/lb., reflecting market expectations for steady cash cattle prices this week.

Feeder cattle also eased after surging on technical buying and short covering a day earlier.

CME August feeder cattle dipped 0.025 cent to 135.8 cents/lb.

— Karl Plume reports on agriculture and ag commodities for Reuters from Chicago.

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It’s with some concern therefore that drought conditions have worsened in the past month in several parts of the U.S. Extreme drought now extends through much of the Texas Panhandle into southern Kansas, with pockets also in Arizona and other places. Severe drought extends from the Colorado Rockies to the Mississippi River and south to the Florida Panhandle, and is also in parts of Montana and South Dakota.

Should these conditions persist, it is possible that four years of U.S. cattle herd expansion might come to an end. The total herd expanded again in 2017 but at a slightly slower rate than expected. The all cattle and calves total on January 1 was 94.399 million head, up 694,000 head or 0.7 per cent. Beef cow numbers totaled 31.723 million head, up 510,000 head or 1.6 per cent from last year. The 2017 calf crop totaled 35.808 million head, up 715,000 head or 2.0 per cent from last year. Analysts had forecast that the total inventory would be up 1.3 per cent. But a dive into the numbers revealed that USDA upwardly revised its January 1, 2017, total by 120,000 head.

On a state basis, the most startling growth in 2017 came in South Dakota’s beef cow numbers, which increased 8.2 per cent. Texas continues to have by far the largest cattle population of any state. Its January 1 total was 12.500 million head, up 200,000 head from a year earlier. Nebraska is number two with 6.800 million head, up 350,000 head, and Kansas is number three with 6.300 million head, down 100,000 head. Texas also heads the states with the most beef cows. It had 4.585 million head on January 1, up 25,000 head from a year ago. Missouri was second with 2.166 million head, up 111,000 head, Oklahoma was third with 2.131 million head, up 36,000 head, Nebraska was fourth with 1.910 million head, down 10,000 head, and South Dakota was fifth with 1.801 million head, up 137,000 head. Kansas saw its beef cow numbers decline by 63,000 head to 1.507 million head.

South Dakota also added 40,000 beef cow replacements in 2017, more than any other state. A year-to-year increase in its calf crop of 150,000 head was also larger than in any other state. The surge in its beef cow, beef replacement number and calf crop reflects the reopening of a beef processing plant in Aberdeen and the movement of cattle from Montana because of drought (as noted above). The state’s January 1, 2018 cattle-on-feed total of 430,000 head was up 50,000 head or 13.2 per cent from a year earlier, suggesting the plant is also encouraging more cattle to be finished within the state.

The surprise in the report was the feeder cattle and calf supply outside feedlots, says analyst Andrew Gottschalk of HedgersEdge.com. He calculates this number to be down 608,000 head from January 1, 2017. While a reduction was not unexpected, the magnitude of the decline is a shocker. The reduction should lend support to the fed cattle sector during the fourth quarter. As for continued herd expansion, female slaughter increased in 2017 but remains well below liquidation levels, notes Gottschalk.

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The result topped most analysts’ predictions, mainly led by worsening drought in the U.S. southern Plains that shriveled available winter wheat grazing pasture.

Corn Belt states were the recipients of cattle from areas of Montana, North Dakota and South Dakota where insufficient moisture persists.

“These very dry conditions that are developing in wheat pasture country drove change in placements in November. And I suspect we got some of that in December also,” said Texas A+M University economist David Anderson.

Some analysts cited cheaper feed, which lowered input costs for feedlots, as another reason behind last month’s placement uptick.

And more heifers are entering feedlots, suggesting to analysts that the rate of cattle herd expansion is slowing.

Chicago Mercantile Exchange live cattle futures may open lower Monday following USDA’s report, but could quickly rebound spurred by higher-than-expected prices for market-ready, or cash, cattle later on Friday.

USDA’s report showed December placements at 1.799 million head, up 0.8 per cent from 1.785 million a year earlier and exceeded the average forecast of 1.73 million.

The government put the feedlot cattle supply as of Jan. 1 at 11.489 million head, up 8.3 per cent from 10.605 million a year ago. Analysts, on average, forecast a 7.7 per cent rise.

USDA said the number of cattle sold to packers, or marketings, were down 1.4 per cent in December from a year ago to 1.752 million head.

Analysts had projected a 1.2 percent drop from 1.777 million last year.

“The big placement figure tells you that we’re going to have big numbers of cattle coming at us for the foreseeable future,” said U.S. Commodities president Don Roose. He too alluded to the bump in feedlot cattle placements in Corn Belt states where feed is more plentiful.

“You continue to be in a drought in the southern Plains, that continues to expand, so it no doubt is another factor that you have to throw into the placement discussion,” said Roose.

— Theopolis Waters reports on livestock markets for Reuters from Chicago.

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The U.S. Department of Agriculture’s Cattle on Feed report, along with U.S. inventory data, confirmed larger beef supplies in upcoming months, which set a negative sentiment amongst feedlot operators. Auction markets experienced variable price ranges on similar-weight and -quality cattle; order buyers were doing their best to chip away on premium bunches but once this demand was filled, the market felt vulnerable and faltered. Direct sales from backgrounding operators to finishing feedlots stemmed buying interest in the auction ring in the higher weight categories. Major feeding operations know the quantity of backgrounded cattle will increase over the next month, so there was no need to be aggressive in the short term. Calf values were also quite variable; heavier weaned pre-conditioned calves tended to hold value but 500- to 600-pounders traded as much as $10 lower from last week. Weakness in deferred live cattle futures put buyers on the defensive and the calf market appeared to incorporate a risk discount.

Limo- and Simmental-cross larger-frame medium-flesh steers averaging 900 lbs. were quoted in the range of $172-$176 in southern Alberta. In central Alberta, 800-lb. medium-frame medium- to lower-flesh 800-lb. Charolais-cross steers were hovering around $175, while mixed medium-frame 800-lb. heifers were trading from $145 to $148 in the same region. Exotic steers weighing 575 lbs. were quoted at $208 in the Lethbridge area while mixed steers averaging 550 lbs. traded from $198 to $202 in southern Saskatchewan.

Alberta packers were buying fed cattle from $158 to $160 this past week, slightly lower than seven days earlier. The futures markets appear to be leading the cash market lower for both fed and feeder cattle. The 2016 U.S. calf crop was estimated at 35.1 million head, which was a year-over-year increase of one million head. The number of U.S. beef cows that have calved reflected a similar year-over-year increase, so the aggressive herd expansion continues.

— Jerry Klassen is manager of the Canadian office for Swiss-based grain trader GAP SA Grains and Produits. He is also president and founder of Resilient Capital, which specializes in proprietary commodity futures trading and commodity market analysis. Jerry owns farmland in Manitoba and Saskatchewan but grew up on a mixed farm/feedlot operation in southern Alberta, which keeps him close to the grassroots level of grain and cattle production. Jerry is a graduate of the University of Alberta. He can be reached at 204-504-8339.

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According to Anne Wasko of Gateway Livestock Inc. at Taber, Alta., some cattle in the western Prairies are already being moved off grass.

“We’ve seen early marketing of cow-calf pairs coming to market; higher feed costs are at the forefront of their considerations,” she said.

If rain doesn’t come soon, she said, yearling cattle could also be going on feed in July, instead of August and September.

“It means moving that marketing window forward.”

While there haven’t been any mass sell-offs yet, a recent report out of Chicago indicated some U.S. analysts expect sales of Canadian cattle to pick up as a result of the dryness.

Wasko acknowledged many producers are plotting the best way forward.

“I suspect producers are out looking at options right now. If they’re in an area where grain crops have been impacted because of the drought, maybe there is a way of working with those grain producers to access some feed?”

The situation is undoubtedly frustrating for ranchers who had planned to expand their herds, she said.

“They’re looking to speed that up. But winter feed costs and dry conditions could slow that expansion down.”

Despite the turmoil, Wasko said the market is relatively the same as it was a few weeks ago — but that could change once things pick up in August.

According to numbers from Canfax, Canadian cattle inventories on Jan. 1, 2015 were down 2.5 per cent on the year at 11.9 million head, the smallest such level since 1993.

In contrast, the U.S. cattle herd has been on the upswing, with inventories rising 1.4 per cent to 89.8 million head during that same time frame.

— Dave Sims writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.

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Cattle Inventories

Canadian Inventories Continue to Decline

Canadian cattle inventories on January 1, 2015 were down 2.5 per cent at 11.9 million head, the smallest since 1993. Producers continued to send cows to the market aggressively in 2014, while heifer retention was subdued.

Beef cow inventories were down 2 per cent at 3.8 million head, the smallest since 1992. The largest declines were in the major producing provinces of Alberta (-3 per cent) and Saskatchewan (-2 per cent) followed by B.C. (1.4 per cent), Manitoba (-1.4 per cent), the Atlantic provinces (0.9 per cent) and Quebec (-0.3 per cent). The only increase was seen in Ontario (+0.7 per cent). The beef herd has been in the consolidation phase since 2011 and is anticipated to move into expansion late in 2015 or 2016.

Beef breeding heifer numbers were also down 1.5 per cent at 531,100 head. Lower breeding heifer numbers is not surprising as heifer slaughter was up 10 per cent in 2014 and heifers as a percentage of total feeder exports jumped from 58 per cent to 67 per cent. Many producers did not have additional dollars in their pockets to invest in heifers last summer as they had sold before prices took off. The real question is: what will producers do this summer? Will replacement heifer numbers increase in the July 1 report? And by how much?

Inventories of steers, slaughter heifer and calves were down 5.4 per cent, 4.9 per cent and 2.5 per cent respectively. Subsequently the supply of feeders outside of feedlots is down 3.7 per cent or 157,000 head. If this impact was entirely felt in the 2015 fed cattle marketings this would imply a reduction of around 6 per cent and could have a significant impact on 2015 beef production.

U.S. Herd Expansion in Progress

Total cattle and calf inventories on January 1, 2015 were up 1.4 per cent to 89.8 million head with many categories up 1-2 per cent. This was the first increase since 2007. Despite being up, total cattle inventories are still 7 per cent below the 2007 peak and remain near their 60-year lows.

Beef cow inventories recorded the first increase since 2006 with numbers up 2 per cent to 39 million head, but remain 9.2 per cent below the 2006 peak. The major cow-calf states that were hardest hit by drought have shown the biggest rebound in beef cow numbers. This includes Texas (+7 per cent), Oklahoma (+6 per cent), Colorado (+5 per cent), and Kansas (+4 per cent). In 2014, beef cow slaughter as a percentage of total beef cow inventory declined for the third consecutive year to 9 per cent, pushing the industry into expansion.

The 2014 calf crop was estimated at 33.9 million head, up 1 per cent from 2013. This is the first increase in the calf crop since 1995 but is questionable as breeding stock (beef cows and replacements) on January 1, 2014 were down 0.1 per cent. A larger calf crop would require a jump in reproductive efficiency coming out of the hot, drought years in the South — which is possible. More probable is the larger calf crop anticipated in 2015 with a larger breeding herd which will increase beef production at some point in late 2016 and early 2017.

Steers weighing 500 lbs. and over were up 0.7 per cent at 15.8 million while heifers for slaughter were down slightly by 0.2 per cent at 8.8 million head. Calves less than 500 lbs. were up 0.9 per cent at 13.7 million head. Cattle and calves on feed for slaughter in all feedlots were up 1 per cent at 13.1 million head while feeder and calf supply outside of feedlots was up 0.5 per cent or 133,000 head at 25.2 million head. The increased cattle supply outside of feedlots could mean that there will be slightly more feeder cattle available to place on feed in 2015 supporting fed marketings. Breeding heifers retained from the 2015 calf crop will also be an important factor for feeder supplies later this year.

Cycle Indicators

Cow Culling Rate Remained High

In 2014, record-high cattle prices were sending signals for herd expansion, but many producers took advantage of the higher prices to rebuild equity or invest in infrastructure improvements. Canadian cow marketings in 2014 were down 6 per cent with domestic slaughter down 9 per cent and exports down 1 per cent. This decline is modest compared to the U.S. where beef cow slaughter was down a dramatic 17 per cent. The Canadian beef cow culling rate dropped marginally in 2014 to a projected 13.8 per cent compared to 14.3 per cent in 2013 and the long-term average of 11 per cent, so still at liquidation levels.

Moving into 2015, cow prices continued to be well supported by tight supplies and strong lean-trim demand. Alberta cow prices increased from $133/cwt in January to $144/cwt in March to be 45 per cent or $45/cwt higher than a year ago. Cow marketings are showing signs of slowing down with cow slaughter down 12 per cent and exports down 29 per cent year to date.

Weather conditions moving into spring and summer will be a critical factor to watch on both sides of the border, as drought or flood will impact pasture carrying capacity and feed prices, and in turn influence the trend in cow slaughter and cattle prices. Long-range weather forecast projects that El Niño will play a major role in Canadian weather in the early part of 2015, which could lead to a drier and warmer summer in the Prairies. In the U.S., Mid-west weather is expected to be favourable for a good crop with summer heat being far to the West; the main concern for summer drought will be in the inland Northwest.

Female-to-Male Disposal Ratio Slightly Lower

The female-to-male disposal ratio which measures the number of females (heifers and cows) disposed for every male (steers and bulls) is an important cycle indicator. In 2014, the ratio declined from 1.05 to 1.01, indicating more female cattle are being held in the herd compared to 2013. However, the ratio remains well above the average seen during previous expansion years of 0.94, indicating that the Canadian herd remains firmly in consolidation phase. The lower ratio in 2014 comes entirely from reduced cow marketings as breeding heifer inventories were down 1.5 per cent on January 1, 2015. In early 2015, the female-to-male disposal ratio remains steady with last year at 1.04.

Heifer-to-Steer Disposal Ratio Up

In 2014, the heifer-to-steer disposal ratio posted the first increase since 2006, up from 0.60 to 0.62. The higher ratio indicates proportionately more heifers in the slaughter mix. The dramatic increase in cattle prices coupled with strong demand from the U.S. pushed heifer marketings up 10 per cent in 2014.

Heifer slaughter in 2015 remains 5 per cent above last year, but fed heifer exports have declined 32 per cent. An encouraging sign has been historically low heifer placements into finishing lots in January and February. At 20-26 per cent of total placements this is well below what has been seen over the last decade of 28-45 per cent and the lowest since January 2004 (25 per cent). This is the first indication that 2015 might be the start of the next expansion phase.

Prices and Demand

Record Prices and Improved Profitability

In 2014, cattle prices recorded the largest annual increases since the 1980s with Alberta fed steer prices up 29 per cent, yearling prices up 49 per cent, calf prices up 55 per cent and cow prices up 46 per cent. For the beef market, Canadian cut-out prices were exceptionally strong in 2014 with AAA up 31 per cent at $255/cwt, and AA up 32 per cent at $250/cwt. Nominal retail beef prices in 2014 averaged $17/kg up 16 per cent from 2013 while pork was up 20 per cent at $12/kg and chicken up 2 per cent at $7.23/kg.

With feeder and cow prices posting the largest growths across the supply chain, cow-calf producers are enjoying a substantial improvement in profitability. While profit levels between different cow-calf producers can be highly variable, the average return per cow in Alberta is estimated at $672/head, up 275 per cent from 2013 and more than 10 times higher than the long-term average.

The rising markets in 2014 combined with the cheaper cost of gains and lower dollar created significant profit opportunities for feedlots. It is important to note that as the cash market exploded, feedlots may have contracted a significant number of their cattle, at lower profit levels.

Strong bull years like 2014 are frequently followed by a stabilization year that has more typical seasonality. The eastern cow market appears to have already put in a spring high in early March, while the West looks to be testing $145/cwt. Heavy feeder prices have been flat in the first quarter and the summer price rally will be influenced by crop conditions this summer. Fed cattle prices are sensitive to changes in the dollar which remains at the lowest level since 2009.

Replacement Ratios

Replacement ratios show how much higher feeder cattle prices are per pound of fed cattle. The lower the ratio the fewer dollars a feedlot needs to replace an animal. Conversely, a high ratio implies the feedlot must pay more per pound to replace an animal. Consequently, a higher ratio has negative implications on feedlot profitability, if feed costs are constant.

• Click here for a perspective of cattle replacement price ratios from 2012 – 2015

With the larger increase in feeder prices, replacement ratios in both Western and Eastern Canada moved steadily higher throughout 2014. In the first quarter of 2015, the ratios have eased lower but remain well above last year’s level. In the West, replacement ratio for heifer calves at 1.59 posted the largest year-over-year increase (+27 per cent) among all categories followed by steer calves (+17 per cent), yearling heifers (+15 per cent), yearling steers (+8 per cent) and shortkeep steers (+7 per cent). Replacement ratios in the East are generally lower than the West, but the year-over-year increases for some categories were more significant. Specifically, the ratios for heifer calves (+24 per cent), steer calves (+22 per cent), yearling heifers (+24 per cent), yearling steers (+8 per cent), and shortkeep steers (+11 per cent).

In addition to high feeder costs, rising feed prices in Western Canada are also placing more risks on feedlot profitability as break-evens are pushed to record highs. In March, Lethbridge barley prices were up 14 per cent from last year, while Omaha corn prices were down 18 per cent. The feeding disadvantage in Canada narrowed in February but a lower dollar continues to encourage feeder exports and bring strong competition for feeder cattle for local feedlots.

Demand Remains Strong

While retail beef prices moved significantly higher in 2014, per capita consumption is projected to be down 5 per cent. The Retail Beef Demand Index is an indicator of consumer willingness to pay by evaluating per capita consumption and deflated retail prices. Since 2011, the index has rebounded from the low made following the global financial crisis and is projected to be up 6 per cent in 2014 to 109.5 (Index 2000=100). This is the third-strongest demand since 1990 with only 1990 and 2003 being stronger. The uptrend of the demand index in the past five years shows that beef demand has been resilient to high prices, but it remains uncertain how demand will hold up in 2015 with larger pork and poultry supplies.

Global beef demand has been very strong in recent years with a growing population, increased incomes, and protein consumption in developing countries and the economic recovery in the U.S. The International Demand index for Canadian beef has been increasing since 2010 and posted the biggest annual increase of 27 per cent in 2014. The strength in global beef demand is projected to continue in the next decade with the fastest growth expected in Asia and Middle East and North Africa.

Trade Balance Back to Positive Value

Strong global demand, larger domestic beef production, a weaker Canadian dollar and improved market access to some Asian markets have been supportive to beef exports and pushed prices to record highs. Beef exports in 2014 were up 14 per cent in volume to 317,728 tonnes and up 46 per cent in value to $1.94 billion. While volumes remained 5 per cent smaller than 2011, export value was the highest since 2002. Per-unit export price averaged a record high of $6.10/kg, up 28 per cent from 2013 and up 43 per cent from 2002. U.S. remains Canada’s top market accounting for 70 per cent of total beef exports followed by Hong Kong (8 per cent), Mexico (7 per cent), Japan (6 per cent), Mainland China (2 per cent) and South Korea (1 per cent). In many of Canada’s major markets, U.S. beef is a key competitor for Canadian products. One of the biggest advantages of Canadian exports moving into 2015 is a lower exchange rate compared to the U.S., which will improve price competitiveness.

Beef imports in 2014 were down 14 per cent in volume to 183,665 tonnes and down 1.8 per cent in value at $1.37 billion. Per-unit price averaged $6.60/kg, up 14 per cent from 2013. The U.S. remains the largest supplier with 71 per cent of market share despite a 21 per cent decline in volume. Australia moved up to the second place with 15 per cent of market share as volumes jumped 56 per cent higher. New Zealand dropped from being the second-largest supplier in 2012 to being tied in the third place with Uruguay with 6 per cent of market share. In general, grinding beef as a percentage of total import increased from 64.6 per cent in 2013 to 66.6 per cent. Non-NAFTA imports increased 9.4 per cent in 2014 to 52,883 tonnes. This is still well below the annual quota of 76,409 tonnes. In 2015, beef production by Canada’s major suppliers is projected to be down with herd expansion in the U.S. and improved moisture conditions in Australia. This combined with elevated global prices and a weakening dollar will continue to limit imports and constrain beef supply in 2015.

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BFO’s northern cow herd expansion project presents an opportunity for beef farmers unlike any since the settlement years with the prospect of opening up provincial Crown land in the “great Clay Belt” of northern Ontario for beef production.

The Clay Belt in the Cochrane District isn’t uncharted territory, surrounded by communities such as Timmins (700 km north of Toronto), up to Cochrane, Kapuskasing and Hearst along the northern route of the Trans-Canada Highway. But it could be the last frontier for affordable land and ample access to water for beef production, encompassing 16 million acres of parkland-like terrain with some open land already used for agriculture, bush, swamp and forest.

To put the opportunity into perspective, 13 million acres in all of Ontario are currently used for agriculture.

The proposed beef herd expansion would require about five per cent of the 16 million acres released little by little as beef farmers buy in. The project aims to develop a premium northern beef system capable of expanding the provincial cow herd by 100,000 head with the addition of 30 economically viable (requires 2,500 acres) farms per year over the next 20 years.

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A feasibility study done for the BFO shows beef expansion of this magnitude is doable and economically viable for families in the long term with affordable access to Crown land. The expansion would generate more than $3 billion in economic activity for northern communities while bolstering the supply of cattle to retain processing capacity and sustain the beef industry in Ontario.

Premier Kathleen Wynne gave the concept a nod of approval in her mandate to the Ontario Ministry of Agriculture and Rural Affairs (OMAFRA) last fall. Now, with an agreement on the broad vision in place, work begins on implementation.

“This isn’t going to happen overnight and we won’t have details for a while,” Gordanier says.

“The key is release of the Crown land. Say, for example a family purchases 500 acres of land bordered by Crown land, there would be an opportunity to expand by buying or leasing the Crown land. We are trying to get a pilot project and are very open to ideas and open to what should be in the stipulations.”

Gordanier likens the government’s release of land for agriculture to creating an “agricultural preserve for the future of food production” considering seven million acres of land used for agricultural production in 1965 now sit under housing and industrial developments.

It’s not unusual for land in southern Ontario to sell for $10,000 per acre and upwards of $20,000 per acre in some districts. “Young farmers can’t afford to pay those prices and the current size of beef operations won’t support two or three families to bring the next generation in.

“Someone has to move on,” Gordanier says.

BFO is also looking at the feasibility of expanding beef production in Ontario with alternative strategies for feeding Holstein calves. Directors have twice visited the U.K. to gather information on a Holstein feeder value chain and assess its potential for Ontario.

BFO’s Farm-to-City business model for producers who want to sell directly to consumers will roll out as a pilot project this spring with Toronto as the target market and VG Meats as the first participant. When complete, the model and website for online ordering and payment, will be suitable for direct sales of other agricultural commodities, and to consumers in other urban centres.

These initiatives stem from strategic planning sessions in 2012 when directors tackled the challenge of reversing the decline in the provincial herd, which has fallen from 410,000 to 289,300 head over the past decade.

Several resolutions at the BFO meeting dealt with helping producers maintain the current level of production and participate in expansion efforts.

Delegates had one concern with the expansion plan in that they asked BFO to ensure producers in the rest of Ontario be offered the same programs and incentives as those in the north.

There is full support for BFO’s efforts to raise the loan limits and funding for the provincial feeder cattle loan guarantee and beef breeder co-operatives.

Currently there are 18 feeder co-ops operating in Ontario serving the credit needs of more than 900 farmers plus eight breeder co-ops with nearly 300 members, 60 more than last year.

BFO is arguing for a guaranteed loan limit of $500,000 per member from the $250,000 set back in 2006. Back then the average value of feeder cattle financed through the program was $800. Last year it was $1,600, effectively cutting the number of cattle a producer could finance in half.

To make the change the province would have to raise the guaranteed loan limit to $250 million from $130 million today.

The risks are higher for all concerned but, as the BFO often reminds the province, no co-op has ever drawn on the guarantee in the 24-year history of the feeder program or the 13 years of the breeder program.

BFO delegates would like to see both programs brought under one roof so that co-ops could achieve greater economies of scale by offering both options, while trimming administrative costs. They also recommend implementing a third-party review of an individual’s ability to pay when applying for new loans.

The annual report and resolutions from the annual meeting are available at ontariobeef.com.

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