Cattle prices slide

Tuesday, September 29, 2015

by JIM ALGIE

A steep drop in Ontario fed-cattle prices this fall reflects unusually heavy carcasses and abundant North American meat supplies on top of the seasonal movement of cattle off pasture, several informed observers say.

Beef Farmers of Ontario (BFO) market reports over the past eight weeks track a 12.64 per cent slide in fed-cattle prices. Some seasonal shift in the market is to be expected as cattle leave pasture but this year’s price “is considerably lower than normal,” a note on Friday’s (Sept. 25, 2015) BFO market report said.

This year’s “rapid decline in prices” for fed cattle is more than double last year’s 4.56 per cent drop and has “many beef producers now experiencing a loss on their fed cattle going to market,” the report said.

Brian Perillat, Canfax senior analyst, said the change contrasts with recent years of continually rising beef prices amid short supplies both here and in the United States. Canfax analyzes beef industry trends and is a division of the Canadian Cattlemen’s Association.

“Maybe we were getting a little spoiled,” Perillat said in an interview, Wednesday, from Calgary referring to the five-year trend in prices. “Demand has been strong and we really had very little drop.

“The lows haven’t been as low and the highs kept getting higher,” Perillat said.  “All of a sudden we’ve got all these big cattle. The supply is a little larger and the packing plants are certainly accumulating inventory around them.”

Veteran Bruce County cattleman Ken Schaus blames heavy weight cattle and cheaper meat alternatives for the recent slide in cattle prices. But he’s also convinced Canada’s cattle supply will support new breeding activity even if it adds up to a smaller inventory when compared with historic levels.

“The bids back in July were at $3.45 (per pound); today we’re at $2.80; that’s significant,” Schaus said in an interview from his Elmwood office. “That’s a 65-cent pull back. On, say, a 900-pound carcass, it’s a $585 a head loss which is huge,” he noted.

“We’ve had basically 24 months of profits in a big upward trend in the market, and it has paid people to make them 1,500, 1,600 lb. because the market would accept them,” he said of heavier-than-normal weights for slaughter cattle.

“Now we’re in a situation where there’s lots of these cattle and you’ve got the seasonal placements . . . along with the extra weight and, all of a sudden, there’s all kinds of production North America wide,” Schaus said.

It’s a continental trend. A Dow Jones business news report, Wednesday, highlighted Chicago Mercantile Exchange trading of cattle futures “flirting with fresh two-year lows.” The report cites buyer resistance to recent months of record high retail prices for beef.

University of Tennessee livestock economist Andrew Griffith, in his Weekly Livestock Comments for Sept. 25, described sharply lower fed-cattle prices 16 per cent below those for the same week in 2014.

“Reason and logic in a normal year would indicate prices are near the bottom, but the market could continue to act contra-seasonally and dip further,” Griffith warned. “The large number of heavy end cattle on feed is expected to put a damper” on price increases by year end, he said.
 
The Sept. 25 Cattle Outlook report of Missouri University livestock economists Ron Plain and Scott Brown describes a huge increase in frozen U.S. beef supplies. The Plain/Brown report also predicted heavy weight cattle will continue coming to market this fall.

“Average steer dressed weight for the week ending Sept. 12 set a new record at 919 lb., up five lb. from the old record set just the week before,” the Missouri report said. It was 30 lb. heavier than the average steer dressed weight for the same week in 1914 and the 65th week in a row for heavier carcasses when compared with year-earlier weights, the Plain/Brown report said.

Prices for lighter cattle in Ontario haven’t suffered as much as for fed cattle, but Schaus figures that will come. He described “a bit of a lag time” as farmers adjust to the market shift.

“There’s been people who have had their pens empty for two and three months; they’ve got some money in their bank accounts and they’re coming in and have bought cattle. I don’t see a shortage of cattle anywhere in Canada,” Schaus said.

However, current prices for Canadian feeder cattle remain relatively high when compared with U.S. prices.

“Right now our feeder market is $20 a hundred higher than what theirs (the U.S. market) is so nothing’s going to flow stateside with that in play,” he said. “That tells me we don’t have to panic about cattle,” he said. “When our feeders drop to the point where they can start going stateside again, the guys should definitely do some buying.”

Although early season drought conditions in Alberta have eased, they did reduce the number of cows and heifers held back for reproduction, Canfax’s Perillat said.

“The drought is over but the impact isn’t,” Perillat said. “It did take some breeding heifers.”
 
He added there would not be an expansion in 2015, describing the prospect for growth in Canada’s current, relatively small cattle population. Both Perillat and Schaus said their industry is feeling the effects of an aging population of participating farmers and a shift to cash crop production following Canada’s BSE (bovine spongiform encephalopathy) crisis of 2003 and the 2008 boom in grain markets.

As a result, Canadian farmers are “very cautious to expand” beef cattle production, and some have seen recent high-priced markets as “an opportunity to get out,” Perillat said.

“If you look in our area in Grey and Bruce counties we’ve seen a huge drop,” Schaus said of production in his home area of Ontario. BF