Cattle Producers Play Wait-And-See for 2019 Prices

Numerous factors could change the fortunes of western Canadian beef cattle producers in 2019, and yet that region’s potential profitability remains higher than the challenged eastern Canada sector

by Richard Kamchen – Farm Credit Canada (FCC)

Weather

Better moisture conditions would help stabilize western Canada’s cattle herd, and possibly increase heifer retention, leading to growth, says Brian Perillat, manager and senior analyst with Canfax.

Spring storms and dry Prairie conditions pushed beef culling rates up two per cent in 2018, Canfax says.

“Our culling rate was higher, our heifer retention was down slightly, and there were some heifers that probably didn’t make it into the breeding herd,” Perillat says. “So just because of the female liquidation, we’re probably going to shrink a bit (in 2019).”

The 2018 calf crop was estimated at more than one per cent below 2017, and Perillat believes the figure could drop another one to two per cent in 2019.

“Weather, live cattle imports, export opportunities and issues outside the North American economy are expected to combine in 2019 to drive cattle prices”

 

Live cattle

In its recent red meat outlook, FCC predicted Canadian feedlots would again import more live cattle from the U.S.
Canfax adds Canada’s 2018 total live cattle exports were near the smallest level since the border re-opened in 2005.

That might change: U.S. herd expansion is slowing, and might only be one per cent higher in 2019 versus three per cent in 2018, Perillat says.

Beef demand

A 4.5 per cent increase in projected 2018 beef exports were supported by larger beef production, but 2019 exports may be restricted unless more beef is produced domestically, Canfax says.

The sector is pinning its hopes on Asia for additional demand. CPTPP provides Canada a tariff rate advantage that can help displace the U.S., FCC says. Japan, Canada’s second largest beef export market, typically imports about 30 per cent of its beef from the U.S., FCC notes.

Volatility

“Outside market factors like the North American economy, African Swine Fever in China, still uncertain geopolitical outcomes in regards to U.S. and China could all make for volatile markets,” says Anne Wasko, market analyst with Gateway Livestock Exchange.

But a Canadian dollar under US$0.77 would be supportive for the cattle sector, Perillat says.
FCC forecasts an average of US$0.75 for 2019.

Eastern Canada

Ontario struggled compared to Alberta, which experienced the highest beef cattle prices in North America in 2018.
Limited packing capacity, large carcass weights and U.S buying pullbacks undermined Ontario values, as well as Quebec’s, Perillat says.

Bottom line

Weather, live cattle imports, export opportunities and issues outside the North American economy are expected to combine in 2019 to drive cattle prices. Greater price upside is forecasted for the western beef cattle sector in 2019 versus the eastern beef cattle sector.