FCC’s 2023 Cattle and Hog sector outlook

Prices continue the last two years’ growth trend for cattle and hogs. In Alberta and Ontario, steer prices will climb above the average 2022 price and above their five-year averages, which they’ve lagged recently

The robust prices will be a big reason margins in the cow-calf sector are forecast to be strong in 2023 as they continue to climb above the good margins of 2022.

Feed costs will again challenge profitability in the feedlot sector, especially for operations that purchase their own feed. Feed costs are declining from last year’s highs, but they still easily exceed the five-year average (Table 2). Overall, the sector is expected to see a YoY improvement.

 “With Canadian exports to China quickly dropping YoY, suppliers here will have to find new buyers in other markets”

Isowean profitability projections show Ontario and Manitoba will be close to breaking even and their five-year averages. Farrow-to-finish operations, on the other hand, will see margins gain significantly over their five-year averages in both regions, but especially in Manitoba, where lower feed costs provide some relief.

Trends to monitor in 2023

1. Contraction in cattle herds boosts short-term production but will deplete the supply

Over the last year, producers have sent more heifers to slaughter in both Canada and the U.S. as a response to drought conditions in the U.S. and extremely high feed costs. Heifer slaughter as a percent of total slaughter has been above 29% since 2020, a level at which herd size contracts the following year. During 2022, the heifer share was a decade high at 30.4% and is near the record rate of 32% set in 2004.

As reported in the USDA Livestock, Dairy and Poultry Outlook (December 2022), roughly 69% of the U.S. cattle herd is in drought-stricken areas, a 33% YoY increase. The increased heifer slaughter has led to the largest contraction of the North American herd in a decade (Figure 1), with U.S. cattle inventory down 4% YoY as of January 1, 2023. The full contraction will be official when the count of Canadian cattle as of January 1, 2023, becomes available.

Figure 1: North American cattle herd set for contraction

Sources: Canfax, Statistics Canada, USDA, FCC Calculations

While sending heifers to slaughter improves short-term beef supplies, it will have far-reaching consequences for beef production in North America. In the U.S., in 2022, beef production was marginally down YoY while it’s forecasted to decline another 4% this year. Canadian beef production to date is up YoY (10%). The liquidation has meant higher beef production in the short term, which will slow as fewer cattle are available. The USDA forecasts a 1.4% overall contraction for Canadian beef production for 2023. That has implications for North American exports (detailed below in the third trend to monitor).

Canadian pork production is forecast to hold steady at 2022 levels. With Canadian exports to China quickly dropping YoY (Figure 2), suppliers here will have to find new buyers in other markets.

Read the full report at here