It’s been a slow and steady trend and there is no indication that it has bottomed out yet — that being the decline in the North American cattle herd.
The industry has been adjusting to the trend, mostly with the closing of smaller feedlots. Packers have responded by offering higher prices for fed cattle which helps reduce the flow to U.S. markets.
Although that needs to be taken into context, American COOL legislation has already had a significant impact on reducing exports, which probably had a dampening impact on the increase in Canadian fed cattle prices.
The point being that even though cattle prices are considerably higher in the U.S. market, American buyers are not actively seeking out Canadian supplies being COOL regulations and paperwork make the import process restrictive and onerous.
That’s benefitted Canadian buyers being they need only offer prices to meet the aggravation threshold. That’s the price point where COOL restrictions either make it worthwhile or not, to export to the U.S.
It’s truly become a non-tariff barrier that defies the spirit of the North American Free Trade agreement (NAFTA).
It should be said that recent increases in cattle prices have also been impacted by severe winter weather across most of the cattle-producing areas of the continent.
That’s seen packers scrambling to line up supplies to keep their doors open. Feedlots have responded by bidding up short-term heavier weight feeder cattle. Those cattle better be well-hedged, being fed prices traditionally decline by late spring and early summer.
I expect there are speculators gambling that the decline in cattle numbers will moderate the spring decline in fed prices.
It’s interesting to observe that seasonal price fluctuations and marketing strategies seem to continue even whilst cattle production continues to decline.
Pricing continues to fluctuate within a shrinking market.
Another factor that brings some instability to marketing strategies is the threshold of price pain that retailers and consumers are willing to tolerate — and it seems it’s constantly being tested as it should.
That’s because consumers start looking at alternative meats once a five pound beef roast gets close to $50.
Retailers are well aware of that market reality and respond accordingly.
Notwithstanding the usual market gyrations and realities, the North American cattle herd continues to decline and affect price trends.
One ponders what the herd number point is that will see infrastructure being drastically reduced across North America.
Such an ominous factor would obviously stem the price trend as it reduces competition.
It’s particularly critical in Canada where the fed cattle market is dominated by two giant processors.
Market gurus try to soothe such concerns by noting that medium-sized packers will take up the slack and offshore export markets will hold up prices.
Be that as it may, those markets also have consumer price pain thresholds and fearsome foreign competition.
Regardless of the extenuating circumstances, one would assume that if the traditional cattle market cycle were to rule, primary cattle producers would now be responding to higher prices by expanding their herds.
It might be happening, but not in numbers to stop the declining trend.
One ponders what calf price it is going to take to get primary producers to significantly increase cow herd numbers.
Some have suggested that point may be $1,200 for a 500-pound calf, but that would put beef out of range for most middle class consumers.
That price might be reached with inflation, but that’s many years down the road.
One factor that is affecting numbers are high grain and oilseed prices, that’s seen more land going into crop production and fewer mixed farmers wanting to raise cattle.
That trend may be tempered by a few years of bad yields, lower prices or restricted market access, but it now seems that crop producers are now large enough to no longer consider cattle as an alternative.
Instead they are savvy enough to fine tune their production practices or diversify into other crops to survive rather than return to the perceived drudgery of feeding cattle every day.
They are also aware that world populations continue to increase and they will need to be fed, that guarantees a steady market for grain and oilseed production.
None of that bodes well for any significant increase in the national cow herd.
— Ahead of the Heard