by Rick WrightSix weeks ago, those producers who asked me for price predictions for this fall were given a forecast of high feed prices, weak cattle prices and a general overall “bear” market. No one could have predicted the positive changes that have occurred since then.
It looks now that the fall cattle market will be much better than first predicted. Cattle producers are always optimists, but there is a real positive feeling in the industry. A number of the fundamentals that drive the cattle market have turned “bullish” in favour of the cattle business over the past few weeks.
Feed grain prices have dropped considerably. U.S. corn prices dropped from a high of $7.90 per bushel to a current cash price in mid-August of just around $5.00 per bushel. Western barley prices topped at $5.00 and dropped in early August to $4.10. With oil prices dropping, the ethanol driven floor price for corn has followed. Feed prices will be higher than last year, but the higher futures market for finished cattle in 2009 will offset some of the higher costs of gain.
The futures prices for finished cattle hit record prices this summer. Deferred cash futures were as high as $1.18. Commodity fund buyers that represent pension funds made both corn and cattle part of their investment portfolios. These are not the traditional investors who use the CME and CBOT for risk management programs. They are short term “profit takers” who enter and withdraw from the markets with little to no concern about the real cash market value at delivery time. These large investors have distorted the real futures prices and made it difficult for the smaller operators to take advantage of the top market prices.
For example, in the beef market when the futures were at $1.15, the average beef prices at the wholesale market would have to average $4.55 per pound to break even. The average price for the first six months of 2008 was $3.87. A price increase of that amount would certainly meet with consumer resistance. As much as we are told to believe that consumers are concerned about origin, animal welfare, production practises, and host of other popular issues, the majority of the blue collar workers make their purchase decisions based on price point compared to similar products. In meat industry, beef competes with pork and chicken. Even though prices for both chicken and pork have increased, they still lag far behind beef in the price department at the retail stores.
Those same Commodity Fund investors drove the corn prices over the top in June. When oil was at $140.00 per barrel, the corn price was approx. $7.00 per bushel. At that price, ethanol producers were losing about 38 cents per gallon in the U.S. At the most efficient plants, the corn would have to been bought at $6.22 per bushel to show any type of profit.
One of the main reasons for the better price predictions is that the United States is short of cattle. The July USDA on-feed report showed that feedlots in the United States were using only 62% of their capacity. Placements were down despite the large number of imports that arrived in the U.S. before the July 15th M-COOL deadline. Marketings were down compared to the same time last year by nearly 7%. The domestic cow kill was 10 –11 % higher in the U.S. Heifer retention for breeding was 2% less than expected. This means that the cattle numbers in the U.S. will not start to increase for the next three to five years.
The American feeding industry will be looking north for feeder cattle this fall. With age still a major factor on beef exports to the Asian rim and Korea, Americans will be looking for more age verified cattle from Canada and less from Mexico. They like our quality and our genetics.
The final interim rules for M-COOL were published and we await the results of the 60-day comment period. No one is sure what the final impact of M-COOL will be on the Canadian cattle. It is my feeling that if there are any major negative results for Canadians it will directed by the American packers. If the final interim rules are approved as is, they are very flexible compared to the 2002 version.
Canadian cattle fed and slaughtered in the U.S. will be labelled “Product of USA and Canada.” Finished cattle from Canada delivered directly to the plants for slaughter will be labelled “Product of Canada and the USA.” Meat products from cattle fed and slaughtered in Canada will be labelled “Product of Canada.” This means that it may be harder for Canadian finished cattle to be exported to some of the plants.
We also know the following: products used in the food services industry are exempt from COOL rules. This means that restaurants do not have to label or inform their customers as to the origin of their beef. Processed beef products are also exempt in most cases.
As for labelling in the stores, most the rules are covered under existing federal law. All types of labels currently being used are approved including “check box” labels. There are no hard rules on size, location, or type as long as the label is legible, conspicuous and easy for the consumer to read. Meat from different origins can be mixed in the coolers provided the store has signage advising consumers there could be multiple countries of origin products in the display case.
Canadian feeder cattle will still have to be branded with the “CAN” brand and have a National ID tag. Buyers and sellers of all products will have to have access to information agreements in the event of any audit. The new record keeping rules are much easier than the 2002 version. Paper work no longer has to follow the product through the entire ownership chain.
American feedlots are lining up to purchase Canadian feeder cattle. Alberta looks like they will be a contender again this year. Quebec looks to be aggressive buyers of some classes of Manitoba cattle.
In June I wondered if anyone would want cattle to feed this year but today, Aug. 15th, I feel pretty good about the fall run. I would expect prices to be very close to last year on most classes of cattle with a tighter spread between the steers and heifers this fall.
Until time, good luck and good marketing.
- Rick
No comments:
Post a Comment