Wednesday, 6 April 2011

A Bull Market

In most businesses market news like this would mean quickly gearing up to produce more.  But the cattle business is a little different, it takes years to go from  breeding a cow to selling a fully grown market steer, and who knows what the price will be then.

What we do know is that the U.S.cattle herd is at its lowest level since 1952, and beef consumption is on the rise as recession weary consumers start eating out again, so the simple law of supply and demand is kicking in.  Cattle prices on futures markets are up 30% from a year ago. Prices could strengthen even further as Japan, already a big importer of Canadian beef,  starts  to replace the domestic production that's been lost because of the tsunami. Farmers have been unable to care for their livestock near the Fukushima nuclear disaster (see last post.).

It may be for the wrong reasons but the price hike is very good news for Maritime beef producers who've stubbornly stayed in business through years of losses since BSE was found in one Alberta cow in 2006, closing the U.S. market for months.  It will put more pressure on the Atlantic Beef plant in Albany PEI, the region's only federally inspected slaughter plant. It will have to pay more for cattle and hope it can recover the higher costs selling to the supermarket chains, and the food service industry.

The remarkable thing is that the price has recovered so well despite a high Canadian dollar. The North American price is set at the Chicago Board of Trade in U.S. dollars. The last time it was this high in Canada , the dollar was worth less than 70 cents, which gave Canadian cattlemen a huge advantage

(This currency business is completely counter-intuitive when it comes to trade. When the Canadian dollar is low, Canadian exporters make out like bandits because the one U.S. dollar could be worth $1.30 Canadian. Now with the Canadian dollar so high - should be a good thing right?- Canadian exporters put less money in their pockets.) 

In terms of sheer numbers there were always more beef producers than any other type of farmers on PEI. A large number were small what's called "cow-calf" producers, the farmers who breed the cows and sell the calves to the feedlots. Many, many potato farms had small feedlots, the cattle could be fed cull potatoes, and farmers want the manure to improve soil fertility.  Most of these feedlots are closed now, and dozens of cow-calf operators quit as well.  Most of these farmers had off-farm jobs, and enjoyed the work when there was some money to be made, but not when it become a very expensive hobby.  And don't go looking for a loan from the cattle farmers still left. PEI hog and cattle producers borrowed  $17.4 million dollars from the Advance Payments programs, and it will take years to pay this back and start inching into the black again.

The large food retailers are already importing a lot of cheaper beef, mostly from South America. If North American prices continue to rise, expect that trade to increase. Even so consumers should expect to pay more for the summer BBQ's.  And good for you if you're buying beef from the Maritimes. It may cost a little more, but you'll help keep your neighbours on the land a little longer, and that's good for all of us. .

No comments:

Post a Comment