MARCH 2017 • COUNTRY LIFE IN BC
Risk management key for beef producers Volatility on the rise as US meat production gives consumers options
by TOM WALKER
WILLIAMS LAKE – Noted cattle market analyst Anne Wasko of Gateway Livestock in Alberta spoke to ranchers in Williams Lake and Vanderhoof about trends and trade opportunities in beef markets last month. Her presentation was part of Farm Credit Canada’s Ag Knowledge Exchange events. “I’ve been contracted to
present on behalf of FCC for the last 12 years,” Wasko explained in a follow-up interview. “I have been across the country this winter for FCC.” Wasko spoke to producers about supply, demand, feed costs, price outlook and trade. “It was mostly cow-calf
producers who attended those two meetings,” she says. “The message right now is to manage your risk,” says Wasko. There are day-to-day and month-to-month price swings caused by a lot of external factors, she notes. “The big adjustment in calf price is mostly behind us now but 2017 prices are still expected to trade lower than 2016.”
The supply of cattle continues to be high in the US. Beef cow numbers have grown by over two million head, leading to a 1.5 billion- pound increase in beef production in 2016, with another billion-pound
increase forecast for 2017. On top of that, an additional billion pounds of US pork and two billion pounds of broiler chicken will enter the market in 2016-2018.
“US consumption of beef, pork and chicken needs to increase 12 to 14 pounds per person to absorb this,” Wasko points out.
“Beef demand (the price consumers pay for the amount of beef they eat) has been strong,” says Wasko. “But that will be put to the test in 2017 as North American supplies increase.” Canadians consumed 8% less beef in 2015 but pork consumption was up 10% due to supply (less beef and more pork in 2015) and the resulting retail price relationship between the two. The retail price of beef has fallen 8% from a peak last spring but will still need to fall even further to remain competitive with other proteins.
“2016 will have been the
worst margin year on record for cattle feeders,” says Wasko. “On average, margins for feeders saw $230 per head losses.” There was a record corn
crop in the US, Canadian grain production was up six percent and Alberta barley prices have eased 25% from last year. However, these lower feed costs are already reflected in current cattle prices.
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MAR 11 HARVEST ANGUS MAR 18 ANGUS ADVANTAGE MAR 25 NORTHERN ALLIANCE APRIL 1 BEST BET APRIL 8 VANDERHOOF APRIL 13 WILLIAMS LAKE 80th
BC ANGUS
BRITISH COLUMBIA ANGUS ASSOCIATION
www.bcangus.ca Tom DeWaal2President 250.960.0022 | Carley Henniger2Secretary 587.830.4175
ANNE WASKO “But cattle feeders paid less
for their inventory in the fall of 2016 and margins should be better as they start to bring some of those animals to market this spring,” she adds. The margins for cow-calf
producers in 2016 were reduced by 83% from the record high of 2015. “However, if you were an
average to low cost operator, your margin was smaller but you still should have been on the right side of the ledger,” Wasko says. Following the peak prices of 2014/15, Wasko expects prices will transition lower until the supply/demand responds. She notes that prices have improved 25% from the fall low. Canadian packers bid aggressively to keep slaughter cattle in Canada with Canadian slaughter up 7% in 2016. This is referred to as a strong basis environment. (Prices are closer to their US counterparts.) Trade is a key issue for the
industry, Wasko says. Beef exports took 47% of Canadian production in 2016, up 12% in tonnage. The US, China/Hong Kong, Japan and Mexico are Canada’s top four markets. With the Trans Pacific Partnership (TPP) agreement curtailed, new focus is on the next possible phase of TPP
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discussions without the US. And while the Canadian- European Comprehensive Economic and Trade Agreement is signed,
technical issues still exist, such as whether the EU will accept Canada’s carcass wash process. “That could limit meaningful beef trade for some time,” Wasko points out. Price and margin swings
have been very extreme due to a number of factors that producers really don’t have any control over. “Volatility is much more
extreme than it was five or 10 years ago,” Wasko points out. “Producers need to consider their own risk tolerance and build a plan around that, which might include cattle price insurance, futures and options markets, or forward selling – any mechanisms to protect equity.” “Times are changing. There is much more market movement,” Wasko says. “For many, just putting cattle out on range and collecting the calves in the fall without a game plan leaves too much room for surprises. In that case, you had better have a very friendly banker in your back pocket.”
ANGUS BULLS
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