Cattle Prices Set New Records;
After months of debate,
U.S. authorities have taken the first important steps to end the
summer-long ban on Canadian beef. The ban was first imposed on May 20,
when a single case of BSE, or "mad-cow disease," was discovered in the
province of Alberta.
Canadian exports are initially being limited to boneless beef from animals less than 30 months of age,
and to other "low-risk" products that have never been associated with
BSE.
For now, Canada will not be able to export live cattle to the U.S.
However, trade should eventually be extended to cattle under 30 months of age and, later, to
cattle older than 30 months. The USDA began issuing new import permits
for approved products in September after announcing the policy change
on August 8.
As part of the new policy, the USDA has also begun a voluntary program in which U.S. packing
plants can certify that they will export beef only from cattle
slaughtered in the United States. This certification program responds
to the concerns of Japan, which initially insisted that it would block
U.S. beef if the border were reopened to Canadian products.
ContiBeef Market Risk Manager Tommy Beall notes that the delay in reopening the border was
mainly the result of pressure from Japan and South Korea, both major
importers of U.S. beef, and that most U.S. producers favor renewed
trade. They also recognize that the Canadian and American beef
industries form a single, integrated system.
In particular, U.S. feedlots typically receive large numbers of Canadian feeder cattle in
the fall, and both feedlots and packers in the U.S. rely on Canadian
livestock to operate at peak efficiency. Under normal conditions, the
United States imports about 5% of its live cattle and 5% of its beef
from Canada.
Though limited for now, the resumption of trade is a welcome development for the Canadian beef
industry, which typically ships about half of its production to the
U.S. While Canadian slaughter has recently moved closer to normal
levels (60,000-70,000 head per week), the industry continues to be hurt
by the ban on live cattle exports. This has led producers to place
fewer cattle on feed and caused on-feed inventories in Western Canada
to fall by 42% since last September.
Overall, cash fed prices are down nearly 50% from pre-ban levels, and Canadian beef producers have
lost hundreds of millions of dollars over the last four months.
Thousands of other businesses that depend on the industry have also
been badly hurt.
By contrast, the U.S. industry has fared far better than expected. Feedlots have filled the
gap caused by the loss of Canadian cattle, and both feedlots and
packers have benefited from the absence of Canadian exports on the
world market. Meanwhile, prices have remained exceptionally strong,
reaching a record high of $85/cwt. in early September and climbing to
an astounding $90/cwt. this past week.
Tommy notes, however, that today's high prices cannot be explained solely by the Canadian
situation, and in fact have more to do with basic supply and demand.
"It's mainly strong demand that has driven prices higher," he says,
adding that some of this
strength
has been due to the popularity of the high-protein Atkins Diet and to a
generally more favorable view of beef by American consumers.
Whatever the cause,feedyards have been taking advantage of the higher prices, and
marketing cattle earlier and at lighter weights.
As a result, U.S. cattle supplies have dropped significantly over the last year. Supplies will
also decline for normal seasonal reasons this fall, and could decline
still further if the cattle industry enters a rebuilding phase, as some
observers expect. In this case, producers will hold back more heifers
as breeding stock and thus further reduce supply in the short and
medium term.
"I think we'll see less cattle in front of us to the next six to eight months. Demand is very
strong and supply is as tight as it has been in years," says Tommy, "so
the outlook is bullish in almost any scenario."