Economics on the Border Holding Cattle Back

Fed cattle prices are bouncing between the upper $70s and low $80s, a level where Cattle-Fax expects them to range for the next couple months.  Helping hold prices in that range is carcass weights which are approaching record highs for this time of year, said Cattle-Fax analyst Mike Miller.  “We do predict we are going to be getting pretty heavy going into the fall,” he said.

At the current rate, Cattle-Fax says it is possible that fall carcass weights could reach 850-855 pounds.  This would break the record of 844 pounds set in 2004.  The spring low for carcass weights this year was 780 pounds.  Every pound of carcass weight is equal to adding 1,000 head per week to the slaughter total. 

Miller said that the Denver-based market analysis firm doesn’t expect the reopening of the Canadian border to have a major impact on the markets in the next six months, although there obviously will be some.  The most likely place it will be felt is in the feeder markets this fall, where prices will be slightly lower but still profitable.  In fact, Cattle-Fax sees the cow/calf sector being profitable for two or three more years, and possibly longer if beef demand remains strong.

However, with current cattle feeding losses near $100 per head and projected to go higher, this will pressure fed and feeder calf prices as the market moves into the fall. 

Still, all the signs point to herd expansion, which is underway.  Jim Robb with the Livestock Marketing Information Center says that when people ask when the market is going to change his reply is it happened two years ago.  The Jan. 1 U.S. herd numbers were up as were the mid-year numbers released in July. And even though Canada’s mid-year herd figures are very high by their standards, several economic factors will probably combine to curb shipments to the United States.

“First, the million head of fed and feeder cattle we would normally bring in they can handle up there now because of their increased packing capacity.  You don’t have to look any further than last week (July 18) for an example.  The market was open.  We got 3,300 head,” said Miller.

From July 18 to Aug. 5, 22,384 head of Canadian cattle had been imported.  Of those, 10,412 were feeder cattle, or 46 percent.

Miller explained that the economics of the cross-border cattle business have shifted.  Prior to May of 2003, a 750-pound steer had to sell for $5/cwt. lower than the same animal in the United States to make the import scenario work.  Today, that figure has to be $8/cwt. less than the U.S. price.  However, the Canadian dollar is stronger today and the cost of feed makes more sense to feed in Canada, which has unused feedlot capacity.  Also, fuel costs and a Canadian trucking industry that realigned itself with other industries following the border closure make transportation costs higher.  Plus there are $1.50 to $2 /cwt. fees associated with crossing fees.

“We have found the certification procedures are pretty onerous,” said Dennis Laycraft, executive vice president of the Canadian Cattlemen’s Association.

“They have the majority of their access back,” Miller said.  “Boxed beef has been coming in and now they can ship live cattle under 30 months.”

Prior to the border reopening, Canadian boxed beef shipments to the United States were running near record levels, as they did in 2004.  Credit that to an increased Canadian packing capacity.  Prior to the 2003 case of BSE in Canada, normal slaughter was running at about 66,000 to 68,000 head per week.  Currently, that figure is 88,000 head per week and capacity by the end of the year will be at 97,000 head per week.  Laycraft expects that when all expansion is finished, capacity will be near 106,000 head per week, a figure that makes Canada almost self sufficient.

As in the past, economics will dictate which way the cattle flow, and presently there isn’t a lot of incentive for them all to come south.  In fact, feed costs may entice more U.S. cattle north.  That movement could be aided by the final Canadian bluetongue vector study, which is in review.  U.S. cattlemen for years have cited Canadian bluetongue regulations as a trade barrier, and the Canadian Cattlemen’s Association has worked to remove them.