If you’re mulling whether to buy calves to put on grass this spring, keep in mind that there’s a great big red blob of uncertainty looming over the market.
To see it, go to the U.S. Drought Monitor website at droughtmonitor.unl.edu. The map on the home page shows much of the Midwestern Corn Belt and major cattle-producing states is coloured red or rust red — the colours assigned to the two worst drought categories. It is also the region that sucked up huge quantities of hay from the Prairies and sent feed grain prices to the moon last year.
No one knows how much longer the drought will last but experts say North American cattle prices going into the fall are likely to remain strong no matter what happens. If it rains, calves in backgrounding lots now will go to grass and hit the market at the usual time next fall. No rain, and they’ll show up earlier.
“But if a whole pile of calves go into the feedlot right now in the U.S., it may be good to buy grassers to fill that void in August or later in the year,” Canfax market analyst Brian Perillat said at a recent meeting in Ste. Rose du Lac, Man.
Cow-calf producers needn’t be concerned too much about it, however.
“Supplies are tight no matter what happens. There’s going to be way less calves in 2013,” he added.
With the U.S. cow herd continuing its 14-year trend lower by a further three per cent, and the country’s exports continuing to soar due to the devalued greenback, the massive hole in North American beef supplies will take several years to fill, he predicted.
That’s because heifer replacements for the 30-million-head herd south of the border are up only one per cent, and even a hefty expansion of Canada’s four million head won’t be enough to fill the gap.
Many ranchers south of the border are desperately trying to hang on despite high feed costs. If they are forced to fold due to a second year of drought, the resulting shortage of cattle will push prices skyward in the coming years.
“If they don’t get the rain, there could be another flush of cattle hit the market. Then next year, the beef shortage will really show up,” Perillat said.
But producers will continue to face high feed costs. Ethanol still soaks up 40 per cent of the corn crop and with last year’s harvest down by a quarter, even a perfect growing season in the Midwest won’t mean a return to $3-per-bushel corn.
Meanwhile, U.S. beef net exports have shot up to 750 million pounds a year, a sharp reversal from 2006 when the country imported two billion pounds. That shift is equal to taking Canada’s total beef production at 2.8 billion pounds off the market, said Perillat.
The liquidation trend has ended, but Canada’s herd is down 25 per cent from the peak six years ago. When the Jan. 1 Statistics Canada numbers come out in February, it is likely to show that heifer retention numbers only rose 50,000 head for a total of 600,000.
“Historically, we’re still very low,” said Perillat.
Five years ago, everyone thought Brazil would dominate world exports, but higher prices for corn and soy have swallowed up acres that would have been used for beef production.
Richer now than they were, Brazilians are eating more beef and the country’s exports have dropped 20 per cent in the past five years.
Oddly enough, India is the wild card in the international beef trade. The cow may still be sacred, but outcrosses with water buffalo and dairy cows have opened up a niche that doesn’t offend Hindu sensibilities.
“India in 2013 could potentially be the biggest beef exporter in the world,” said Perillat.