Calf prices are strong, but the road to recovery will be long for many

Strong domestic and international demand and declining supply are boosting North American beef prices, but cash-strapped ranchers are still struggling.

Calf prices at the end of September were about $272 per hundredweight, up 21 percent from a year ago, Canfax CEO Brenna Grant said.

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He said prices are the best since 2014-15, but grain prices are falling “while keeping things under control”.

“Both in the U.S. and Canada, there is definitely competition among feedlots to fill pens this fall,” Grant said. “I think we have the potential to hold prices at current levels while the futures market is on the strong demand side.”

He added that the demand forecast is good, as North American beef production could decline by four percent in 2023.

Cattle prices in Alberta rose 15 percent in July from a year ago to just over $165 per cwt, the second-highest provincial price in Canada, according to the provincial government. In July, calf prices increased by 8.3 percent year-on-year and reached $196 per hundred weight.

Grant noted that prices are typically weaker toward fall calves.

The cost side is another story. After last year’s drought, feed prices reached record highs. However, the prospect of better yields pushed barley and corn prices lower in early July, bringing new momentum to the sector, Grant said.

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“It was mid-August when guys were saying, ‘Hey, we’ve got a really strong futures market for cattle with this cheap feed grain. We can pay more for calves.”

“And it’s coming down to strong demand that’s really driving the beef market.”

Demand traces back to consumers. Grant said that during pandemic quarantines, people around the world have switched from eating beef in restaurants to cooking it at home. Change continued.

“So we have really strong global demand for beef,” he said. “On the supply side — because it’s equally a supply story — is the fact that the U.S. is starting to cull cow herds in 2019. Now they have decreased by about six percent.

“Some are hiding what future supplies will be because we have drought-induced deployments. We managed to get rid of the backlog of COVID.”

Grant said slaughter supply will be further strengthened in the fourth quarter.

“We’re looking at declining beef supplies in both Canada and the U.S.”

In early July, Statistics Canada reported a 3.2 per cent drop in Western Canadian cattle stocks to 9.5 million head. Alberta reported an increase of up to 1.4 per cent, although it was expected to be larger in 2021 due to drought, the provincial government said in its latest report. He noted that the number of breeding heifers was down in the western provinces, with Alberta down 9.4 percent.

Still, high prices don’t mean boom times for the beef industry, Alberta Beef Producers officials say. Chairwoman Melanie Wowk said operating costs remain high and farmers are still cash-strapped.

“If people don’t get the money they need to make some of their payments and dig their way out from last year, I think we’re going to lose a lot more people,” Wowk said. “If cow prices recover and are relatively strong this year, I think more people will sell.”

ABP vice chairman Jason Hale added that higher calf prices don’t necessarily mean more money in farmers’ pockets, as feed and fuel prices remain high, along with the general cost of living.

“If we hadn’t seen the high prices from last year, we would have seen more and more people leaving the market,” he said.

Can beef producers optimize their operations in current market conditions? That’s a tough question, Hale said. Farm economists usually recommend herding when prices are strong.

“It’s hard because we all have debts to pay,” he said. “In the last few years the bills have increased so people may have to sell more calves than usual. I personally know that I usually sell most of my calves. I will do it again to take advantage of these high prices.”

What will happen next spring is anyone’s guess, Hale said. It depends on the availability of feed.

“I know I won’t be able to keep the whole bunch because I have to make sure I have enough feed to get me through the winter,” he said. “And if it’s a tough winter — cold and lots of snow — you need more feed.”

He advises producers to stay current on industry trends and market movements, including those from his organization. He posts weekly Canfax reports along with industry news and a podcast at www.abpdaily.com.

“We can never stop learning from other manufacturers,” Hale said.

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