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The Canadian cattle market had been through some extreme market volatility (both positive and negative) through 2014-2017, but in 2018 market prices traded in a relatively stable range. Calf prices traded in a very flat price range throughout the year and fed cattle price variations were below average. Prices being steady throughout the year, and mostly steady with a year ago were positive, as the North American market continues to face larger cattle supplies and beef production as a result of the herd expansion occurring in the U.S. over the past four years. North American beef production is near record large in 2018 and is projected to have record large production in 2019. Despite seeing cattle supplies increase over the last three years, Alberta steer calf prices in 2018 averaged slightly higher than 2017 and 2016 and are the third highest on record.
Alberta fed prices started the year at $167.44/cwt, which also turned out to be the highest price of the year. Prices traded mostly sideways through the first quarter and had a disappointing second quarter with no real spring rally. Prices were mostly above the five-year average through the first quarter, but were below the five year average in the second quarter. Despite prices being well below a year ago in the second quarter, fed prices held up quite well through the summer, with the summer low being $142/cwt, more than $10/cwt higher than the annual low set in 2017. By the end of the year, fed prices were again in line with last year and the five-year average. Alberta fed prices are projected to average very close to 2017 near $154/cwt, and just slightly higher than the five-year average.
Ontario fed prices were weaker this year, as prices in the first quarter were mostly steady with 2017, and prices through the second quarter were well below a year ago. Similar to Alberta, the summer lows were not as low as 2017, and prices through the fourth quarter were mostly steady, but with a weaker tone. Similar to the last few years, Ontario fed prices were at a discount to Alberta for most of the year. Ontario prices were seasonally stronger than Alberta in late May and June, but it was for a shorter time period compared to the past couple of years.
Western Canadian basis levels were again a positive story for the Canadian cattle market in 2018. Alberta fed cattle prices were at a premium to the U.S. for most of the year, until mid-October. In most of the fourth quarter fed prices moved to a discount to the U.S. market, but just back to a more historical relationship. In 2018, Alberta fed prices will average at a premium to the Nebraska market for the first time in recent history. Alberta fed prices will average almost $2/cwt higher than the Nebraska fed price (converted to Canadian dollars). Compared to the five year average, these strong basis levels added almost $150/head to the Western Canadian cattle market.
Inventories and Production
Canadian cattle inventories had stabilized between 2015 and 2017 around 12.5 million head, with beef cow inventories near 3.7 million. It was generally expected 2018 would be another year of consolidation, but dry weather challenges in Western Canada resulted in feed shortages in some areas, and much higher feed costs. Spring storms in Western Canada also led to higher cow slaughter earlier in the year. These two factors resulted in beef cow culling rates jumping almost two per cent higher than the year earlier at 13.7 per cent. Given the fact July 1 breeding heifer inventories were down 2.6 per cent from 2017, the 2019 calf crop is expected to decline, after the 2018 calf crop was estimated over one per cent below 2017.
Although Canadian cattle inventories have been mostly flat the last few years, Canadian cattle slaughter and beef production have been on the rise. Canadian cattle slaughter is expected to hit three million head in 2018, the highest level since 2010. Fed slaughter is projected to be near 2.5 million head, six per cent higher than 2017, while non fed slaughter is projected at just over 500,000 head, about 14 per cent higher than 2017. Carcass weights in 2018 were generally flat with a year ago, therefore domestic beef production is projected to be up just over six per cent from last year. Live fed cattle exports were down about 30 per cent and Canadian cow exports were up slightly this year, therefore overall beef production including live cattle exports was up only three per cent.
Despite a flat cattle herd, Canadian beef production has been supported by keeping a larger proportion of cattle in Canada. Total live cattle exports in 2018 may be under 600,000 head and be at the smallest level since the border re-opened in 2005. The recent peak in live exports was 2014, when total cattle exports were over 1.2 million head. The interesting development in live cattle trade in 2018 is that both Canadian feeder cattle exports and imports increased. Feeder exports through October were a modest 172,000 head, up 41 per cent from 2017, while imports were up 130 per cent to 142,000 head.
Beef exports have been supported by larger beef production and are projected to be 4.5 per cent higher than 2017, and more than 10 per cent larger than 2016. Total exports are expected to be more than 396,000 tonnes, the largest export volume since 2010. The U.S. remains the largest export market accounting for about 75 per cent of exports. For the second year in a row, Japan was Canada’s second largest export market accounting for about eight per cent of exports. Hong Kong and Macau were the third largest export market, Mexico was the fourth largest, and China rounds out the top five.
Although exports on a volume basis have been larger in the past, the value of exports were record high in 2018 at more than $2.6 billion. This was the third consecutive year of record export values.
Canadian beef imports in 2018 saw the first year over year increase since 2012. Imports are projected to be about five per cent higher at around 181,000 tonnes. The U.S. remains the main source of imports accounting for 64 per cent of imports. The second major supplier was Australia at around 13 per cent of imports followed by New Zealand at just over 10 per cent of imports.
The basis was a highlight for the Canadian market in 2018, and it will be important to follow if Canada can maintain relatively stronger prices, or if the price relationship will move back to more historical levels. The basis levels will likely also impact cattle flows regarding both cattle exports and imports.
As North American meat supplies continue to grow in 2019, domestic and international demand will be critical. Market risk is elevated if trade disputes limit trade and/or policies/ market factors impact the North American or global economy, and ultimately beef demand.
Weather will continue to be a key factor as pasture conditions suffered in 2018, and hay supplies are limited. Alberta also has a feed grain cost disadvantage at the feedlot sector. It will be important to monitor weather conditions and relative feed costs, especially if basis levels are at more historical levels.
The Canadian dollar has had a weaker tone most of this year, and this has certainly supported Canadian cattle prices. The dollar has spent most of the year under 78 cents US, but a dollar over this level or 80 cents would have a negative impact on prices.
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