Canadian herd sizes stand pat despite expansion south of the border

By Tim Kalinowski, Staff Writer

With cattle exports to the States down, more calves being backgrounded in Alberta, fewer head coming into the auction mart and less land available for cattle grazing than in timespast, Brian Perillat, Manager and Senior Analyst at CanFax, says it’s really no surprise cattle producers north of the border are not following their southern neighbours and expanding their herd sizes at an accelerated rate as yet. However, having said that, there are definitely more cattle in the marketplace this year.

“It’s been interesting because we keep talking about a shrinking herd in Canada; less feed cows and that sort of thing,” says Perillat. “But realistically, here in 2015/16 we actually have a few more cattle around, just because we didn’t export as many last year. A lot of the 2015 calf crop stayed in Canada and they are working them through the system, and we are seeing more marketing, especially at the feedlots. They are seeing a lot more cattle getting processed and marketed here in Canada.”

Auction mart numbers in Alberta are down seven per cent over last year to date, acknowledges Perillat, but it has very little to do with overall cattle numbers in the province.

“We are seeing more feedlots align with backgrounders in Alberta,” states Perillat. “These days a feedlot may even go buy the calves and put them into a backgrounding lot for custom feeding. Then they are going to move straight from the backgrounding lot to the feedlot. We are also seeing that alignment between feedlots and meat packers.”

He says a major reason more cattle weren’t exported to the States last year was due to a combination of things: Huge incentives from Canadian packers to keep cattle at home and a significant downturn in the feedlot industry south of the border.

“In 2015, in some instances, we were higher priced than the U.S. because we had a shortage of fed cattle in Canada,” he explains. “That encouraged the packing plants to strengthen their basis, and try to keep more cattle in Canada for their processing. The province’s feedlots were also quite profitable through most of 2015; whereas the U.S. lots lost a bunch of money. So they weren’t as aggressive on the Canadian market.

“Generally Canada is at a discount to the U.S. just because we’ve got transportation costs,” continues Perillat. “Basically that’s the basis comparing in Canadian dollar terms or U.S. dollar terms. The U.S. sets the long term average and the Canadian market is really a U.S. price adjusted for the dollar less transportation… Last year, rather than being, say, $10 or $12 under the U.S. market sometimes we were at par with or perhaps only five dollars under the U.S. market. So it didn’t pay for the U.S. guys to come up here for calves.”

Canadian herd sizes have only seen marginal increases this year whereas an expansion of herd sizes is well underway in the U.S. Perillat says it isn’t a question of demographics as to why that is happening, but more a question of land use and pasture availability.

“The U.S. has the same demographics (older producers) challenges as us, if not more. So that’s not really a factor, but the land use is a factor for sure. In Canada because of the implications of BSE and other things, we lost a lot of forage acres to grain. For a lot of farmers cows are now in the rear-view mirror, and they are not really looking to get back into cattle or transfer that land use back into grass.

“In the United States, on the other hand, they had a huge drought in 2011 and 2012. And they liquidated a pile of cattle. So when the rains came back they had a ton of land that’s good for grazing. They didn’t transition it out of grass… It was just sort of an easy expansion down there while in Canada it has been a bit different.”

However, Perillat says the signs are starting to show positive for modest Canadian herd expansion in 2017.

“If you look at the total Canadian herd, we’re up 1.3 per cent as of the last StatsCan report, and most of that is due to fact we kept more feeder cattle in Canada. Beef cattle are up only about 0.3 per cent, so very minimal. On the positive side, they are estimating that breeding heiffers are up about 4.5 per cent.”

Perillat says producers can also expect decent prices this fall, but the market right now kind of represents a mixed blessing on that front.

“We’re not expecting a huge decline in prices this year like last year,” states Perillat. “But this year it’s kind of a different level where guys are fighting the market. Prices are decent for calves, but they are not anywhere near where they were a year ago (before the drop). So that kind of gets more guys looking at whether or not they should be backgrounding their calves or looking at different options for marketing their calves.”

Perillat expects Saskatchewan and Alberta producers should make out alright in the end; if they keep a few important things in mind.

“Two big things that have shifted this year is we have seen a huge drop in feed costs. It looks like there is a lot of feed grain around western Canada, and that certainly supporting calf prices this year. If prices aren’t too great, and they got a lot of feed around, producers might background more cattle and that may slow the movement of feeders to market this fall.

“The other big thing is the Canadian dollar. If it stays under $0.80 U.S. things shouldn’t be too bad. But if the dollar starts creeping over $0.80 again that will also make a bit of dent in calf prices as well.”