Canada cattle herd to shrink despite trade wins

Canada’s cattle herd should keep shrinking for several years, making it tough for the No. 3 beef exporter to capitalize fully on new overseas opportunities, the head of the country’s new beef industry group said.

The Canadian herd fell to an 18-year low of 13.87 million head midway through last year, even as Chicago live cattle futures prices were trading near record highs

In recent months, South Korea ended a nine-year ban on Canadian beef, Canada and Mexico won a fight with the United States over meat labeling and smaller markets such as Vietnam and the United Arab Emirates swung open to Canadian cattle.

Japan could soon expand Canadian beef access and Canada still hasn’t capitalized on China’s lowered beef restrictions.

But while there are more potential overseas buyers for Canadian cattle and beef than in nearly a decade, Canada does not have enough of either to supply them all.

"It’s going to take time to rebuild that herd and the market signals are going to have to stimulate that investment on behalf of the producers," said Robert Meijer, president of Calgary-based Canada Beef Inc., who expects the Canadian herd to keep shrinking for two to three more years.

Canada Beef, run by ranchers, packers and processors, formed last year to promote Canadian beef.

Domestic, U.S. and Mexican buyers are Canada’s priority markets for their close proximity and favourable currency tradeoffs. Before exporters ship scarce supplies to new overseas markets, they want to ensure it is worth their while and that risks are low of new non-tariff barriers emerging, Meijer said.

"The reality is, going into any of those export markets means displacing another export market or our home turf.

"It remains to be seen how aggressive the Canadian packers and the exporters choose to (move) back into some of these markets."

Long-term decline

As Canada’s herd shrinks, U.S. cattle inventory also has fallen to its lowest level since the 1950s. While severe drought in Texas has accelerated the U.S. decline, Canada’s herd has slipped due to factors including the strong Canadian dollar and high grain prices.

Aging demographics are also holding numbers in check, as Canadian ranchers retire and may not have children to continue the business, Meijer said.

Canadian packers are also running slaughter plants under capacity because their cost of buying cattle has risen faster than the higher price they can collect for meat, Meijer said. As a result, demand for cattle from beef packers and exporters such as Cargill and XL Foods might disappoint farmers eager to cash in on high prices after leaner years.

"It takes time for the industry to react (to improving conditions), but from my perspective, there’s some right-sizing going on too," Meijer said of prospects for the herd.

Trade outlook

Although Canada lacks the beef and cattle supplies to satisfy all its markets, the industry is eager to open more of them to avoid reliance on only a few.

Japan is one of the highest priorities, Meijer said, since the high-paying market currently accepts only Canadian beef from cattle under 21 months of age — restrictions traced back to Canada’s first finding of BSE in a domestic cow in 2003.

"It is frustrating when we’re dealing with trade barriers that fall way, way outside of science," he said. "There’s huge potential in Japan."

Japan said last month it was reviewing its ban on certain cuts of beef from several countries, including Canada and the U.S.

China committed in 2010 to resuming trade in Canadian beef and tallow. However, commercial trade has not resumed because of its standing restrictions on beef containing the growth promotant ractopamine.

Cargill and XL plants in Canada are cleared to ship to China, but to do so, they would have to incur the expense of segregating ractopamine-free cattle from other types, Meijer said.

"So when you’re short cattle in the market like we are, why would you go to the effort to chase China? You could sell it into the U.S. and make more money."

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