Fed cattle prices in Southern Alberta have been trading in the $96 to $98 over the past couple weeks. Stronger Canadian wholesale values along with steady export demand have resulted in the firmer tone. The Canadian dollar has been fluctuating between 77 and 81 USD cents allowing opportunities to lock in the exchange at some decent rates. The U. S. fed cattle market remains sluggish with fed cattle trading at $81 in early April. Despite the lower numbers on feed, the U. S. demand situation remains sluggish. I’ve had many inquiries in regards to beef demand. Many cattle producers have access to on feed numbers and beef production estimates but have a difficult time when it comes to the demand equation. Despite lower wholesale values in the U. S., we have actually seen choice beef prices higher than year ago levels on retail shelves. Recent U. S. data suggests beef demand from December to February was up 0.75 per cent over year ago levels.
Beef demand is highly correlated with consumer incomes and expenditures. A recent study by James Mintert from Kansas State University suggests a one percent increase in spending equals a 0.9 per cent increase in beef demanded. This is fairly significant given the current economic situation. U. S. March unemployment was reported at 8.5 per cent, up from 8.1 per cent in February and could reach 11 per cent by the end of the year. Many of these lay offs are higher paying jobs such as in the financial sector.
Consumer confidence remains near record lows reflecting the degree of financial optimism and potential spending patterns. Consumers are having a difficult time justifying any extra spending. In addition to the large unemployment number, many companies are freezing pay, cutting back pay or cutting back hours for regular workers. Families are living on less income and limited income increases in the near future. This is where the price of competing meats comes into play as well. A family’s spending on food products is usually quite consistent from month to month but some rough data suggests this has decreased by 15 to 30 per cent depending on the income bracket. In many cases, this also suggests that less healthy items are being purchased.
Beef is considered a secondary item, which means that is consumed by people with average to above average incomes. Reports from major casinos and resorts in the U. S. suggest that traffic is down nearly 25 per cent from normal for this time of year. Places like Vegas are a symbol of corporate greed and excess. Therefore, many companies are having their internal company meetings annual meetings near their hometowns as they want to preserve their image. The whole psychology during this recession is to make the company
Tough economic times globally are affecting consumer choices and reduced food spending by 15 percent.
look like a friend of the average person and empathize with their financial situation. Company expense accounts are also being cut back. This is extremely noticeable in second tier restaurants, the ones just above fast food.
Another factor influencing beef demand is safety and nutrition. Age verification and Country-of-Origin labelling will help increase export demand longer term. Many producers are frustrated with the added cost of production and new technology that is required. I have traveled in Europe, the Middle East and in Southeast Asia. One general problem associated with the average Western Canadian farmer is that he thinks he is the customer. Think of a man going into a GM dealership and the sales person telling him what type of truck he will buy. This is just unimaginable. Traceability back to the farm gate and age verification is extremely important for the international consumer.
Traceability and Age Verification are also food security issues in case there needs to be a product recall. Unfortunately, there are always new diseases and toxins and pesticides being used. The next step will be to trace the feed used in beef production. Therefore, the grain farmer also has a key role in this process because record keeping is becoming more important to securing market access.
In conclusion, consumer expenditures are highly correlated with beef demand. There are certain production practices that the individual can do to enhance market access. Some of these production practices will help gain entry into niche markets. Other procedures, such as age verification will help gain access into broader markets.
Gerald Klassen analyses cattle and hog markets in Winnipeg and also maintains an interest in the family feedlot in Southern Alberta. For questions or comments, he can be reached at [email protected]or 204 287 8268.
The material contained herein is for information purposes only and is not to be construed as an offer for the sale or purchase of securities, options and/or Futures or Futures Options contracts. While the information in this publication cannot be guaranteed, it was obtained from sources believed to be reliable. The risk of loss in futures trading can be substantial. The article is an opinion only and may not be accurate about market direction in the future.