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Non-Price Factors Challenge Beef

I recently provided the cattle and beef outlook at the Canadian Wheat Board Grain World Conference. Prior to discussing supply and demand forecasts, I gave a brief overview of challenges for the Canadian beef industry. After the session, most people approached me or emailed with questions regarding the preamble rather than the market outlook itself. My main point was the number of non-price factors that are extremely important in the beef sector. I’ve broken the challenges into four groups: food safety, food security, production and consumer demand.

FOOD SAFETY

Food safety involves the three pillars from the Canadian Cattle Identification Agency (CCIA) which are age verification or cattle identification; premise identification; and full traceability of cattle movement. The cattle industry is always at risk of one new bacteria and traceability is necessary in case there is a recall.

Producer education and communication on the three pillars is very important for additional progress in the area of food safety. The CCIA has held meetings in Saskatchewan and Manitoba; after the meetings there is a significant increase in the number of producers going through the CCIA process. Funding for field representatives is also a challenge due to financial constraints. Staffing for these positions is very important to help producers with everything from explaining the program to technological issues.

Premise ID is legislated in Alberta and Manitoba but not in Saskatchewan. This makes it difficult for traceability across Western Canada. Certain auction markets are advertising high prices for non-age verified calves, promoting that producers can get top dollar even if they don’t age verify. This behaviour is counter productive for the system.

FOOD SECURITY

Food security has also become more important with ethanol production consuming a larger portion of the U.S. corn crop. Coarse grain values have become highly correlated with energy prices due to the inelastic demand of ethanol consumption. We have seen how fast corn prices can change within a six-month period. This last year, Canada experienced larger feed wheat production but in a normal year, barley prices also move in line with corn. The world is no longer comfortable with past stock levels of cereal and coarse grains. This can seriously influence feed costs and limit the upside value for feeder cattle.

PRODUCTION ISSUES

The industry is consolidating from packers to feedlots to cow-calf producers. Packers have undergone large capital expenditures in plant upgrades and operating costs regarding pathogen-intervention systems. Alberta packers are always trying to secure labour and these costs are constantly rising. Land is becoming very expensive in Alberta where 35 per cent of the feeder cattle are produced. Cow-calf producers can’t pay for land through beef production. There is also public resistance to factory farming whether at the cow-calf level or feedlot level. Beef production systems are always under the microscope of environmentalists.

CONSUMER TRENDS

Consumer demand is the most important factor after the initial discussion of food safety. With an aging population, the increasing number of cases of diabetes and cancers along with obesity are somewhat negative for beef demand longer term. Increasing health care costs will dictate North American diets over the next five to 10 years, which may temper beef consumptions. For example, studies show that if men eat more than one serving of beef per week, the risk of prostate problems increase significantly.

Canada is also contending with limited offshore market access in the post BSE period. South Korea has opened their border to U.S. beef but not Canadian. This is a larger problem because the U.S. plants shipping to South Korea don’t buy Canadian cattle or limited volumes. Non-U. S. markets are very important for long term sustainability of our Canadian system; however, the U.S. remains the main home for surplus beef.

Usually, the main focus in a market outlook is the price forecast. However, in my recent presentation, these non-price factors opened the eyes of many non-industry people and made them aware of the challenges throughout the Canadian beef production system.

GeraldKlassenanalysescattleandhog marketsinWinnipegandalsomaintainsan interestinthefamilyfeedlotinSouthern Alberta.Forcommentsorspeaking engagements,hecanbereachedat [email protected] or2042878268

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