Brian Perillat, beef outlook:
These price shifts are extreme, especially considering that even in 2003, the year of BSE, prices dropped $0.44 a pound or 31 per cent from the spring high to the fall low.
Prices Swing
Despite calf prices being at the third highest level ever this fall, it is this major price decline that has many producers disappointed and uncertain about the future.
A rapid and significant increase in red meat production across North America has been the main culprit of the price decline. United States beef production increased over five per cent in 2016, while Canadian beef production increased 10 per cent. In addition to the increased production, U.S. exports have been slow to increase, which has left substantially more red meat to be consumed locally.
“Meat production is expected to continue expanding, especially for beef. For pork, we could see packer margins drop… with more capacity than available hog supply”
Continued Expansion
Meat production is expected to continue expanding, especially for beef. In the latest United States Department of Agriculture projections, 2017 beef production is forecasted to increase another 4.2 per cent, while Canadian beef production could also see a similar increase. While the cattle market saw a seasonal rally toward the end of 2016, the trend for cattle prices remains down as we move into larger cattle numbers in 2017.
Loonie Value
Another important variable to watch is the Canadian dollar. The dollar has been showing weakness at the end of 2016, and can help offset some of the negative tone for cattle prices. There is likely going to be some volatility in the U.S. market, and it will be important to watch both the Canadian and American currencies. For example, if the Canadian dollar were to increase five cents from its current level, it would result in approximately a $0.20 per pound drop in calf prices, keeping all other market factors constant.
Ron Gietz, hog outlook:
For Canadian pork producers, 2017 is shaping up as a mixture of good and bad news. There should be periods of profitability during the year, but also times where producers will struggle to cover costs. Here are some key market factors:
Canadian Dollar Trend
If the multi-year slide in the exchange rate continues, pork producers will benefit. But if the loonie stabilizes and turns higher, hog prices will be directly impacted to the downside.
China Pork Demand Waning
China imported a record volume of pork in 2016 in response to exceptional prices. But the high prices are in the process of curing themselves, as Chinese hog producers respond to outstanding production margins. Major pork exporters such as the European Union will be scrambling to find a home for their product in 2017, as China dramatically scales back imports. That will create a negative ripple in global pork markets, probably the single most negative factor for the coming year.
Feed Costs Moderate
Low grain prices help pork producers. Cost of production is trending lower now and seems likely to remain favourable in 2017, barring a major weather event.
Packer Margins and Capacity are key to U.S. market
While the United States is still experiencing an expansion in pork output, the key market dynamic for 2017 is packer margins. Currently, there is excess production to packer capacity, which has triggered record high packer margins. As supplies wane in the winter and spring, those margins will unwind, to the benefit of producers. And with two large pork plants slated to come on stream by next fall, we could see packer margins drop drastically, with more capacity than available hog supply.
As the manager and senior analyst at Canfax, Brian Perillat ensures Canfax maintains accurate and relevant market information, as well as provides and oversees market analysis provided for its members and the industry.
Based out of Brooks, Alta., Ron Gietz is the pork specialist for Alberta Agriculture and Forestry. Previously, he worked for 12 years for Informa Economics and Sparks Companies in Memphis Tenn. Ron’s areas of expertise are market analysis, livestock economics, and risk management.
Source: FCC