2021 Cattle and hog sector outlook: navigating economic uncertainty to boost red meat sales

FCC Economics helps you make sense of the top economic trends and issues likely to affect your operation in 2021. The three major trends to monitor for cattle and hog operations include:

2020 was uneven across the red meat livestock sectors, a trend we expect to continue in 2021. Farrow-to-finish operations will continue to witness pressures on margins, while isowean/weanling operators will see a turnaround in profits. Profitability throughout the cattle sector will also vary. Cow-calf margins should be strong while feedlot operators and backgrounders may struggle to break even, especially in the first half of the year.

 

In Canada, there were large regional differences in livestock prices in 2020. Both Manitoba and Ontario market hogs were sold at roughly the 5-yr average, where they’ll likely remain in 2021 (Table 1). But Ontario feeder hog prices averaged $110 — above the 5-yr average — and are expected to climb again this year. In contrast, Manitoba feeder hogs will remain stable within the range of their 5-yr average, although they’re expected to gain year-over-year (YOY). The profitability of farrow-to-finish operations will be challenged by elevated feed costs (see below). Isowean operations should be profitable after a very volatile 2020.

 

Prices for marketed and backgrounded cattle will also reflect an east-west divide. Western fed steers and backgrounders will fetch prices either roughly in line with last year’s prices or will rise modestly. But they’ll remain well below the 5-yr average. In Ontario, those prices will be higher than the 5-yr average.

 

 

Interest rates are expected to remain low as the Bank of Canada does not expect to increase its policy rate until 2023, providing opportunities to lock in low rates for long-term debt. COVID’s disruptions have produced a worrying K-shaped economic recovery: some sectors have enjoyed economic prosperity while others have been challenged with worsening wage gaps and unemployment. With higher unemployment in many of the jobs sought by farm workers, ag wages were 1.8% lower than a year earlier. As impacts from COVID start to fade over the second half of 2021, the expected economic growth opportunities will likely spur rehiring within the oil and energy sectors, a big competitor for ag labour. It could reignite inflationary pressures on agriculture wages by 2 to 3% annually.   

 

Canadian feed barley is forecasted to rise 6.0% YOY to average $258/tonne. Corn is expected to be 3.7% higher on average at $219/tonne. Both supply- and demand-side factors will continue to push both prices above their respective 5-yr averages. On the supply side, La Nina-derived weather patterns formed last year and may persist throughout the 2021 growing season. Reductions in yields and volumes are being monitored from Argentina, Brazil, Australia and the U.S. Should either volumes or quality of the South American spring and summer crop be over-forecasted, it will further pressure stocks and drive-up prices for U.S. crops in the fall.

 

Demand from China’s rapidly expanding commercial pig production capacity for soy and corn imports is perhaps the biggest factor this year, estimated at 100 million and 17.5 million metric tons, respectively. With recent Chinese domestic corn prices almost twice as high as U.S. corn, their imports lag only the European Union for 2020/21 (October-September). It’s a trend driving feed costs exacerbated by spiking demand elsewhere and possible export quotas imposed by major producers.