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

Feb 03, 2021

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:

China’s efforts to rebuild its pig herd
Rising feed costs
Growing strength in demand for red meat

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.

Expenses: Low interest rates to partially offset rising feed and labour costs in 2021

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.

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Video: The 15-Year Bet Behind Every New Variety!

Canada is trying to decide how much agricultural research capacity it can afford to lose. Brian Rossnagel believes the better question is whether the country can afford to rebuild it.

The longtime barley and oat breeder makes the case with a simple fact about his profession: the consequences of today’s decisions may not become visible for 10 or 15 years.

“Pick the right parents. That’s the biggest thing,” Rossnagel says. “If you pick the wrong parents, you’re not going to get anywhere—and you don’t know that until 10 years, 15 years later.”

That warning carries particular weight as Agriculture and Agri-Food Canada moves to reduce spending and streamline parts of its science operations. The department’s 2026–27 plan anticipates the loss of approximately 665 positions by 2028–29 and says some research will be reduced where capacity exists in academia or industry. AAFC says the changes will make its science operations more cost-effective over the long term.

For Canada’s seed industry, Rossnagel’s career illustrates what is at stake.

This fall, the retired University of Saskatchewan breeder will be inducted into the Canadian Agricultural Hall of Fame. During his 35-year career at the Crop Development Centre, he helped develop more than 100 barley and oat varieties, including CDC Austenson—one of Western Canada’s most widely grown feed barleys. His induction recognizes not only those varieties, but the collaboration and research system that made them possible.

Rossnagel is quick to emphasize that none of it was the work of one person.

“The first thing I thought about was all the other people who contributed to whatever success I and my program had over the years,” he says. “We know that it’s not an individual who does this. It’s a group—a team.”

That team extends well beyond the breeder whose name appears beside a variety. It includes technicians, pathologists, quality specialists, statisticians, regional testing sites, seed growers and industry partners. It also includes the breeders who came before and those who will carry the germplasm forward.

CDC Fraser barley, for example, moved through three breeding careers. Its parents came from Brian Harvey’s program. Rossnagel advanced the material after Harvey retired, and Aaron Beattie later guided it through registration and release.

That kind of handoff is normal in plant breeding. The person who makes the original cross may never see the resulting variety reach farmers.

It also explains why lost research capacity cannot simply be switched back on when budgets improve.

“If you shut it off, it’s very, very difficult—and particularly costly—to start it up again,” Rossnagel says. “If you have to start from scratch, it’s going to be at least 10 years before anybody notices whether you’re getting anything done or not.”

The concern is not simply how many experimental lines Canada can process. Modern equipment, statistical tools and genetic technologies allow today’s breeding programs to evaluate tens of thousands of lines—far more than Rossnagel could handle when he entered the field in the early 1970s.

But efficiency and automation do not generate every idea.

“If you pare back down, and instead of having six or seven individual scientists concentrating on wheat breeding, you go down and say three people could handle all this, well, that’s half the ideas gone,” he says. “Particularly if you happen to lose the three people who had the really neat and innovative ideas, boy, that’s a problem.”

It is a timely distinction for Canadian agriculture. Consolidating programs may preserve the volume of material moving through a system, at least initially. It may not preserve the diversity of thinking, regional knowledge or willingness to pursue unconventional crosses.

That regional knowledge matters because Canadian agriculture is not one uniform production environment. A variety suited to southern Alberta may face different disease, moisture and maturity pressures than one grown in Manitoba, Ontario or Atlantic Canada.

“Agriculture is applied biology,” Rossnagel says. “Biology, all around the Earth, moves from the poles to the equator. It does not move from Newfoundland to B.C. like politics do.”