25 September 2010

5 minute read

2009

Annual and Semi

2008

Annual

Semi-Annual

2007

Annual

Semi-Annual

Executive Summary

With tight supplies and higher prices spurring limited optimism among Canadian cattle producers, the decline in cattle inventories is forecast to stabilise in 2011 with 12.29 million head projected at the beginning of the year and 11.48 at the end of the year. Rebuilding may emerge in 2012. This compares to 14.01 million head on 1 July 2010.

Total slaughter is forecast at 3.79 million head in 2011, compared to 3.82 million head in 2010 and 3.7 million head in 2009. Paralleling the evolution of slaughter statistics, beef and veal production is forecast to decline in 2011 by 0.8 per cent to 1.275 million metric tons (MMT) compared to 1.285MMT in 2010.

After a significant decline in 2009, cattle exports have stabilised in 2010 and even show signs of recovery. Total 2010 cattle exports are estimated at 1.1 million head, which is 3.1 per cent higher than 2009. Reduced inventories in United States are forecast to push 2011 up by 4.5 per cent compared to 2010, to a total of 1.15 million head.

With production expected to decline in 2011 and a strong Canadian dollar, beef and veal imports are forecast to increase to 245,000 metric tons (MT), up 4.3 per cent compared to 2010. Beef and veal imports declined 11.2 per cent during the first six months of 2010 compared to the year earlier with the total 2010 estimated at 235,000MT.

Despite lower production forecast, beef exports are forecast to increase in 2011 by one per cent in 2011 compared to 2010, to 530,000MT led by increases to Asia. Exports were up 18.3 per cent for the first half of 2010 with total 2010 exports estimated at 525,000MT.

Hog production for 2011 is forecast at 27.4 million head, down 2.1 per cent compared to the estimated 28 million head in 2010, which was down 4.4 per cent compared to 2009.

Slaughter is forecast at 20.8 million hogs in 2011, down 2.1 per cent from 2010. A lower pig crop in 2010 has resulted in lower slaughter numbers. Continued lower hog exports translated into more domestic slaughter, estimated at 21.25 million head in 2010. Mirroring reduced slaughter in Canada, pork production is forecast at 1.725MMT for 2011, or a further decline of 1.4 per cent from the 1.75MMT estimated for 2010.

An increase in 2011 Canadian hog exports by 2.6 per cent compared to 2010 is forecast, up to 5.95 million head due to low US inventories and strong demand. The decline in hog exports that began in 2009 continued into 2010 with 5.8 million head estimated for 2010.

Reduced meat production and increased demand for exports is expected to result in further increases in 2011 imports to a forecast 230,000MT, up from 200,000MT estimated for 2010. Pork exports are forecast to increase in 2011 by 0.9 per cent, to 1.175MMT compared to the 1.165MMT estimated for 2010.

Outlook

In 2010, the Canadian economy has been showing a growth rate among the best in the developed world, largely fueled by government spending. However, as the fiscal stimulus is drying up, and with a domestic consumption that is slowly picking up, the Bank of Canada is forecasting lower growth for 2011, paralleling a trend that is expected in most countries for the next year.

Overall, Canadian analysts are forecasting that global consumption is slowly picking up, and will continue to do so in 2011. Consumers are forecast to maintain and even increase their demand for meat, and probably more so in the higher end Asian markets than in the North American ones. This trend will positively affect Canadian exports of both beef and pork. Production of red meat in Canada, however, is likely to decline in 2011, given the continued decrease in breeding inventories and the required response time of the livestock sector to market signals. Opportunities for poultry production may be stronger in 2011, as the sector is quicker in adjusting to market conditions.

In 2011, as the Canadian economic activity continues to grow, inflation is expected to rise as well which will likely prompt the Bank of Canada to further increase interest rates. In the United States, if interest rates remain at current levels, or increase less than in Canada, pressure will be on the Canadian dollar to appreciate. Coupled with stable or increasing prices for natural resources, and with an expected good economic performance in 2011, the Canadian dollar, which has already been strong in 2010, is likely to become even stronger in 2011 and possibly reach parity with the US dollar for an extended period of time. A strong Canadian dollar will negatively impact Canadian exports in general – and exports of cattle and hogs, in particular. The impact of the exchange rate on exports of beef and pork is less significant than in the case of live animals.

At this time, grain prices are expected to remain relatively high for 2011, and so are feed prices. Canadian cattle and hog producers cannot count on cheap feed to start rebuilding their herds, and production costs are expected to remain high, leaving operations with very tight profit margins, although somewhat improved from the last couple of years.

After a number of years of continued decline in both cattle and hog inventories, animal production remains at low levels. This, in turn, translates into a lower meat production and as demand picks up, the market will remain tight going into 2011. Both live animals and meat prices are expected to remain strong in 2011 and to increase above 2010 levels. Taking advantage of these improving conditions, producers may finally decide to stop the decline of the animal sector, and start rebuilding herds. As a result, 2011 is poised to represent the year when the downtrend bottoms out and the livestock sector starts growing beginning with 2012.

Further Reading

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