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Cattle Market Situation &
Outlook
Anne Wasko
Market Analyst
June 2019
@AnneWasko
BEEF SUPPLY UPDATE
Canadian beef herd smaller, U.S. expansion slowing
Canadian beef cows -1% to start 2019
Between 3.66 &
4M head for 10 yrs
2.5
3
3.5
4
4.5
5
5.5
80
83
86
89
92
95
98
01
04
07
10
13
16
19
Mil
lion
Head
Year
Canadian Beef Cow Numbers
January 1 - 1980 to 2019
Source: Statistics Canada
AB & SK 2.6-2.9M for 10 years now
1000
1500
2000
2500
3000
3500
4000
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14
16
18
Th
ou
sa
nd
Hea
d
Year
Alberta & Saskatchewan Beef Cows
January 1 - 1980 to 2019
Source: Statistics Canada
2018 returns
back to a liquidation
year 0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
68 71 74 77 80 83 86 89 92 95 98 01 04 07 10 13 16
Canadian Beef Cow Culling Rate
1968 - 2018
Source: Statistics Canada, CBGA, AAFC, CanFax
15 yr avg = 11.6%
Cow marketings were up 13% LY
YTD 2019 cow kill +6% plus cow exports +4%
4,000
6,000
8,000
10,000
12,000
14,000
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
# o
f h
ead
Canadian Cow Slaughter
2016 2017 2018 2019
2018 Heifer Marketings +3%
500
750
1000
1250
1500
1750
76 80 84 88 92 96 00 04 08 12 16
Th
ou
sa
nd
Hea
d
Year
Canadian Heifer Marketings
1976 to 2018
Source: Statistics Canada, CBGA, AAFC, CanFax
YTD 2019 heifer
kill +7% plus sltr
hfr exports +77%
2018 Fed Slaughter +5% Q4 largest since 2008. Q1 2019 since 2010.
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
1 2 3 4
Canadian Fed Slaughterby qtr
2014 2015 2016 2017 2018 2019
YTD 2019 fed
sltr +7% plus
fed exports
+54%
Bottomline,
100,000 more
fed cattle
marketed so
far this year
W Can Cattle on Feed May 1 +10%, largest in 9 years
Increased feedlot capacity 100,000+ head
550
650
750
850
950
1050
Jan
1
Feb
1
Mar
1
Ap
r 1
May
1
Jun
1
Jul
1
Au
g 1
Sep
1
Oct
1
Nov
1
Dec
1
Th
ou
san
d H
ead
Alberta and Saskatchewan
Cattle on Feed
5 yr ave 2017 2018 2019
Source: CanFax COF
Feeder imports stepped back into the scene in 2017 & 2018 (180K in ‘18)
0
50
100
150
200
250
84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
Th
ou
sa
nd
Hea
d
Year
Canadian Feeder Cattle & Calf
Imports
Source: Statistics Canada
Jan-Apr 2019 +73% at 62.5K
0
5000
10000
15000
20000
25000
30000
35000
40000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
# o
f h
ead
Live Imports from the U.S. (non purebred)
2016 2017 2018 2019
2018 Feeder exports +48% at 195K
0
100
200
300
400
500
600
700
84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
Th
ou
sa
nd
Hea
d
Year
Canadian Feeder Cattle Exports
Source: Statistics Canada
Jan-Apr 2019 +17% at 101.7K
(still net exp +40K)
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
# o
f h
ead
Feeder Exports to the U.S.
2016 2017 2018 2019
The effect of feeder imports & fewer feeder exports – now a wash
-200
-100
0
100
200
300
400
500
600
700
84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
Th
ou
sa
nd
Hea
d
Year
Net trade of Feeder Cattle
Source: Statistics Canada
U.S. cow herd close
to cycle peak at 31.8M
25
27
29
31
33
35
37
39
80
83
86
89
92
95
98
01
04
07
10
13
16
19
Millio
n H
ea
d
Year
U.S. Beef Cow Inventory
January 1 - 1980 to 2019
Source: USDA, Cattlefax
LW Pasture index 74.4, 5 yr avg 70
The big year over year slaughter gains are behind us but still larger this yr & next
22
23
24
25
26
27
28
29
30
31
00 02 04 06 08 10 12 14 16 18 20P
Source: USDA
US Steer & Heifer Slaughter
+1.2M+300K
+300K
2019 U.S. Beef Production expected +2%, a new record at 27.4B lbs
19
21
23
25
27
29
90
93
96
99
02
05
08
11
14
17
Bil
lion
Po
un
ds
Year
U.S. Beef Production
1990 to 2019P
Source: USDA, Cattlefax
Record pork production too: +3% in
2019
10
12
14
16
18
20
22
24
26
28
30
70 73 76 79 82 85 88 91 94 97 00 03 06 09 12 15 18P
Bil
lion
Po
un
ds
Year
U.S. Pork Production
Source: USDA, Cattlefax
African Swine Fever is a big deal% TY & +5% in 2019 • More than half (56%) of the world’s pigs live in
China (Jan 2018 441.6M hogs & 43.6M sows)
• Chinese consumers love pork. They consume 88 lbs/cap (X 1.4B people) – the most anywhere
• In April sow numbers were down 22% (-9.7 million sows). This plus culling has estimates of 150-200M fewer piglets this year.
• This equates to a 12-15MMT shortfall of pork.
• Global pork exports were 8MMT last year
• 2019 Chinese production expected 30% smaller
African Swine Fever is a big deal (cont)% TY & +5% in 2019 • Excessive slaughter last winter was put into
stocks
• Speculation has moved pork into frozen inventory – expecting prices to move higher
• Current hog inventories could be 50% smaller (the culling is real)
• China is 20% of the global protein market
• Virus is out of control with no vaccine
There’s really no way to fill the pork gap
88
1813
0
10
20
30
40
50
60
70
80
90
100
Pork
Pou
ltry
Beef
Lb
s
Chinese per cap meat consumption 2017
China Pork Imports to grow post July 1
DEMANDDomestic and export demand have been exceptional
A strong economy has been good for beef demand in N.A.
Note: Canadian GDP in past year is up 1.1%
Strong U.S. Beef Demand
YTD 2019 +4%
$170
$180
$190
$200
$210
$220
$230
$240
$250
$260
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
$/c
wt
US Weekly Choice Cutout
2016 2017 2018 2019
2019 Cdn Cut-out 9% higher than 2018
YTD Cdn beef prod
+9%
225
235
245
255
265
275
285
295
305
315
325
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
$/c
wt
Canadian Weekly AAA Cutout
2016 2017 2018 2019Source: Canfax
Beef export value +14%
$2.75B, with tonnage +5%
U.S. +5%, Japan +28%, China/HK +2%, Mexico -10%
0
0.5
1
1.5
2
2.5
3
0
100000
200000
300000
400000
500000
600000
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
bil
$
ton
nes
Canadian Beef Exports
tonnage value
Jan-Apr 2019 exports +20% volume, +33% value
20000000
24000000
28000000
32000000
36000000
40000000
44000000Ja
n
Feb
Mar
Ap
r
May
Ju
n
Ju
l
Au
g
Sep
Oct
Nov
Dec
Canadian Monthly Beef Exportsin kgs
2016 2017 2018 2019Source: Statistics Canada
Jan-Apr beef export stats: U.S. 72% of total, Japan 10% & China/HK 9%
YTD U.S. +14% YTD Japan +78%
YTD China +52%
13000
15000
17000
19000
21000
23000
25000
27000
29000
31000
Jan
Feb
Mar
Ap
r
May
Jun
Jul
Au
g
Sep
Oct
Nov
Dec
ton
nes
Monthly Beef Exports to the US
2016 2017 2018 2019
Source: Statistics Canada
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
To
nn
es
Canadian Beef Exports to
Japan
2016 2017 2018 2019Source: Statistics Canada
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
To
nn
es
Canadian Beef Exports to China Region
2016 2017 2018 2019Source: Statistics Canada
Q1 Cdn pork export stats:
• Total pork exports represent 70% of production
• Q1 total exports +4% volume, +6% value
• Led by exports to China +47% (+65% in value), representing 1/3 of exports
• Exports to Mexico were up 10% due to Mexican tariffs to U.S. pork (that’s gone now)
• Exports to U.S. are still #2 but down 15% from 2018
• Japan is #3 market, down 1% in Q1
Trade deals have been good for Canadian beef & pork producers
U.S. Beef exports were record large in 2018 (+10%) but 2019P flat
19P n/c
19P n/c
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
00 02 04 06 08 10 12 14 16 18
Bil
lbs
US Beef Trade
Exports
Source: USDA
Imports
Jan-Apr exports
Beef -4.5%
Pork -4.5%
CATTLE PRICE OUTLOOK
Outside factors = volatility, what do exports & demand do?
Corn is worried about late planting
28% run up in 2 weeks
Now waiting for more news
5 yr avg 96%
67%
U.S. Lean Hog futures trying to figure out ASF impact and when
20% run-up in Mar & Apr
but back down again
Cattle are worried about poor exports, record production
Aug LC -15% since mid Apr
U.S. fed price – expecting lows in Sept/Oct
2019 $100-129, avg $116??
$95
$105
$115
$125
$135
$145
$155
1 6 11 16 21 26 31 36 41 46 51
US
$ p
er
cwt
Weekly US Fed Steer Price
2016 2017 2018 2019
Source: Cattlefax
AB fed market had tough start
to 2019, recovered into April,
now on seasonal summer decline
$135
$140
$145
$150
$155
$160
$165
93
95
97
99
101
103
105
J F M A M J J A S O N D
ca
sh
Ind
ex
Seasonal Fed Steer Price Index
98-18
2019
Note: CPIP coverage could have been bought
in Jan for May/June at $162-164. In April, Sept
coverage could have been purchased at $150.
Fed basis remains weak in 2019
($20)
($14)
($8)
($2)
$4
$10
$16
Ja
n
Feb
Mar
Ap
r
May
Ju
n
Ju
l
Au
g
Sep
Oct
Nov
Dec
Cd
n $
pe
r c
wt
AB Fed Steer Basis
Alberta/Nebraska in Cdn$ - Cash to Cash
5 yr avg 2017 2018 2019
YTD -10, LY +5
If U.S. is $116 avg in 2019, 75 cent $ and -4 basis then AB = $151 (2018 was $153)
$60
$80
$100
$120
$140
$160
$180
$200
80 83 86 89 92 95 98 01 04 07 10 13 16 19F
Cd
n $
pe
r c
wt
Year
Alberta Fed Steer Prices
Seasonally cash feeders rally into Aug/Sep
$170
$180
$190
$200
$210
94
97
100
103
106
109
J F A M J J A S O N D
Ind
ex
Seasonal 850 lb. Feeder Price Index
98-18 Seasonal 2019 cash
Note: CPIP coverage for Oct feeders could have been bought in March at
$200 and in Apr at $204. Today is $184.
Cash margins negative but not enough to pressure the buy - YET
$90
$100$110
$120
$130
$140
$150
$160
$170
$180
$190$200
$210
$220
J/1
4 A J OJ/1
5 A J OJ/1
6 A J OJ/1
7 A J OJ/1
8 A J OJ/1
9 A J O
Cd
n $
pe
r c
wt
Break Even vs Market Price
Yearling Steer - 2014 to current
Break-even Cash
Source: CanFax Trends West
Seasonally the calf market declines post June – but 2018 did not
$190
$210
$230
$250
96
97
98
99
100
101
102
103
104
J F M A M J J A S O N D
Ind
ex
Seasonal 550 lb. Steer Calf Index
98-18 Seasonal 2018 cash 2019 cash
Note: CPIP coverage for Oct calves could have been bought in March for
$220 and in April $228 (SK $230). Today $206.
Still need to see fall feed prices. Lower U.S. calves will drop the ‘floor’ to $200
Source: Canfax
50
100
150
200
250
30005 06 07 08 09 10 11 12 13 14 15 16 17 18
19P
$/c
wt
Year
Alberta Oct/Nov avg 5-600 lb Steer
Cow market tracking seasonal – 2019 average $5/cwt lower than 2018
Source: Canfax
Non-fed beef
prod +4% in ’19 –
more drought?
$70
$75
$80
$85
$90
$95
$100
85
90
95
100
105
110
J F M A M J J A S O N D
$/c
wt
Ind
ex
Seasonal D1,2 Cow Price Index
(1998-2018)
Seasonal 2019
What could send
things off the track?
• Disease risk
– AFS (African Swine Fever)
– PED, TB, ??
• Trade risk
– NAFTA 2.0 (would be nice to move on)
– Tariffs: U.S. / China trade war
– Canada/China issues
• Economic risk
– Economy (trade tiffs, global slowdown)
– Consumer preferences
• Weather risk
Strategy for Success – Have a Game Plan • Price volatility – use it to your advantage when
planning risk management (but you need a plan – know your ‘numbers’ - to be proactive rather than reactive).
– Price insurance, forward selling, hedging, etc.
• Producer margins will be thinner – this is the phase of the cattle cycle when prices could be lower and plus inputs are higher. Need to have a sharp pencil.
HOPE IS NOT A STRATEGY!!
For regular market updates sign into:
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And check out the RealAg radio
show on Sirius channel 147 –
RURAL Radio!! 3:30 pm CT