AgriSuccess Express
Check out this week's news
November 16, 2007
| 1. | Cattle prices analyzed |
| 2. | Canadian meat under border scrutiny |
| 3. | Bovine TB investigated  |
| 4. | Canada says U.S. farm subsidies exceed limits |
| 5. | Agropur spreads wings to South America |
| 6. | Ontario gears up for record wheat production |
| 7. | Western Canadian website established for crop varieties |
| 8. | Headline fungicide registered for oats |
| 9. | Producers could benefit from Yukon Liquor Act changes |
| 10. | Market Focus - Oilseed update |
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Beef cattle prices are plummeting across the country. In an effort to better understand the current pricing situation, Kevin Grier, a senior market analyst with the George Morris Centre in Guelph, has prepared a report documenting how cattle pricing is determined in Ontario.
Beef prices, and indeed many Canadian farm market products, are determined by three key drivers — the overall North American market conditions and U.S. commodity pricing, the exchange rate of the Canadian dollar, and the price spread or basis.
It is primarily the balance of supply and demand for North American beef that determines the U.S. cattle prices. “Basically, the stronger that North American beef demand is for any given supply level, the higher the price and vice versa,” Grier says.
With respect to supply, Grier says the starting point is the cowherd. Several reports, including the USDA and Statistics Canada cattle inventory reports issued in the winter and the summer, as well as the monthly U.S. and Canadian Cattle on Feed reports provide “insights” into both the short- and long-term North American beef supplies. “The combination of stable but large volume supplies has combined with stable but relatively strong demand to result in historically high U.S. cattle prices in the 2006 to 2008 period,” he says.
With respect to the exchange rate and its impact on pricing, Grier says a simple rule of arithmetic applies: “if the exchange rate appreciates, the value of the Canadian commodity declines in Canadian dollars and if the exchange rate depreciates, the value of the Canadian commodity increases in Canadian dollars,” he says.
Using the example of US$90 per cwt, the Canadian equivalent would have been $139 per cwt in early 2003 with a $0.65 Canadian dollar. The Canadian equivalent would have been only $87 Canadian last month, when the Canadian dollar was $1.03. “As such, the Canadian dollar appreciation of the past three years has resulted in 37 per cent lower cattle pricing for Ontario producers, simply as a result of that arithmetic process,” he says.
Transportation, local supply and demand conditions and the competitiveness of local packers all factor into the price spread or basis, the third price determination driver. Over the last couple of years local supply and demand has been in what Grier describes as “reasonable balance.” However local supplies, or marketings, are now greater than demand because of the recent labour layoffs at the Guelph Cargill plant and the resulting provincial slaughter reductions.
The July 2007 Canadian Food Inspection Agency (CFIA) Specified Risk Material regulations have also imposed much higher costs onto Canadian packers. “The higher the cost of operations, the less packers can bid on cattle . . . this means that packers in Ontario must lower their cattle bids compared to before the new regulations,” says Grier.
While Grier says the strong and relatively stable U.S. price has an overall positive impact on pricing in Ontario, the benefits have been outweighed and offset by the strong downward pressure of both the exchange rate and local spreads. “The net result of those two factors is very depressed local cattle pricing in the province.”
A copy of Grier’s report is available on the George Morris Centre website at www.georgemorris.org/GMC/Publications/_PublicationPage.aspx?lID=293#.
2. Canadian meat under border scrutiny
Canadian meat exports are under closer inspection at the U.S. border as the country steps up contamination testing.
The U.S. Department of Agriculture's Food Safety and Inspection Service implemented the additional import requirements for beef, pork and poultry products from Canada late last week. The department increased testing for Salmonella, Listeria monocytogenes and E. coli O157:H7 and requires shipments be held until testing is complete and products are confirmed negative for these pathogens.
Also, Canadian meat and poultry products now have higher levels of re-inspection by FSIS to confirm they are eligible to enter commerce when presented at the U.S. border. The United States is also reviewing Canada’s food safety system, focusing on Rancher’s Beef Ltd. of Balzac, Alberta and other processors that export to the U.S. Rancher’s Beef is no longer in operation.
Earlier this year, Rancher’s Beef issued a massive recall after their products were determined to be the source of E. coli sicknesses in the U.S. A Canadian recall has also been issued on some Rancher’s Beef products.
Gerry Ritz, minister of Agriculture and Agri-Food Canada says he’s disappointed with the increased inspections at the U.S. border.
“I have strongly stated our government's disappointment with United States Department of Agriculture's decision to temporarily hold and test Canadian (meat) exports to the U.S. We believe that the scope of these measures is not justified nor do they reflect established protocols,” Ritz says.
He says the Canadian Food Inspection Agency is working to normalize trade. At the same time, he maintains confidence in Canada’s food safety system.
Details of the increased inspections are available at the Canadian Food Inspection Agency website at http://www.inspection.gc.ca/english/anima/meavia/20071109inde.shtml.
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Copyright 2007, Farm Credit Canada
