Post on 19-May-2020
Risk, Uncertainty, Volatility
• Volatility has declined in Canadian markets
• Risk remains elevated, but can be managed
• Uncertainty on the rise? Many variables, with many unknown outcomes
– Markets don’t like Uncertainty…
• Current market sentiment –
– Big picture generally bullish red meat markets, uncertain about cattle markets
Supply and Demand
• Demand is Strong
– Canadian per Capita beef consumption stable
– Record Export Values
• Canadian beef production is increasing
– 2019 production Up 5% YoY 25% from 2015
– Faster growth rate than the US….competitive
• Current market sentiment –
– Big picture generally bullish red meat markets, uncertain about cattle markets
African Swine Fever (ASF)
The Global Meat Shortfall
0
20
40
60
80
100
120
Beef Pork Chicken
Mill
ion
Tonn
es
Global Meat Production
2011 2012 2013 2014 2015 2016 2017 2018 2019p 2020f
Source: USDA, FAS
Coronavirus more questions
than answers
• 800 cases Jan 23rd
• ~ 2% mortality rate
• Limited cases outside of China
• Slow-down and bottlenecks at Chinese Ports?
• Global economic impacts?
$90
$95
$100
$105
$110
$115
$120
$125
$130
1 6 11 16 21 26 31 36 41 46 51
US
$/c
wt
August Live Cattle Futures
2017 2018 2019 2020
Source: CME, LMIC
Solid Beef Demand - Beef consumption
up, slightly softer retail prices
80
85
90
95
100
105
110
115
120
125
130
89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19p
De
ma
nd In
dex
(200
0=10
0)
Canadian Retail Beef Demand IndexIndex 2000=100
Source: Statistics Canada, CanFax, US Beef Demand Study Group
Strong Canadian Exports
Selling more product & at higher prices!
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19p
Bil
lio
n $
Canadian Beef Export Value
U.S. Mexico Japan S. Korea HK&Macau
China SE Asia Russia MENA Other
Source: Statistics Canada, CFIA
China Beef Import Growth
0
500
1000
1500
2000
2500
3000
3500
4000
5000
6000
7000
8000
9000
10000
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
f
1,00
0 M
T CW
E (O
ffic
ial I
mpo
rts
Onl
y)
1000
MT
CWE
China Beef Disposition
Production Consumption Imports
Source: USDA, FAS, PSD
Smallest Cow Herd since mid 1980’s
Can not maintain export pace
9
10
11
12
13
14
15
16
70 73 76 79 82 85 88 91 94 97 00 03 06 09 12 15 18
Mil
lion
Hea
d
Australia Beef Cow Numbers
Global Market Supporting Trim Prices
$180
$190
$200
$210
$220
$230
$240
$250
1 5 9 13 17 21 25 29 33 37 41 45 49
US
$
/c
wt
US 90% Fresh Trimmings
2018 2019 3 yr avg
Source: USDA
1.00
1.50
2.00
2.50
3.00
3.50
US
$/lb
US Choice vs. 90% Trim
USDA Choice USDA Fresh 90% Trim
Source: USDA
US Production will continue to grow
Beef Cow Herd Peaked?
10
12
14
16
18
20
22
24
26
28
30
60
70
80
90
100
110
120
130
140
70 75 80 85 90 95 00 05 10 15 20f
Bil
lio
n l
bs
Mil
lio
n h
ea
d
US Cattle Inventory vs. Beef Production
US Cattle Inventories US Beef Production
Source USDA, CattleFax
Beyond Meat
• Veggie Burgers really aren’t new
• Global demand for Protein growing rapidly..
• Challenges are:
• Negativity toward beef consumption, health and environmental impact
Prices holding despite larger supplies
$50
$100
$150
$200
$250
$300
$350
10 11 12 13 14 15 16 17 18 19
Cdn
$/c
wt
Alberta Cattle Prices
AB 550 Steer AB 850 Steer Alberta Fed Steer
Source: Canfax
Cows Seasonal Strength for later spring
$70
$75
$80
$85
$90
$95
$100
$105
$110
$115
1 5 9 13 17 21 25 29 33 37 41 45 49
Cdn
$/c
wt
Alberta Weekly D2 Cow Price
5 yr avg 2019 2020 2018
Source: Canfax
Cow-calf producers profitable
Profits Shrinking
-$200
$0
$200
$400
$600
$800
$1,000
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
$/co
w
Cow/Calf Returns
Source Canfax Research
Feedlots finally seeing some profits
Or are they gone again?
$100
$120
$140
$160
$180
$200
($600)
($450)
($300)
($150)
$0
$150
$300
$450
$600
$750
Jan-
16
May
-16
Sep-
16
Jan-
17
May
-17
Sep-
17
Jan-
18
May
-18
Sep-
18
Jan-
19
May
-19
Sep-
19
Jan-
20
Fed
Stee
r -$/
cwt
P&L
-$ p
er h
ead
Feedlot - Profit/Loss Margin
YEARLING STEERYearling Steer P&L AB Fed Steer
Source: Canfax Trends
Shrinking herd smallest since 1988
11
12
13
14
15
16
17
18
66
69
72
75
78
81
84
87
90
93
96
99
02
05
08
11
14
17
Mil
lio
n H
ead
Canadian Total Cattle & Calves
July 1
Source: Statistics Canada
Limited Appetite for Expansion
Lower in West – Impact of dryness
0.50
0.60
0.70
0.80
0.90
1.00
1.10
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14
16
18
Mil
lio
n H
ead
Canadian Beef Heifers (Breeding)
July 1
Source: Statistics Canada
Canada a net Importer of Feeder Cattle
74,000 net feeder imports
0
5
10
15
20
25
30
35
40
45
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Th
ou
sa
nd
He
ad
Canadian Feeder Cattle Exports
5 yr avg 18 19
Source: Statistics Canada
0
10
20
30
40
50
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Th
ou
san
d H
ead
Live Beef Cattle Imports (excluding Pure-Bred
Breeding) from the United States
4 yr avg 18 19
Source: Statistics Canada
Cattle slaughter up 5% in 2019
5% in West, 1% in East
1500
2000
2500
3000
3500
4000
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
Thou
sand
Hea
d
Canadian SlaughterFederally Inspected Packing Plants
Non-Fed Slaughter
Fed Slaughter
Source: CBGA
Dollar always a major factor
0.60
0.65
0.70
0.75
0.80
0.85
0.90
0.95
1.00
1.05
1.10
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14
16
18
Cd
n $
-U
S T
erm
s
Monthly Canadian Dollar
Source: Bank of Canada
Basis Volatility
($30)
($25)
($20)
($15)
($10)
($5)
$0
$5
$10
$15
10 11 12 13 14 15 16 17 18 19 20
Cdn
$/c
wt
Alberta Fed Steer Basis - Cash to Cash
Source: Canfax
A lot of Cattle on FeedSummer Price Risk
0
250
500
750
1000
1250
1500
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
Th
ou
sa
nd
Hea
d
Jan 1 - AB/SK Cattle on Feed
Source: Canfax COF
6.0
7.0
8.0
9.0
10.0
11.0
12.0
13.0
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
Mil
lio
n h
ead
US Cattle On Feed - January 1
Source: USDA
Steer Carcass WeightsTwo Different Stories
800
820
840
860
880
900
920
940
960
1 5 9 13 17 21 25 29 33 37 41 45 49
Po
un
ds
Western Canada Steer Carcass Weight
2019 2020 5 yr avg
Source: CBGA
825
850
875
900
925
950
1 7 13 19 25 31 37 43 49
US Weekly Steer Carcass Weights
2018 2019 2020
Source: CBGA
Feed Costs Picked Back UpMaybe Levelling off?
$130
$150
$170
$190
$210
$230
$250
$270
$290
$310
Jan
14
Jan
15
Jan
16
Jan
17
Jan
18
Jan
19
Jan-
20
Cdn
$ pe
r to
nne
Feed Grain PricesLethbridge and Omaha in barley equivalents
Lethbridge Barley Omaha Corn
Source: Alberta Ag, OCA
Know your Seasonals…
95
97
99
101
103
105
J F M A M J J A S O N D
Ind
ex
Seasonal Price Indices
850 Index 550 Index
Source Canfax
Can Producers get a little more of the Pie?!
45%
50%
55%
60%
65%
70%
Jan-
07
Jan-
08
Jan-
09
Jan-
10
Jan-
11
Jan-
12
Jan-
13
Jan-
14
Jan-
15
Jan-
16
Jan-
17
Jan-
18
Jan-
19
Alberta Live Fed Steer Price as a % of
AAA Cutout Value
Source: CMC, Canfax
Prices Scenarios for 850 lb Steer
Assumes – 3 basis, $0.755 CDN Dollar, 1500 lb OW
1.72$ 0.85 0.9 0.95 1 1.05 1.1 1.15
96 1.54$ 1.50$ 1.46$ 1.43$ 1.39$ 1.35$ 1.31$
100 1.63$ 1.60$ 1.56$ 1.52$ 1.48$ 1.44$ 1.41$
104 1.73$ 1.69$ 1.65$ 1.61$ 1.57$ 1.54$ 1.50$
108 1.82$ 1.78$ 1.74$ 1.71$ 1.67$ 1.63$ 1.59$
112 1.91$ 1.88$ 1.84$ 1.80$ 1.76$ 1.72$ 1.69$
116 2.01$ 1.97$ 1.93$ 1.89$ 1.86$ 1.82$ 1.78$
120 2.10$ 2.06$ 2.03$ 1.99$ 1.95$ 1.91$ 1.87$
124 2.20$ 2.16$ 2.12$ 2.08$ 2.04$ 2.00$ 1.97$
Live
Cattle
Futures
Cost of Gain
Profit Drivers
Know your Sensitivities
Factor Change Profit Impact on Finished
str $/hd
Live Cattle Futures $1/cwt + $20/hd
Canadian Dollar 1 cent - $30/hd
Basis $1/cwt + $15/hd
Barley $0.50 per bushel - $47/hd
Out Weight 50 lbs + $20 - $30/hd
Conversion 5% change in feed use - $20/hd +
Death Loss 0.5 % (i.e. 1.5% vs. 2% DL) - $8 - $12/hd
Run your Numbers Before
Running Hooves… • What’s your market? Backgrounding or Finishing?
• What’s YOUR break-even?
– Need to know costs!
• What’s the projected price?
– What the seasonal expectations?
– Futures strong or weak? Dollar, cattle, corn?
• What’s the Projected Profit
– Are you comfortable with your assumptions?
– What is your sensitivity around the variables
• Does the swap make sense?
• What’s the cost of risk management?
Factors to Watch
• Canadian Dollar (Positive)
• Basis Levels (negative?)
– (Cattle Flows)
• Trade deals/trade wars (?)
• Feed costs (?)
• Leverage (added risk)
• African Swine Fever? (Positive?)
• Weather (?)
Cow-Calf Economics
Herd Not Expanding….
• Change calf price 10 cents cows change ~ $300
• Change cost/yr $100 cows change ~ $500!
Scenario 1 Scenario 2 Scenario 3
Production Cost/cow 900$ 1,000$ 1,100$
1st calf weaning weight 550 525 525
Avg Weaning weight 625 575 550
calf price 1.95$ 2.00$ 2.00$
Salvage value $/cow 1,100.00$ 1,100$ 1,100$
cull rate 10.0% 10.0% 10.0%
Death loss Cows 0.5% 0.5% 0.5%
Death loss calves 5.0% 5.0% 5.0%
Expected Rate of Return 5.0% 5.0% 5.0%
Bred Heifer Value 1,983$ 1,174$ 460$
Calf price for $2000 cow 1.96$ 2.30$ 2.58$
Cost/yr for $2000 cow 897$ 840$ 800$
Market Factors to Watch
• China? - US Agreement Positive?
• How many dollars will transfer to producers?
• Global/US Economy – Demand
• Ryding Regency Still Closed in Ontario
– Affecting fed and calf market
– Less Calves going east, Fats coming west
• Ample feed to stabilize or grow Canadian herd?
– Bred prices relatively lackluster so far..