The News & What it Means – Little Growth in the Canadian Cattle Herd & What the CPI is Telling Us

By John DePutter & Dave Milne – August  22, 2017

 

The news:

“On July 1, Canadian farmers had 13.0 million cattle on their farms, up 0.1% from July 1, 2016. Inventories were 23.3% below their peak level recorded in July 2005.”

–Statistics Canada, Aug. 18, 2017

 

What it means:

In short, Canadian cattle producers are in no mood for expansion.

 

In fact, if you go back over the past year or so, StatsCan’s January and July livestock inventory reports have consistently shown relatively minor year-over-year increases in the Canadian cattle herd, usually around 1% or less. And before that, there was actually a period of herd contraction, beginning in late 2013 and early 2014.

 

The lack of expansion in the cattle herd stands in stark contrast to the trend in Canadian hog numbers, which have marched steadily higher over the past five years, including a 2.1% increase as of July 1, 2017. Canadian cattle producers are also lagging well behind their U.S. cattle and hog counterparts, who have been aggressively adding to their herds over the past few years.

 

The popular reasoning for the reluctance of Canadian cattle producers to expand their operations is that many are still smarting from the fallout of the 2003 BSE crisis, one that caused billions of dollars of losses as export markets suddenly slammed shut to Canadian beef.

 

Hog producers in Canada and the U.S. went through their own tough times with the PED outbreak a few years ago, but that hit American producers relatively harder and the market conditions that immediately followed (record or near record prices) meant the recovery was quicker.

 

Meat supplies rising

The lack of significant expansion in Canadian cattle herd doesn’t mean there won’t be rising meat supplies during the year ahead. Pork producers in Canada are more than making up for the lack of enthusiasm by cattle producers. And in the US, the beef and pork industries are both in strong expansion phases.

 

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The news:

“The Consumer Price Index (CPI) rose 1.2% on a year-over-year basis in July, following a 1.0% gain in June. Consumer prices for food rose 0.6% on a year-over-year basis in July.”

–Statistics Canada, Aug. 18, 2017

 

What it means:

For one thing, it means you’re doing business in a non-inflationary economic environment.

 

When consumer price inflation is low like this, you don’t have to base your business plan on sharply rising prices for goods and services.

 

What’s more, you’d best not go out and invest in various assets and expect them to automatically be worth a lot more in six months or a year. Fact is, prices for goods, services and various asset values are not in sharp inflationary uptrends – far from it.

 

It means interest rates won’t spike higher immediately.

With inflation under 2%, there’s not a lot of pressure on the stove that might make the people cooking up the Central Bank policies to think they should suddenly cool down inflation with higher benchmark interest rates.

 

Not that they won’t ratchet rates up fractionally. They probably will do that. It’s just that the low inflation rate is not a pre-condition for major interest rate shocks in the very near future.

 

Low food prices partly a reflection of low commodity prices.

As a farmer, you’re operating in a low-commodity pricing atmosphere. The commodities you buy, like fertilizer, along with the commodities you sell, such as crops and livestock, are trading in quiet, low level ranges, for the most part. There aren’t any big bull markets going on.

 

No wonder then, that food on the store shelves is up less than 1% from a year ago. Even after the various raw materials you produce are processed, packaged and transported to store shelves, they are pretty good deals for consumers.

 

Thank a farmer

One reason food is as low priced as it is comes down to this: the amazing capability of today’s modern farmer to churn out abundant supplies.

 

Shoppers might do well to thank a farmer.

 

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