Ontario Beef Industry Situation and Outlook. FarmSmart Steve Duff Chief Economist OMAFRA

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1 Ontario Beef Industry Situation and Outlook FarmSmart Steve Duff Chief Economist OMAFRA

2 United States market situation Overview Canadian & Ontario market situation Ontario market outlook 2

3 USA Market Situation 3

4 US Herd Size US cow herd bottomed in 2014 and is now almost into a second year of expansion 4

5 US Drought Monitor Feed and pasture availability greatly improving in major US cattle producing areas 5

6 US Meat Production Source: USDA -WASDE Nov

7 Canadian & Ontario Market Situation Confidential 7

8 Canadian Herd Size Canadian cow herd at lowest level in 20 years down over 1.5 million head expansion? 8

9 Ontario Cattle Slaughter Ontario cattle slaughter has fallen as cow numbers fell Western Feeder cattle are nearly 40% of total slaughter Slaughter prices have hit record highs 9

10 Canadian Cattle Slaughter Tight supply has lead to increasing carcass weights 10

11 Ontario Cattle Slaughter Tight slaughter supply means a strong basis Lower basis recently due to concerns about US expansion and continued high beef prices 11

12 Growing demand for lean protein and beef Retail Meat Prices Beef has risen more than the rest of meat complex 12

13 Food prices generally exceed rate of inflation Food Prices Food at home is more volatile than restaurant food 13

14 Total meat demand is growing Beef Demand Beef demand is relatively flat despite rising prices 14

15 Beef Imports Beef imports are a major part of the Canadian supply chain and have returned to pre-bse levels 26% Ontario imports close to 50% of beef consumption 15

16 Ontario Feeder Calf Basis High crop prices and low returns since BSE has tightened an already tight feeder calf supply 2015 feeder steer calf basis were very strong Weak dollar and low supply of calves are main drivers 16

17 Ontario Market Outlook Confidential 17

18 Dollar goes down, prices go up Exchange Rate Impact Price of corn, DDG, soymeal etc also go up 18

19 Ontario Cow-Calf Profit/Loss 19

20 Cow-calf Expansion Impact of farm incomes on markets, is different in a small price taking nation like Canada In the US, low prices squeeze margins and farms respond by cutting costs and production to eventually raise prices and incomes. In Canada, cost efficiency, and volume are the only real way to increase farm income when prices are low. - assuming prices still exceed costs Likelihood of significant expansion when a cow-calf producer can earn several years worth of revenue from one calf is low Inventory reductions in Canada and US have been so large that price levels have established a new base 20

21 Ontario Feedlot Profit/Loss 21

22 Feedlot Expansion Ontarian s consume a very large amount of US beef There is an ongoing opportunity to displace US imports This requires more feedlot production and in a perfect world, more feedlot production using Ontario calves Feedlots will always have to efficiently manage feed costs, and feeder cattle prices But the demand for Ontario beef is strong and can in the medium to long term help support a stronger basis even with larger supplies More Ontario beef has the added benefit of improving packer efficiency which in the long run is good for feedlots, cow-calf producers and the local economy 22

23 Summary Ontario has followed the US herd to near record lows Cow-calf sector has enjoyed unprecedented prices Feedlot sector has had some opportunities for profit as rising beef prices have pulled fed cattle prices higher US expansion has began feeder and fed cattle prices will begin to fall as a result Pace of Canadian cow expansion will determine how US price decreases affect Ontario through the local basis Tight supplies and a weak dollar will help support Canadian feeder and fed cattle prices in the short to medium term Ontario will continue to have room to take more Ontario calves and beef production 23

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