CME Group   |   Updated: February 22, 2012

click image to zoom Canadian cattle supplies have been shrinking since 2005 and, in the short term beef supplies will likely be even tighter as producers try to hold back heifers and rebuild the herd. Statistics Canada released on Monday the results of its semiannual survey of cattle operations and the data contained a sobering, although somewhat disorienting, view of current conditions. Probably the more surprising result from the survey was that the number of beef cows on January 1, 2012 was down 1% from the previous year. The Canadian beef cow herd is down 20% from its peak in 2005. The smaller beef cow inventory is a surprising result considering:

• Shipments of slaughter cows to the US in 2011 were down 24% from the year before;
• Canadian cow slaughter (based on weekly data) declined about 13% from the previous year
• Producers on January 1 2011 indicated heifer retention for beef cow replacement was up 2.9% from the previous year and in the Jan 1, 2012 beef cow replacements were up 4.3%.

So if the industry in Canada is slaughtering fewer cows, it is exporting fewer cows and it is holding back more females to replenish the herd, how is the beef cow inventory going down? The best answer we have is that the data is coming from different sources and year to year the numbers will not jive well. It is likely that the upcoming July and January surveys will capture the shift in cow numbers in Canada. Canada shipped a lot more breeding females to the US in 2011, some 7,500 more head (+170%) but that still does not explain the decline in the Canadian cow herd. For now, the latest numbers have us scratching our heads.

Total Canadian cattle inventories on January 1, 2012 were pegged at 12.515 million head, 58,000 head or 0.5% higher than the previous year. While the increase will likely capture some headlines, it is relatively small and mostly the result of fewer feeder exports to the US. The inventory of steers and bulls under one year old was up almost 66,000 head or 1.6% from the previous year. It is an inconsequential result since overall North American cattle supplies  remain limited and overall beef production in the continent will likely remain limited in the next few years. The combined US and Canada calf crop for 2011 is currently estimated at 39.975 million head, some 546,000 head or 1.3% smaller than a year ago. The Canadian calf crop for 2011 was estimated at 4.661 million head, 174,000 head or 3.6% smaller than a year ago. The decline in the Canadian calf crop accounted for about a third of the reduction in the combined calf crop, a significant number considering that the Canadian cow herd is only about 5.2 million head compared to about 40 million head in the US. The combined US and Canada calf crop has declined about 9% in the past 10 years, a dramatic change considering that both countries are striving hard to recover the beef export market share they lost after the outbreak of BSE. As trade normalizes and exports return to pre-BSE levels, this implies significantly less beef supply available for US and Canadian consumers. Beef demand in both countries struggled during the recession. A recovery in demand combined with the smaller supply will likely underpin significantly higher beef prices both in the US and Canada not just in 2012 but in the next few years.

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