Livestock profitability tied to North American processing capacity

There was optimism in the red meat sector at the beginning of 2020. Cattle and hog prices were tracking higher than 2019. The outbreak of COVID-19 severely strained the red meat supply chain due to major reductions in slaughters across North America. That considerably changed our outlook for livestock prices in 2020. 

 

Projecting prices in the current highly-uncertain environment is difficult. But the early-year trends and futures markets are helpful inputs. Western Canadian fed steer prices have dropped 30% since the beginning of the year, with most of the decline occurring in the last 4 weeks. In Eastern Canada, market hogs have declined 25%.  Cattle and hog prices will likely be under pressure for the remainder of 2020.

 

Profitability is projected to be negative. Lower feed prices and a lower Canadian dollar will help support margins but will not offset losses currently projected for the year.

 

A recovery in slaughter numbers will be necessary for prices to rebound. It will take some time for processors to work through the supply of livestock ready for slaughter. The longer plants remain idled and operate below capacity, the longer it takes for prices to recover. The AgriRecovery set-aside program will help producers hold cattle longer when processing capacity is constrained.