Eaten away: Feed prices and margins on Canadian livestock

For a few months, the ‘loonie’, as the Canadian dollar is nicknamed, has been weak compared with its US cousin. In the near future, that should make Canadian livestock more competitive and raise producers’ profit margins, benefiting farmers. But observers are unconvinced. Why?

Craig Klemmer, principal agricultural economist at Farm Credit Canada, provides a straightforward answer: rising feed costs. “Feed costs are always one of the two largest expenses for a livestock operation – as much as 55 percent for farrow-to-finish hog operations, and up to 60 percent of lamb production,” he said in a market snapshot. “Tighter supply of feed grains at home and globally will lift feed costs and may pressure margins of livestock operations.

There are local factors to account for that. Dry conditions in Alberta and Saskatchewan have resulted in barley production 10 percent lower in 2017 than the previous year. Canadian corn production did increase slightly, but US output fell, and North America has to fulfil a larger share of global demand following declines in production of feed grains in Ukraine and Russia. Continued economic momentum in the region is also creating greater appetite for meat, which will trigger extra demand for feed. All this is making feed prices rise.

A look at what happened in recent years suggests variations in feed prices have a significant impact in overall farm margins. As is apparent in the chart below, costs associated with animal production, aside from energy prices, are the biggest swing factor in farmers’ bottom line. Klemmer sums it up: “Currently the US has a feeding advantage over Canadian operations due to their large supplies of corn, offsetting any advantage that the lower Canadian dollar may have created for the finished livestock.”