It's a good time to be a livestock farmer.
Lower feed costs, a weakening dollar and stronger economic growth are giving Canadian producers of cattle and hogs better profit margins after years of headwinds, a report from Bank of Montreal says.
"Between the bovine spongiform encephalitis (BSE) crisis, fluctuating feed prices, the global recession, and the longer-term appreciation of the loonie, Canadian hog and cattle producers have faced almost every conceivable challenge over the past decade or so," said Aaron Goertzen, an economist with BMO Nesbitt Burns. "Fortunately, the pendulum has finally started to swing in the other direction, which has positioned the industry for a long-awaited rebound in margins and profitability."
A large crop this season has helped drive down the costs of corn and other commodities fed to livestock by about 30 per cent. Herds are now being rebuilt in response to the cheaper costs for feed, a producer's biggest expense, and prices for cattle and hogs are strong. (Farmers culled their herds after the drought of 2011 and 2012 drove up feed costs and made it too expensive to raise animals.)
The Canadian dollar has fallen by almost 10 cents to 91 cents in the past 12 months, lifting revenue from sales to the United States while making Canadian animals and meat more attractively priced to foreign markets.
"With the loonie projected to remain in the 87-cents to 95-cents range through the end of 2015, the currency should continue to weigh less on earnings than it has over the past few years," said Mr. Goertzen, adding livestock producers also stand to benefit from growing economic in Canada and the United States.
And recent trade deals with Europe should open new markets for Canadian beef and pork beginning next year, he added.
However, controversial U.S. labelling requirements have hurt livestock exports by driving up handling and warehousing costs. The country-of-origin labelling rules are the subject of a trade dispute between Canada and the United States. Another cloud is the deadly virus that had ripped through the U.S. hog industry, killing millions of piglets. Porcine epidemic diarrhea was recently discovered in Quebec and Ontario but has yet to be found in the West. The easily spread virus doesn't affect meat safety nor humans, but can quickly bring economic disaster to hog farmers and drive up costs for food processors.