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McMillin: Cattle prices see sharp decline

The Markets with Deb McMillin, from the June 2019 issue of Canadian Cattlemen

Fed cattle

Fed cattle prices have seen a sharp price decline over the past couple of weeks. Current fed steer prices are averaging $150.88/cwt, which is a decrease of $11.55/cwt over the past three weeks. Pressure in May is typical following the spring high in the fed market. While barbecue season is just getting started, wholesale buyers have already purchased for the May long weekend demand and are looking ahead to the summer, where higher-priced beef cut movement slows.

In addition, 2019 beef production is running 10 per cent higher than a year ago. The increased beef production is a result of fewer feeder exports in 2018 as well as increased feeder imports. Fortunately, beef exports have been strong to date. March data reported a 26 per cent increase in beef exports in March 2019 when compared with March 2018. The weakening fed cattle cash price has widened the cash-to-cash basis, currently at -$6.36/cwt under the U.S. market.

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Cattle-on-feed numbers in Alberta and Saskatchewan continue to be higher than year-ago levels. Numbers reported for May 1, 2019 indicate the on-feed total in the two provinces was 10 per cent above last year, at 1,0002,993 head. The Canfax report also showed placements in April were 40 per cent above a year ago. However, the significant placement increase was primarily due to extreme cold weather and poor feeder prices in April 2018, which limited feeder placements that month. There were 151,123 head placed on feed in April 2019. Marketings through April contributed to higher beef production year-to-date in 2019. Exports of fed cattle, including cows to date, are up 35 per cent at 173,827 head. Fed slaughter is also higher than a year ago. Steer slaughter is up nine per cent to 527,896 head while domestic fed heifer slaughter is up six per cent to 364,336 head.

Deb’s outlook for fed cattle: In the very near term supplies remain manageable and feedlots fairly current, which should help to steady prices. However, moving forward, fed cattle buyers will gain more leverage as supplies increase and demand slows, which will lead to lower prices throughout the summer months. Beef exports to date in 2019 have been exceptional. Given that they continue to be high, they will limit some of the downside possibility in the sluggish summer market.

Feeder cattle

Feeder cattle futures moved sharply lower at the start of May, which contributed to pressure in the cash feeder cattle market. Light trade ahead of the May long weekend on average was under pressure on most classes of cattle. Volumes were light and quality and lot size were mixed. Lighter-weight 550-lb. steers the third week of May averaged $227.79/cwt, which is down $10/cwt from a month ago, but still slightly up from the week previous. The 550-lb. feeder price is still $1.75/cwt higher than it was one year ago.

The average on 850-lb. steers is down $7.40/cwt from just four weeks ago. The current average at $177.69/cwt is still $3.44/cwt above a year ago. Although feeder prices have been under pressure, the cash-to-cash basis narrowed from -$17.27/cwt in mid-April to -$2.87/cwt the third week of May. Feeder cattle exports to date are 11 per cent higher than a year ago, with a total exported at 106,190 head.

Deb’s outlook for feeder cattle: Feeder cattle trade really slows through the summer as most cattle are either on feed already or out to grass. Good quality, heavier-weight feeder cattle should continue to increase in value throughout the summer, leading up to the yearling run in late August or early September. The grass cattle market has slowed seasonally and if the Prairies don’t receive rain in the coming weeks, pastures will deteriorate and some cattle that were headed to grass may be redirected into backgrounding lots. Look for a seasonal trend leading to higher yearling prices through the third quarter while lighter-weight feeders will experience mixed prices dependent on size and quality on the light volumes that will be offered in the coming months.

Non-fed cattle

Good calving conditions through much of the country over the past couple of months resulted in fewer losses and therefore fewer culls coming to market. The smaller supply of cows and good spring demand has pushed cow prices higher, finally surpassing the year-ago prices for the first time in 73 weeks. The D1,2 cow price the third week in May was $97.71/cwt (see infographic link below). The cow price has increased 18 per cent since the start of 2019. Cow availability has been smaller through the bulk of calving season, but slaughter numbers are still running ahead of last year. The total number of cows killed in Canada in 2019 to date is 206,738 head, which is six per cent higher than last year at this time.

Butcher bull prices have not increased as steadily, experiencing some additional volatility week to week. The current average price is $106.07/cwt. Bull slaughter is down 15 per cent to date, with a total of just 4,775 head to date. Slaughter bull exports more than make up for the lower domestic slaughter, currently at 12,604 head, which is five per cent higher.

Deb’s outlook for non-fed cattle: Cull cattle prices should be well supported through the remainder of the second quarter as demand for trim and grinding products will remain high and cow supplies will be tight. Canadian slaughter cows are trading at a premium to their U.S. counterparts. However, the premium is much narrower than a year ago. Trim prices remain above a year ago to support the non-fed market as well. Highs in the D1,2 cow market generally are made in the second quarter, which should be the case in 2019. One concerning factor to keep an eye on moving forward is pasture conditions. Spring rain is needed in many areas across the Prairies.

About the author

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Debbie McMillin is a market analyst who ranches at Hanna, Alta.

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