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Fed cattle market wrestles with low prices

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

Fed cattle

The fed cattle market has struggled in September as it looks to make its annual low. A combination of seasonal factors and the reduced kill capacity following the Tyson fire in the U.S. have contributed to lowered prices. The fed cash price has moved below break-even levels, with an average the last week of September at $139.36/cwt. That is down over $9/cwt from the same week in 2018.

Even though prices have fallen $7.25/cwt in the past eight weeks, the cash-to-cash basis is still a premium, which shows the Canadian market has seen less of a decline than the U.S. cash market over the same period. Cash-to-cash basis at the end of September was +2.08/cwt. Alberta and Saskatchewan had larger placements at the start of the year and so will have a larger inventory of front-end supply cattle to move through in the coming month. The September 1 cattle-on-feed report showed smaller placements in August, which contributed to on-feed totals just one per cent above the year-ago total at 714,744 head.

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Smaller August placements in all weight classes was not a surprise, as much better late-summer pasture conditions were the case in 2019, compared to the early drought-related calf sales in August of 2018. The number of feeders placed in August was 110,112 head, which was 25 per cent below August 2018 numbers. Slaughter numbers in 2019 are five per cent higher for steers and six per cent higher for fed heifers, for a total of 1,921,935 head to date. Exports of fed cattle including cows are also higher, up 23 per cent from a year ago at 322,381 head.

Deb’s outlook for fed cattle: Talks of slaughter resuming at the Kansas Tyson plant that was closed due to fire weeks ago will increase optimism, although opening dates are not anticipated until January. In the near term, increased volumes through October and reduced North American kill space will continue to have a negative impact on the fed market. In addition, the current positive cash-to-cash basis leaves room for the Canadian market to slip further to a more normal basis relationship with the U.S. Further out, supplies will tighten and demand will increase heading into late fall and winter, as we approach holiday buying. Increased middle meat demand should create a seasonal rally.

Feeder cattle

Feeder-run volumes picked up in mid-September and while overall prices have been running about $10/cwt below a year ago, the end of September did start to see some strength on feeder calves as some other factors worked in the market’s favour. Grain prices have supported the fall run, with barley prices running 10 per cent below year-ago levels. In addition to a lower cost of gain, the Canadian dollar is currently below a year ago and it’s expected that additional bunk space will be used in 2019.

Lighter calf prices increased, with 550-lb. steers at $3.56/cwt the last week of September to an average of $213.31/cwt, which is still $14/cwt under last year. Heavier weight classes saw a positive move near month’s end as well, with the 850-lb. feeder steer average at $192.33/cwt, which was a $1.64/cwt improvement in the past week. However, that’s still -$6.46/cwt under the same week last year.

Deb’s outlook for feeder cattle: Feeder volumes will continue to grow over the next month as fall grass disappears and producers wean calves. Recent early snowfall across the Prairies will increase feed grain availability in some areas, if fields dry and farmers are able to get back in the fields soon. Competitive cost of gain due to lower grain cost is favourable, even as forage costs are variable and depend on the region this year. Technical markets have firmed in recent weeks, which increases risk management availability and sparks additional interest in calves. Even as there are several positives at work in the feeder market, lower fed prices and decreased cut-out values are also weighing on the market. Expect prices to follow a typical seasonal pattern in the coming weeks, with pressure in the calf market as the volumes increase.

Non-fed cattle

Better fall pasture conditions have contributed to lower slaughter numbers of cull cattle, which has helped to support prices through the fall of 2019. While D1,2 cow prices have decreased in recent weeks, prices are still holding on above year-ago levels. At an average of $85.79/cwt, D1,2 cows are currently $1.29/cwt higher than the same week last year. While weekly cow slaughter numbers have recently been running consistently lower, the year-to-date total is 364,185, which is still three per cent above the year-ago comparable.

The average butcher bull price at the end of September was $103.25/cwt, which is $2/cwt higher than the same week last year. Butcher bull slaughter domestically to date is down 11 per cent at 10,932 head. Export numbers for slaughter bulls are unchanged from a year ago at 30,452 head.

Deb’s outlook for non-fed cattle: Although volumes will pick up in the coming weeks, the market is not expected to see a flood of cows this year due to improved winter forage stocks in many areas. In addition, strong demand for trim prices should help support cull cattle prices throughout the fall. Prices will continue to move towards a seasonal fall low in the coming weeks, but the drop may not be as drastic as seen in other years.

About the author

Contributor

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

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