BeefWatch: Canadian cattle inventories shrink, fed cattle prices improve

Prepared by the staff of Canfax and Canfax Research Services, divisions of the Canadian Cattlemen’s Association

(Photo courtesy Canada Beef Inc.)

Canadian cattle inventories continued to shrink at the start of 2021, while U.S. inventories declined slightly from their peak. North American cattle supplies remain ample but could tighten as the year progresses with the potential of a smaller calf crop. Canadian beef production continues to be supported by feeder imports from the U.S. The backlog of cattle due to COVID-19 pandemic-related production interruptions last year has been largely eliminated. Fed cattle prices have improved from year-ago levels but remained below the five-year average. Calf prices rallied contra-seasonally to the highest levels since 2016 for February and March. Rising feed costs are expected to be part of the major headwinds for the cattle market as feed grain prices are pushed to elevated levels by tightening domestic and global grain supplies and China’s strong import demand for feed grains. 

Canadian cattle inventories shrink again

Total cattle and calves on January 1, 2020, were down 0.6 per cent to 11.15 million head. This is the third consecutive year of smaller numbers and total inventories are now one-quarter (25.3 per cent) below the January peak reached in 2005. Smaller numbers were reported for most categories except bulls (+4.9 per cent) and beef replacement heifers (+4.1 per cent). 

Beef cow inventories were down 0.4 per cent to 3.53 million head, the smallest number since 1990. Western Canada accounts for 88 per cent of the beef cow herd. Increased beef cow inventories were reported in Quebec (+4.1 per cent), Saskatchewan (+1.6 per cent) and British Columbia (+0.9 per cent). Other provinces saw lower numbers with the Atlantic provinces down seven per cent, Manitoba down 6.2 per cent, Ontario down 3.3 per cent, and Alberta down 0.1 per cent. 

Beef replacement heifers increased 4.1 per cent to 545,400 head. This more than offset the decrease in beef cow numbers, resulting in a marginal 0.2 per cent increase in total beef breeding females at 4.1 million head. Saskatchewan saw the largest increase in beef replacement heifers with a 7.8 per cent increase, followed by Alberta (+4.1 per cent), Manitoba (+3.5 per cent), British Columbia (+2.4 per cent) and the Atlantic provinces (+1.7 per cent). Ontario and Quebec saw a four per cent and 1.3 per cent decline, respectively.

Source: Statistics Canada.

Feeder inventories saw the largest decline with steers down 4.2 per cent to 1.05 million head, and slaughter heifers down 4.5 per cent to 695,700 head. The calf crop was also down 1.1 per cent to 3.71 million head, which is the smallest number since 1990. Beef feeder supply outside of feedlots is estimated at 3.5 million head, down 2.2 per cent from last year and six per cent from the five-year average. Canada has been a net importer of feeder cattle since 2019. Tightening feeder supply in the domestic market is expected to support feeder cattle imports. 

The cattle industry continues to consolidate. As of January 1, 2021, 71,330 farms reported inventories of cattle and calves, down 1.8 per cent from January 1, 2020. The number of cattle farms in Canada has declined 60 per cent in the last two decades, while the average number of cattle and calves per farm increased 34 per cent to 156 head.

Source: Statistics Canada.

U.S. cattle inventories down slightly

U.S. cattle and calf inventories on January 1, 2021, totalled 93.6 million head, slightly below the 93.8 million head on January 1, 2020. 

All cows and heifers that have calved, at 40.6 million head, put the inventory slightly below the 40.7 million head reported last year. Beef cow inventories were down 0.6 per cent to 31.16 million head. This is 533,000 head below the 2019 peak but remains 2.2 million head larger than the 2014 low. Beef replacement heifers were up slightly from a year ago at 5.81 million head but remained nine per cent below the 2017 expansion peak. 

The 2020 calf crop was estimated at 35.1 million head, down one per cent from last year as the 2019 calf crop was revised lower by 468,000 head. Cattle-on-feed inventories totalled 14.7 million head, up slightly from 2020. The combined total of calves under 500 pounds and other heifers and steers over 500 pounds (outside of feedlots) was slightly below year-ago levels at 25.7 million head. 

A larger on-feed inventory is expected to keep front-end cattle supplies ample for the start of the year. With lower beef cow inventory, the calf crop for 2021 is expected to be smaller. Tighter cattle supplies could start to show up later this year and offer more support to the cattle market. 

Source: USDA.

Beef production

Canadian federally and provincially inspected cattle slaughter in 2020 totaled 3.28 million head, down two per cent from 2019, but still the second-largest slaughter since 2010. Despite the sharp decline in April and May due to production interruptions related to the COVID-19 pandemic, slaughter numbers realigned with historical levels in the second part of the year, with packing plants running at full capacity and even over 100 per cent utilization by adding Saturday kills. Fed slaughter ends the year with a 0.4 per cent increase from 2019, while cow slaughter was down 2.3 per cent. Packing plant utilization rates averaged 89 per cent, down three per cent from 2019, but up six per cent from the five-year average. 

Beef production in 2020 was down 1.6 per cent from 2019, but still 23 per cent higher than the 2015 low. Fed production was steady with last year, while non-fed production was down almost 10 per cent. Canadian steer carcass weights averaged 917 pounds, eight pounds heavier than 2019, but were still two pounds below the record high set in 2016. 

In the first quarter of 2021, year-to-date beef production was up 12 per cent from a year ago, with slaughter up nine per cent and carcass weight up two per cent. As the backlog of cattle has been largely eliminated, fed cattle supplies may tighten moving forward as cattle-on-feed inventory have been below year-ago levels from October 2020 through March 2021. Longer term, beef production could be spurred by demand in the foodservice sector once the economy reopens. 

Source: CBGA.

Feed grain

Feed grain prices rose sharply in the first quarter. Alberta barley prices surged from $294/tonne in January to a new record high of $319/tonne in March, which was 37 per cent above last year and 42 per cent above the five-year average. Ontario corn prices were up from $267/tonne in January to $284/tonne in March, 34 per cent above last year and 47 per cent above the five-year average. 

Elevated grain prices are driven by both supply and demand factors. Despite record crop production, carry-out stocks for grains and oilseeds and all principal field crops in Canada are expected to decrease significantly, driven lower by record exports. Barley carry-out stocks are projected to decline to a record low of 0.6 million tonnes. Corn carry-out stocks are forecast to fall by 14 per cent to 2.2 million tonnes from the record levels in the previous year. Global grain supply is also projected to be tight, with the possibility of La Niña-derived weather patterns persisting throughout the 2021 growing season, reducing crop yields and quality. 

On the demand side, one of the biggest factors is China’s strong demand for feed grain imports as the country actively expands commercial pig production capacity. In the first half of the 2020-21 crop year, Canadian barley exports increased by 41 per cent from the same period a year ago, with about 91 per cent of the overseas sales of raw barley grain shipped to China. 

Rising feed grain prices have resulted in strong demand for grass cattle as feedlots have an incentive to place cattle at heavier weights. High feed cost may also widen the steer-heifer price spread as steers generally see better feed efficiency than heifers. 

Source: Canfax, BFO.

Cattle prices

Fed cattle prices below five-year average

Alberta fed cattle prices strengthened from $149/cwt in January to $152/cwt in February before moving back to $149/cwt in March. While the March price was one per cent or $2/cwt above a year ago as the impact of the COVID-19 pandemic hit the market, it remained seven per cent or $11/cwt lower than the five-year average. 

Ontario fed cattle prices strengthened for $141/cwt in January to $143/cwt in February and stabilized at $144/cwt in March. The March price was one per cent or $2/cwt above the year-ago level but eight per cent or $13/cwt below the five-year average. 

Ontario fed prices were at a premium to Alberta through most of the second half of 2020, but fell to a discount in December. This was partly related to the Cargill plant in Guelph slowing down operations and needing to idle the plant due to an outbreak of COVID-19 at the end of December. Ontario prices have continued to be at a discount to Alberta in 2021 as they have ample supplies of fed cattle. A positive development for the Ontario fed market is that the former Ryding Regency slaughter plant in Toronto reopening as TruHarvest Meats and starting to process cattle at the start of March. 

Alberta and Saskatchewan cattle-on-feed inventories on March 1, 2021, totalled 1,004,254 head, seven per cent smaller than last year but six per cent larger than the five-year average. February placements were up 20 per cent from last year and nine per cent from the five-year average. Total heifer placements in January and February were down eight per cent from last year while steer placements were up 31 per cent. With expensive feed grain prices, feedlots may be more interested in placing steers, given their feed conversion. 

Source: Canfax.

The Canadian dollar strengthened to US$0.79-80 in the first quarter, after averaging US$0.7463 in 2020. In March, it was 11 per cent above a year ago and six per cent above the five-year average. The strength in the Canadian dollar is related to the weakness in the U.S. currency. Stronger crude oil prices and the outlook for a strong economic recovery will also underpin the Canadian dollar. A stronger dollar is expected to add pressure to Canadian cattle prices. 

Cow prices steady

Cull cow prices were under significant pressure last fall as packers were working overtime processing the large volume of fed cattle supplies in Western Canada. Monthly Alberta D2 cow prices dropped below $70/cwt in November and were at the lowest level since 2013. Cow prices were sluggish to start this year, but prices rebounded in February and March to around $87/cwt, steady with last year but eight per cent below the five-year average. Ontario D2 cow prices have been seasonal with last year but have averaged about $10/cwt below the West. 

Cow marketings were down 13 per cent in the fourth quarter and remained slow in the new year, with cow slaughter down 11 per cent in the first quarter. Improved forage production last year would have given producers more opportunities to feed their cows over into the new year to wait for improved prices. Seasonally, cull cow prices typically strengthen from late February through to about May with strong grind demand and limited cow supplies before prices soften going into the summer. 

Source: Canfax.

Calf prices strong

Calf prices across Canada saw a strong rally in the first quarter to surpass year-ago prices. Feeder prices tend to decline from January through to March, but prices this year had a contra-seasonal rally to the highest levels since 2016 for February and March. 

Alberta calf prices rallied from $220/cwt in January to $232/cwt in February and trended lower to $231/cwt in March. Prices in March were up three per cent or $7/cwt from last year and up two per cent or $4/cwt from the five-year average. The steer-heifer calf price spread averaged at $32/cwt in the first quarter, slightly narrower from $34/cwt a year ago and steady with the five-year average. Ontario calf prices surged from $208/cwt in January to $228/cwt in February before dropping to $219/cwt in March. The March prices are three per cent or $6/cwt above last year, and two per cent or $5/cwt above the five-year average. Ontario calf prices traded at a $4-12/cwt discount to Alberta prices in the first quarter. 

Alberta 850-lb. steers strengthened from $174/cwt in January to $181/cwt in February before declining to $179/cwt in March. Prices in March were five per cent or $9/cwt above a year and two per cent or $2/cwt above the five-year average. The steer-heifer price spread averaged at $14/cwt in the first quarter, narrowed from last year’s $18/cwt and the five-year average of $16/cwt. Similar-weight steers in Ontario were trading at a $1-$2/cwt premium to Alberta in January and February, but moved to a $1/cwt discount in March. Averaging at $178/cwt in March, prices were two per cent or $4/cwt above last year but one per cent or $2/cwt below the five-year average. 

Source: Canfax.

The strong Canadian feeder market has supported very strong feeder basis levels, despite the strong Canadian dollar. Canadian calf and feeder prices were trading at a $10-$25/cwt premium to U.S. prices in the first quarter. This has resulted in limited feeder exports, and strong feeder imports into Western Canada as Canada continues to be a net importer of feeder cattle. 

Replacement ratios

The lower the replacement ratio, the fewer dollars the feedlot must pay to replace a fed animal with a feeder; conversely, a higher ratio means the feedlot must pay more per pound to replace those animals. Consequently, a higher ratio has negative implications on feedlot profitability as more dollars are spent placing new cattle. 

From Q4 2020 to Q1 2021, the replacement ratios trended one to eight per cent lower in the East and three to ten per cent lower in the West. Compared to Q1 2020, the ratios were one to two per cent higher in the West and three to 10 per cent higher in the East.

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