Fed cattle finding profitable territory

The Markets with Deb McMillin, from the June 2021 issue of Canadian Cattlemen

(Photo courtesy Canada Beef Inc.)

Fed cattle

After over a year of losses, feedlots are beginning to see fed cattle marketed back in profitable territory. Fed cattle prices have strengthened over the past month. Seasonal price improvement, tighter numbers, excellent export demand and strong cut-out values have led to an increase of over $10/ cwt over the past four weeks. The mid-May aver- age at $163.43/cwt compares to $153.01/cwt four weeks earlier and is $56.43/cwt higher than 2020. However, COVID-related plant disruptions were at a peak last May. Looking further back to 2019, the current mid-May average is $7.46/cwt higher but still nearly $8/cwt under the five-year average (excluding 2020). 

In addition to the start of grilling season creating strong domestic beef demand, export demand continues to grow. Through the first quarter of 2021, beef exports were 12 per cent higher, with growth seen in all major markets. When compared with pre-COVID data, the current first-quarter exports were still three per cent larger. 

The fed cattle spot basis was $17.62/cwt over the U.S. market in mid-May, which is extreme given the five-year average cash-to-cash basis for the same week (pre-2020) was -$2.91/cwt. 

Carcass weights have dropped from peaks earlier this year. Steer carcass weight is 924 lbs. as of May 8, which is two lbs. lighter than a year ago but still 34 lbs. heavier than in 2019. Weights in the coming weeks should drop as stronger prices pull some cattle ahead, more calves enter the mix and feed costs remain high. 

Cumulative steer slaughter in Canada is 13 per cent larger than a year ago at 549,041 head as of May 8, while heifer kill is 33 per cent larger at 393,433 head. The strong basis makes it no surprise that fed cattle exports, including cows, are down seven per cent, totalling 165,066 head to the end of April. On May 1, Canfax reported Alberta and Saskatchewan on-feed numbers totalling 988,761 head, down five per cent from a year ago. However, the COVID fed cattle backlog had begun by May so a better comparison would be that the current on-feed total is three per cent larger than the five-year average. 

Deb’s outlook for fed cattle: In the coming weeks prices should be well supported. Yearling supplies will tighten and calves will become a larger percentage of the mix. Carcass weights should decline. Export demand is expected to remain strong in the coming months which will continue to support fed cattle prices. In addition, domestic demand is anticipated to continue to be strong as foodservice in North America gears up for lifting restrictions. Cut-out prices are the highest (except for 2020) since 2014-15, at which time fed cattle prices also experienced a record high, indicating that there is much support for the fed cattle market. However, it’s important to monitor consumers as higher retail prices often lead to alternative protein options becoming more viable. 

Feeder cattle

Feeder prices have held up well this spring with light calves showing some strength at the end of April and start of May. The 550-lb. steer price reached a spring high of $237.30 the last week of April. However, by mid-May, seasonally light volumes, dry spring pasture conditions, a strengthening Canadian dollar and continued high feed costs led to downward movement in the market. 

Grasser-type cattle prices held up well despite this. However, in mid-May, the average on 550-lb. feeder steers fell $4.10/cwt to average $231.90/cwt. Compared to previous years, that price is $1.90/ cwt higher than a year ago and $4.11/cwt above the same week in 2019. Heavier cattle have traded within a fairly tight range over the past four weeks. Feeder steers (850 lb.) saw prices from $180.85/cwt to $182.55/cwt. At mid-month the average was $182.50/cwt, $4.81/cwt higher than a year ago and over $9/cwt higher than the same week in 2019. 

The strong fed cattle basis is translating into the feeder basis as well. The 850-lb. feeder basis is $15.26/cwt. The five-year average for this time of year is closer to $5/cwt under the U.S. market. In addition, the strong feeder basis in Canada limited feeder cattle exports while encouraging imports. First-quarter feeder imports were up 76 per cent from a year ago, totalling 98,000 head, while feeder cattle exports right through the first four months of 2021 total 29,058 head, down 50 per cent. 

Deb’s outlook for feeder cattle: Demand for grass cattle will taper off right away as orders have been filled already and dry spring conditions have buyers concerned about grass supply in the coming months. Expect prices to be under some pressure in the coming month as buyers watch growing conditions and anticipated feed grain costs. Heavier weight feeder cattle that can be placed for finish after the sluggish summer months should start to see a seasonal climb towards the summer yearling market. 

Non-fed cattle

While slow to start, the spring cow rally has arrived. D1,2 cow prices responded to demand for BBQ season and followed the fed market higher in recent weeks. The mid-May D1,2 cow price is $97.07/cwt in Western Canada, over $25/cwt higher than a year ago. Although 2020 is not a good comparison, it’s also $1.17/cwt higher than 2019. 

Week-over-week cow slaughter in recent weeks has been 20 to 30 per cent smaller than 2018 and 2019. At the same time, U.S. canner cow volumes have been large. Western Canada D1,2 cow price averages are over $16/cwt higher than U.S. canner cows. Cow slaughter is five per cent smaller than a year ago at 156,345 head (as of May 8), while butcher bull kill in Canada is 63 per cent larger at 5,389 head. Mid-May butcher bull prices were $114.07/cwt, compared to $108.64/cwt last year. 

Deb’s outlook for non-fed cattle: Cow prices will be well supported in the near term as volumes remain light and demand strong. In general, cow prices remain strong through the second quarter. Moving into summer, keep an eye on pasture conditions for potential drought sales if the Prairies do not get some significant moisture in the coming weeks. 

About the author

Contributor

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

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