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Fed cattle market rebounds after hitting near-decade lows

The Markets with Deb McMillin, from the August 2020 issue of Canadian Cattlemen

Fed cattle

After hitting lows not seen since 2012 in May, the fed cattle market has rebounded over the last several weeks. Two weeks after sinking to a low of $107/cwt in early May, the market recovered, climbing $41/cwt to a weekly average of $148/cwt.

Since May the market trended lower through June but has picked up over the past weeks. The fed market in mid-July averaged $133.44/cwt, which is still $26.44/cwt above the low in May, However it is $12.76/cwt under the fed price the same time in 2019.

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While cash-to-cash basis levels at the start of the second quarter were the widest seen in years, the improvement in the local market moved the spot basis into positive territory in July. The mid-July spot basis is +$2.07/ cwt which compares to -$1.36/cwt the same week last year and the five-year mid-July average of -$2.96/cwt.

Large kill rates in July fuelled by strong wholesale demand has helped work through some of the backlog that was created when packing plants were either closed or slowed due to COVID-19 earlier this spring. Weekly slaughter data for July 11 reported a total of over 70,000 head being killed. Looking at fed steers and heifers only, it was the largest slaughter week in over a decade.

Even though recent weeks have seen large marketing numbers, fed steer slaughter is down four per cent overall when compared to a year ago and heifer kill is down six per cent. Fed steer and heifer kills are at 813,020 and 490,229 head, respectively. The live cattle export market for fed steers, heifers and cows has been strong. To the start of July seven per cent more fed cattle have been exported, totalling 268,549 head this year.

The July 1 Alberta and Saskatchewan cattle-on-feed reported on-feed numbers smaller when compared to the previous month but still higher than year-ago levels. Up five per cent from a year ago, the July 1 on-feed total was 943,959 head. Following several months of below year-ago placement levels the total number of cattle placed in June was six per cent more than a year ago at 82,459 head.

Deb’s outlook for fed cattle: Wholesale beef demand is very strong and kill numbers impressive which should support the fed marketing in the near-term. Lighter cattle-on-feed placement numbers in April and May could potentially help with the backlog of fed cattle that need to be worked through the system. The biggest risk factors in the fed market are the uncertainty around COVID-19, a potential second wave, long-term damage to the economy and a shift in consumer demand and spending. Expect a seasonal decline in the third quarter as front-end fed supplies increase in addition to the backlog the packing plants are still working through.

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Feeder cattle

Feeder cattle prices through the past few months have held steady on light summer volumes. Supported by a stronger fed market and deferred feeder futures, both light and heavy classes of cattle are trading above year-ago levels. Since the end of May, 550-lb. feeder steer prices have seen an average price range from $228/cwt to $229/cwt. The average in the middle of July is $229.13/cwt which is $14.96/cwt above the same week in 2019.

A larger trading range was seen in the heavier feeders over the same period since the end of May, with the bulk of the trade between $176.88/cwt and $182.08./ cwt. The most recent week (July 17) saw $181.63/cwt, which is $4.25/cwt higher than the same time one year ago.

Feeder cattle basis has widened in recent weeks. The current -11.91/cwt is over 7.62/ cwt wider than the same week last year.

Deb’s outlook for feeder cattle: Strong feeder futures continue to support a solid fall feeder run. However, feedlot losses that have occurred in 2020 could weigh on the feeder cattle market come fall. It’s to be hoped fed cattle will trade closer to break-even levels over the summer to leave buyers in a better position as they restock with feeders. That said, pasture conditions across much of the Prairies are excellent. In many areas producers will be able to leave cattle grazing until later in the fall, which will delay the bulk of the feeders coming in the fall run. Fall forage supplies look good in many areas, allowing for additional backgrounding programs at the producer level. This will likely spread available feeders over several months and allow for producers to wait and see with the market. As we move into the fall it will be important to watch the ever-changing COVID-19 situation and its effects on the economy.

Non-fed cattle

Good trim and grinding meat demand has supported the non-fed market. The typical light summer volumes have seen even fewer cows on offer as good pasture conditions and uncertainty in the markets kept cows at home early in the year. In early to mid-July, the D1,2 cow price has held mostly steady at $89.25-89.50/cwt, which is $3/cwt higher than the same time in 2019. Cow kill is smaller as much of the hook space over the past four months has been dedicated to fed slaughter; however, to date in Canada 224,371 head of cows have been killed, which is down 21 per cent from a year ago.

Bull price in July is holding steady. At $119.68/cwt in mid-July, it’s more than $9/ cwt higher than the same week in 2019. Bull slaughter is also below year-ago levels, down 31 per cent to a total to date of 5,128 head. Exports of bulls to the U.S. for slaughter is down 12 per cent this year at 19,143 head.

Deb’s outlook for non-fed cattle: Although Canadian D1,2 cow prices have moved into a slight premium to U.S. canner cows, support from a solid export floor is expected through the remainder of the summer months as trim prices south of the border remain above year-ago levels. In the near term, summer North American grilling demand coupled with tightened summer cow supplies should support fully steady to higher non-fed prices.

About the author

Contributor

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

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