This spring, weekly slaughter levels were nearly 60 per cent lower than a year ago and the lowest recorded since 1973. From mid-March to the first week of May, the cash market dropped $50.56/cwt to reach a low of $107.00/cwt. Although volumes are light, losses on cattle sold into this lower-cash market are significant. As of mid-May, there are an estimated 130,000 market-ready cattle backed up. That number will grow with reduced hook space.
Although packing facilities are not operating normally in North America, recent weeks have seen plants restart operations and increase shifts. Prices have moved up to an average of $121.81/cwt, as of mid-May. That’s still down $29/cwt from a year ago but moving in the right direction.
The May 1 cattle-on-feed report shows on-feed inventories up four per cent from a year ago, putting the total at 1,045,991 head. Since the start of the Alberta and Saskatchewan cattle-on-feed reports 20 years ago, there have only been two other times where the on-feed total on May 1 was higher than the current year.
Decreased prices, market uncertainty and reduced available pen space led to fewer placements for the month of April, with the total down 25 per cent compared to a year ago at 112,925 head. Significantly lower slaughter numbers as a result of packing plant issues led to reduced marketing numbers reported in the May cattle-on-feed report. At press time, fed steer slaughter is down just four per cent from a year ago at 506,721 head, while fed heifer kill is down 15 per cent to 310,473 head. Cash-to-cash basis is wide, ranging the last month from -$16/cwt to -$33/cwt.
Deb’s outlook for fed cattle: While cash prices have responded to increased packer capacity, there are many cattle to move through the system. It is estimated that over 130,000 head of fed cattle were backed up as of mid-May, with that number increasing each week of reduced slaughter. Demand for beef products is seasonally high this time of year. In addition, as regular activity is phased back in across Canada, food service sales will increase.
Boxed beef sales are strong and prices high as supply is short. Live cattle futures are gaining momentum; however, cash prices will depend on kill numbers, as packers work through the backlog of market-ready supply.
The feeder market, pressured by fallout in the fed market and the feeder futures, slid lower for several weeks. However, optimism fuelled by a stronger futures market, basis and fed market has led to a rally in all classes.
The 550-lb. feeder steer average as of mid-May is $230/cwt, which is an increase of $15/ cwt since April’s low and actually $2.21/cwt higher than the same week in 2019. There is more resistance to heavier feeder steers as the backlog of cattle headed for the summer market creates competition for pen space and ultimately hook space. Nevertheless, the 850-lb. feeder steer average rebounded to $173/cwt by mid-May. This is still -$4.21/cwt under the year-ago average but an improvement of $18/ cwt over recent weeks. The 850-lb. feeder basis has narrowed to -$0.75/cwt as of mid-May, which compares to -$2.87/cwt last year.
Cumulative feeder exports to the first week in May were 46 per cent lower than a year earlier, with a total of 57,644 head exported. Feeder cattle imports in the first quarter of 2020 totalled 53,000 head, an increase of 18 per cent compared to the first quarter in 2019.
Deb’s outlook for feeder cattle: Improved slaughter pace has supported optimism with regard to procuring feeder cattle. Improved live cattle and feeder futures are both supportive. Backlogged fed cattle will plague heavier feeder placement, limiting bunk space in the coming months.
Demand for grasser-type cattle will be supported if spring pasture conditions improve. Upside in the feeder market will be limited for the near term while packers try to work through market-ready fed cattle, creating pen space and alleviating overall uneasiness across all sectors of the industry.
The cow market improved following the initial fallout from COVID-19. While local plants are not actively buying many non-fed cattle, export buyer interest has helped pull prices to a more historically normal level. Spring lows for D1,2 cows were recorded at $66.57/cwt, which was a drop over four weeks of $26/cwt. Mid-May saw cow prices rebound to an average of $78.29/cwt; however, this is still nearly $20/cwt under the average price the same week in 2019.
Sale volumes have been light, both because of normal seasonality and because producers are redirecting some cows into the breeding herd to wait out the market uncertainty. Domestic cow slaughter dropped drastically in recent weeks. Canadian cow kill was 40 per cent higher by May 9 than a week earlier; however, it’s still 55 per cent below the same week in 2019. As of May 9, the number of cows killed in Canada is down 18 per cent from a year earlier at 170,239 head.
Domestically, bull slaughter has been very light, with 56 head slaughtered the first week of May. This was a 100 per cent increase from the previous week. But 2020 total butcher bull slaughter was down 29 per cent, to a total of 3,372 head. Bull prices have held on throughout the last few weeks. The average was $108.64/cwt as of May 15, which is $2/cwt higher than a year ago.
Deb’s outlook for non-fed cattle: The larger Canadian packing plants are not highly active players in the cow market. As U.S. packers move towards a more normal kill schedule, cow exports are expected to pick up and cow prices have a more solid export floor. North American demand for grinding and trim will remain strong throughout the summer and prices should reflect this as long as non-fed slaughter capacity is available. The recent trade restrictions China placed on Australia may also affect export demand. Cow volumes should remain light as we head into the summer.