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Continued demand for beef keeps fed cattle prices steady

The Markets with Deb McMillin, from the September 27, 2021 issue of Canadian Cattlemen

Continued demand for beef keeps fed cattle prices steady

Fed cattle

Aggressive local slaughter, continued beef demand and up-to-date marketing of front-end supply kept fed cattle prices steady to slightly higher through August and September. The first week of September leading into the Labour Day weekend saw an average fed steer price at $156.27/cwt, an increase of $1.88/cwt from the previous week and over $19/cwt higher than the same week in 2020.

A year ago, much of the market discussion focused on the COVID-caused beef backlog. However, in recent weeks packing plants increased weekly production and front-end supply has remained current. This is also evident in carcass weights, as a combination of packer demand and high feed costs led to carcass weights under a year ago. The current average steer carcass weight is 904 lbs., four lbs. less than the same week in 2020.

Total slaughter in Canada is 12 per cent higher than a year ago. Steer slaughter is up 11 per cent at 1,163,162 head. The increase in heifer slaughter is even larger, up 14 per cent totalling 671,804 head. Packing plants are keeping more cattle in Canada, which is evident in the smaller export numbers. Exports of fed cattle including cows is down 17 per cent to 262,617 head.

Deb's outlook for fed cattle: September is often a sluggish month for the fed cattle market. However, feedlots have remained current, carcass weights are below year-ago and beef demand is strong. As domestic consumer demand softens through September and October, fed cattle prices trend lower. But export demand remains strong for boxed beef and packers have had a profitable summer, which will limit the downside in the coming month. Looking out further, the fourth- quarter domestic demand generally improves heading towards the holiday months, fed cattle supplies tighten and prices should improve. It will be very important to watch consumer trends in the coming weeks as at press time in early September we were starting to see restrictions again as a result of the fourth wave of COVID in North America.

Feeder cattle

Feeder cattle continue to be marketed ahead of schedule as pastures have no more to give and cattle are coming home earlier than usual. August saw auction markets running full sale schedules both at the market and electronically. Volumes are expected to continue through September as harvest wraps and focus shifts to fall cattle work for farmers.

Although feed prices are high, the market has seen strength over the past weeks. Yearlings off grass moved earlier this year, but prices remain strong. The start of September saw 850-lb. steers average $195.25/cwt, which was up $4.70/cwt from the August low, and $5.42 higher than the same week in 2020. Compared to the U.S. market, the cash-to-futures basis is weaker, currently -$6.02/cwt compared to $4.42/cwt one year ago.

High feed costs will generally affect lighter-weight feeders the most this time of year. However, prices are holding their own in recent weeks. Buyers are looking to replace cattle and fill pens as they are in a fairly current position as far as fed cattle marketings. The 550-lb. feeder steer price in Alberta the first week of September was $225.32/cwt, which was up $4.50/cwt from the lows seen in August and is more than $11.50/cwt higher than the same week in 2020.

The largest impact on feeder cattle prices is usually the cost of gain. Harvest is wrapping in many areas and barley priced almost double what it was one year ago. Corn is flowing into Canada, but the feed advantage is still south of the border, which could lead to increased feeder exports as we move through the fall. To date feeder cattle exports are still 13 per cent under a year ago with a total exported to mid-August of 69,774 head.

Deb's outlook for feeder cattle: The live cattle futures market is reflecting market optimism. However, as fall run volume increases, prices will adjust to the larger numbers. High cost of gain leading to high breakeven costs will be the largest obstacle for the feeder market in 2021. An export floor and market optimism should provide some stability. Nonetheless, feeder prices will trend lower in the coming weeks.

Non-fed cattle

As summer nears its end, cow prices have pulled back and begun their seasonal move lower. The market dropped $4/cwt to a September 3 average on D1,2 cows of $76.40/cwt. The early September average is 26 per cent lower than the annual high set in the second quarter and down $10/cwt from the same week in 2020.

The market supply is expected to increase drastically as farmers and ranchers finish harvest and calculate how much feed they have available for winter. Although government programs have been put in place to assist with feed and water expenses, in many cases it just isn’t possible to locate forage within a reasonable distance. This will lead to an aggressive cull of the beef herd this fall.

Cow slaughter in Canada is already 10 per cent ahead of the same period in 2020, with a total of 289,982 head marketed as of August 28. Bull slaughter in Canada is up 67 per cent to a total of 11,879 head. However, bull exports for slaughter are down 11 per cent at 23,129 head.

Deb's outlook for non-fed cattle: There are limited winter forage stocks across the Prairies. Out-of-the-box alternatives for feed are available in some areas; however, this just isn’t the case for many producers. This is going to lead to a significant increase of cows available for slaughter in the coming months as producers bring herds home and make tough decisions. As Canadian cull prices dip lower, there should be some support from U.S. buyers to fill orders. However, local sellers should expect cow prices to decrease in the coming weeks as supply increases.

About the author

Contributor

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

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