Coronavirus impact spreads to cash cattle markets

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

Fed Cattle

A downtrend in the technical market in recent weeks resulting from uncertainty surrounding the economic impacts of the coronavirus has spread to the cash market as well. Locally, the cash fed cattle price has fallen $11.00/cwt over the past two weeks. The current fed steer average is $152.54/cwt. Fortunately, the higher prices that started 2020 signaled sellers to move cattle, leaving feedlots current in their marketing, so volumes trading at the lower prices are light. Fundamentally, the market is stable, beef demand is solid and front-end market-ready inventory is manageable.

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The average basis has widened back to a negative position, but it is narrower than a year ago. At the current -2.68/cwt, it is over $5/cwt stronger than a year ago and $1/cwt stronger than the five-year average for the same week.

At the start of February, the cumulative steer slaughter was up eight per cent when compared to last year, totalling 140,706 head. The same time frame saw 84,526 head of heifers slaughtered, which was one per cent higher than a year ago.

While the number of fed cattle slaughtered domestically is higher, carcass weights continue to be lighter, as the stronger market has pulled cattle ahead. Through January, the average steer carcass was 29 lbs. lighter than in 2019. Exports at the start of the year for fed cattle (including cows) total 33,031 head as of early February, which is an increase of three per cent when compared to the same weeks in 2019.

Deb’s outlook for fed cattle: It’s to be hoped the market uncertainty around the coronavirus’s effect will stabilize in coming weeks. Historical trends indicate a rise in the market moving into late February and early March. Both domestic and export beef demand remain strong in North America, which should continue to support the market. In the near term, seasonal spring demand from retailer barbeque features should lend support to the market. Looking further out, the on-feed reports suggest more cattle will be marketed the closer we get to the third quarter. Although the overall beef market seems optimistic, it remains important to take advantage of any risk management opportunities that may come available.

Feeder Cattle

Fed cattle prices have been below break-even. This has pushed some of the heavier classes of cattle lower more quickly than expected. The 850-lb.-feeder-steer average of $178.31/cwt at the start of February was down $10/cwt from its January high just two weeks ago and is currently almost $3/cwt lower than the same week in 2019.

That said, while some classes of feeder cattle have seen pressure in recent weeks, the lighter cattle have remained mostly steady. Demand for stocker cattle generally picks up this time of year as buyers start to put together packages to go out to grass. Since the start of January, the 550-lb.-feeder-steer price has seen a trading range from $223.08/cwt to $229.68/cwt. The early February average was a steady $226.35/cwt, which was $8.85/cwt higher than the same week in 2019.

Auction market volumes through the start of 2020 were slow but large numbers in the past two weeks have totals right on par with a year ago. Prices on lighter calves continue to be at a premium to the U.S. market, which has slowed exports. The total number of feeder cattle exports in the first three weeks of 2020 was 3,438 head, which was down 60 per cent from the same weeks in 2019.

Deb’s outlook for feeder cattle: Typically, larger feeder prices will remain under pressure as this weight class — placed now — is looking at a sluggish summer market finish date. Recent pressure on the Canadian dollar should be a positive. The reduction in feed barley price (when compared to a year ago) should also be a positive. Good seasonal demand for grass cattle should keep 500-600 lb. grass-type cattle well-supported moving into spring. All eyes will be on moisture expectations and pasture conditions in the coming months as buyers assess their stocking requirements and place grass cattle orders. Although the overall industry feels positive heading into 2020, it will be important to be mindful of the volatility in the market and manage risk whenever possible.

Non-fed Cattle

D1,2 cow prices continue to trade eight to 11 per cent higher than the fourth-quarter low of 2019. The average at the start of February was $86.13/cwt, which is $4.13 higher than a year ago and over $6/cwt premium to the U.S. utility cow market. Cow volumes have increased in recent weeks. However, year-to-date total cow slaughter is down 13 per cent at 50,522 head.

Butcher bull average price at the start of February was $101.79/cwt, which is $10.36/cwt higher than the same week in 2019. Domestic bull slaughter is up 16 per cent already in 2020, with a total of 1,055 head, while the export total for bulls is down 19 per cent to a total of 1,465 head.

Deb’s outlook for non-fed cattle: Trim and grinding meat demand has been strong. This is expected to continue as we move towards summer grilling season. At the same time, volumes of non-fed cows will decrease as most operations are in the midst of calving season and cows have either already been sold or are heavy in calf. Seasonally, non-fed prices should continue to climb through the rest of the first quarter and into the second. Expect a solid uptrend in the cull cow market in the coming weeks.

About the author

Contributor

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

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