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Debbie McMillin – for Apr. 5, 2010

Fed Cattle

Fed cattle prices increased over the past six weeks despite the dollar. A stronger basis reflected increased export demand supported by a weather market in the U. S.

Alberta fed steers moved from $76.62 to $84.70 per cwt at mid-March as the basis narrowed to 8.03 under the U. S. compared to -15.17 per cwt last year.

Extreme winter weather that hampered delivery schedules and reduced carcass weights across the U. S. for the past several weeks pulled prices higher. At the same time Canadian carcass weights have been climbing four to six per cent per week in 2010, reaching

877 pounds nationally in mid March,

36 pounds more than last year at this time. Domestic slaughter is up one per cent on fed steers and down six per cent on fed heifers, at 422,063 head to mid month. Slaughter cattle exports have picked up again, increasing four per cent on the year to 112,362 head by the end of February.

CanFax’s March 1 cattle on feed survey reported 1,002,354 head in Alberta and Saskatchewan feedlots, five per cent more than last year. Placements were up 19 per cent with the largest increase being a 58 per cent jump in heavy feeders, 800 pounds and up.

Feeder Cattle

Lightweight 550-pound Alberta feeder prices have increased $19 per cwt in 2010, to average $119.42 at mid March. That’s a shade higher than last year and nearly $17 above 2008. Heavy feeders cattle prices have increased very slowly since the start of the year. The last few weeks 850-weight steers averaged between $96 and $97 at mid-March. The 850-feeder basis is 9.10 per cwt under the U. S. , well above the -21.25 per cwt posted in 2009.

As the basis predicts, feeder cattle exports have fallen in 2010, dragged down by COOL restrictions and the soaring strength of the Canadian dollar which isn’t expected to change course any time soon. To the end of February Canadian exports of feeder cattle were off 71 per cent at just 22,930 head.

Non Fed Cattle

Demand for non-fed cattle continues to be strong. D1,2 cow prices in the past nine weeks increased more than $10 per cwt. In the three weeks to mid-March the Alberta price increased from $47.19 to $53.11. The aggressive slaughter of cows in Canada in the past few years has tightened overall supplies. As a result 2010 Canadian cow slaughter is down 13 per cent from 2009 and 24 per cent from 2008. Over the past three years D1,2 cow prices during the first quarter have increased by 25 per cent. To mid-March in 2010 prices were right on track, advancing by 24 per cent. There has been good demand for cows in the U. S. and in Canada. To date, exports of live slaughter cows are running 12,339 head or 38 per cent ahead of last year for a total of 44,723 head. Butcher bull prices in Alberta jumped more than $7 per cwt year-to-year through February to average $57.56.

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

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Since October of 2009, Canadian feeder cattle exports to the U. S. have been down sharply in comparison to normal. The strengthening Canadian dollar caused domestic feeder cattle prices to be 20 per cent higher during the fall, valued in U. S. dollars. This kept U. S. buyers are bay as their local supplies were more competitively priced. However, in January, the U. S. feeder market started to trend higher and in mid-March was showing a US$10 to $12 per cwt premium over Canadian values, which is usually

enough to enhance the export program. In this article, I want to discuss the feeder cattle export situation and provide an idea as to the price outlook for the next three to six months.

Documentation in regards to age verification, vaccination and premise ID are very important to enhance feeder cattle exports in Manitoba and eastern Saskatchewan. U. S. feedlots need to have a sufficient volume of traceable, age-verified cattle to make it worthwhile. In the past, U. S. feedlot operators have complained that they cannot find enough cattle with appropriate documentation. There are also many cow-calf operations that don’t vaccinate their calves. Adverse weather this past winter in the U. S. Southern Plains and in the Midwest increased the probability for death loss during transportation or in the early days after feedlot arrival. U. S. feedlot conditions were very poor at best, limiting buying interest. The main U. S. cattle-feeding area experienced record snowfall which amplified adverse conditions during the melt. All these factors have contributed to the lower export demand despite the U. S. market showing a favourable premium to pull Canadian cattle south.

Notice during the fall of 2007, feeder exports cattle were quite high despite the Canadian dollar trading at a premium to the U. S. greenback. However, another main factor that contributed to the lower price structure is the fact that the U. S. feedlot operators experienced a prolonged drought of nearly 24 months of negative margins. Corn prices were hovering above $4 per bushel for most of this period causing cost per pound gains to exceed US$0.90. Stronger energy prices will continue to strengthen corn prices due to the ethanol consumption. This U. S. energy policy has been negative for North American feeder cattle price. Significant feedlot equity deterioration has also contributed to lower feeder cattle prices.

Canadian steer and heifers numbers (over one year old) as of January 1 were 150,000 above year-ago levels due to the slow export pace in the final quarter of 2009. For January and February, the lower export pace is adding about 30,000 head per month to the domestic market. In total, supplies of feeder cattle in Western Canada during the first quarter of 2010 will be 207,000 head above last year. These larger supplies are not going into domestic feedlots at this time so the burdensome supply will hang over the market into the spring and potentially into summer.

Despite the larger supplies, I’m somewhat optimistic moving forward. Finishing feedlot margins are starting to improve which will translate into a firm feeder market. The expanding U. S. economy and improving consumer incomes will also underpin the overall cattle complex. Beef exports are also poised to exceed pre-recession levels as Southeast Asia comes back on stream. In the latter half of 2010, the market will start to contend with the historically tight calf crop.

In conclusion, the overall economics favor stronger feeder cattle prices moving forward. However, age verification, premise ID and vaccination documentation is also important to enhance feeder cattle exports. Stronger energy prices will temper the upside in price structure due to higher corn and feed grain prices.

Gerald Klassen is a commodity market analyst in Winnipeg and maintains an interest in the family feedlot in southern Alberta. He writes an indepth biweekly commentary called Canadian Feedlot and Cattle Market Analysis for cattle producers in Western Canada. He can be reached by email at [email protected]or 204-287-8268 for questions or comments.

The material contained herein is for information purposes only and is not to be construed as an offer for the sale or purchase of securities, options and/or futures or futures options contracts. While the information in this publication cannot be guaranteed, it was obtained from sources believed to be reliable. The risk of loss in futures trading can be substantial. The article is an opinion only and may not be accurate about market direction in the future. Do not use this information to make buying or selling decision. This outlook may be wrong and could cause adverse financial consequences if decisions are based on this information.

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

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