Domestic, export demand supporting fed cattle prices

The Markets with Deb McMillin, from the November 2019 issue of Canadian Cattlemen

Fed cattle

The western Canadian cash bids have seen week-over-week increases since mid-September. At mid-October, fed prices were nearing $144/cwt. This is $7.57/cwt higher than the low set in August but still $6.38/cwt below the average price the same week last year. Although carcass weights are 10 lbs. heavier than a year ago — at 934 lbs. — beef movement remains good.

Both domestic and export demand have continued to support fed prices through the fall. Beef exports increased in both volume and value in 2019. To the end of August, total exports were reported up 14 per cent from a year ago. As well, cut-out value is moving seasonally higher as we head towards the end of the year. Fed cattle basis is currently -$3.88/cwt which is $11.59/cwt wider than the same week last year. However, the five-year average is -$3.24/cwt. Cattle-on-feed numbers in Alberta and Saskatchewan on October 1 were down four per cent to 724,155 head.

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While placements in September were unchanged from a year ago, the marketings in September outpaced year-ago levels. To date, domestic fed steer slaughter is six per cent above a year ago at 1,362,856 head, while fed heifer kill is also six per cent higher than last year at 725,343 head. Fed cattle and slaughter cow exports are 21 per cent above a year ago at 349,950 head.

Deb’s outlook for fed cattle: Recent strength in cut-out values will continue as we get closer to holiday season and the end of 2019. In Canada the demand from export markets has helped to support the market and should continue. Large domestic slaughter numbers through the third quarter should mean front-end supplies are current and will seasonally tighten. Expect prices to rally towards the end of the fourth quarter as packer margins are good and kill days are expected to increase. Demand is solid and supplies will tighten.

Feeder cattle

Fall-run calf prices have increased over the past month. Since September 20, the 550-lb. calf price has increased $9.65/cwt to an average of $219.40/cwt, which is down just $0.87/cwt from the same week in 2018.

Feeder placement has been slower though the fall run of 2019 than in recent years. Extended grazing has stretched out fall weaning and better feed supplies have led to more retained ownership options. Canadian calf prices continue to be at a premium to the U.S., in part due to a larger calf crop in the U.S. Heavier steers have also seen a steady increase, up more than $10/cwt since August to an average of $198.86/cwt. The 850-lb. basis is currently at $9.51/cwt, which is historically strong for this time of year.

Feed grain prices remain below a year ago and support the feeder market. Barley prices are currently 13 per cent lower than a year ago. That said, unfavourable harvest weather has many operations behind winter feeding preparation, both in getting grain combined and putting up forage. Feeder cattle exports have slowed as Canadian calves trade at a premium to the U.S. market. However, year-to-date feeder exports are still up five per cent, with a total of 167,100 head. Canada also continues to see regular imports of both of beef and dairy calves into Western Canadian feedlots.

Deb’s outlook for feeder cattle: Feeder buyers have been facing some challenges this fall, whether it’s wet, snowy fall weather leading to unfavourable pen conditions or late harvest and silage in some areas leading to delayed calf placement. In addition, although harvest is delayed in many areas of the Prairies, the costs of feed grain and forage availability are better than a year ago. Volumes available at auction in Western Canada are pegged to increase through the end of October and start of November, which could lead to price pressure. Additional risk that should be monitored in the coming weeks comes from the current feeder prices being at a premium to the U.S. market, which leaves room for basis to return to a more historically normal range. This would mean either the U.S. market will move up or the Canadian market will move down.

Nevertheless, demand has been strong for feeder calves. Good-quality packages of calves should fetch premiums in a seasonal fall market. Expect typical pressure that comes from increased fall numbers, but demand for feeders should limit some downside.

Non-fed cattle

Strong trim values through the fall, coupled with lighter non-fed volumes, have helped minimize the downside pressure that is expected this time of year. D1,2 cow prices have traded in a mostly steady range with an average between $85/cwt and $86/cwt for the past month. The mid-October D1,2 cow price average was $86.60/cwt, which is $3.50/cwt higher than the same week last year.

Non-fed cattle is the only sector currently trading at levels above a year ago. While domestic cow slaughter has picked up, the week-over-week comparisons with last year are lighter this fall. However, year-to-date cow slaughter is up three per cent at 389,789 head.

The butcher bull average price at mid-October was $102.40/cwt, which is up six per cent or $5.81/cwt from a year ago. Bull slaughter in Canada to date is down 13 per cent to 12,284 head, while exports are unchanged at 34,952 head.

Deb’s outlook for non-fed cattle: Wet harvest conditions and good fall pasture led to delayed weaning and culling decisions. As calf volumes increase at auction in the coming weeks, so will cow numbers. The increased availability could pressure prices lower in the near term. However, as we near the end of the fourth quarter, increases in cut-out values and fed price are expected, which should also be evident in the direction of non-fed prices.

About the author

Contributor

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

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