Fed cattle prices see slight increase, beef demand strong

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

Fed cattle prices see slight increase, beef demand strong

Fed cattle

After three weeks of hovering around $150/cwt, the average Alberta fed cattle price increased slightly by mid-August to $151.43/cwt. That is $17.32/cwt higher than one year ago when we were still working through the COVID backlog, and over $9/cwt higher than the five-year average. While sale prices are above last year, the high cost of gain left very little room for profit for feedlots through the second quarter. Although this time of year generally marks the lows in the fed cattle market, the U.S. trend has been stronger over the past few weeks. As a result, the strong basis position that Canada held through much of 2021 has weakened, with the spot basis at -$3.82/cwt in mid-August. 

Beef demand remains strong. Export demand in both Canada and the U.S. is outpacing expectations while domestic food-service demands are picking up as COVID restrictions have lifted in many areas through the summer. 

The August cattle-on-feed report also revealed the drought impact, as cattle-on-feed total numbers for August 1 are the largest since the report started over 20 years ago. While slaughter numbers held to seasonal averages, more feeder calves were placed on feed due to dry pasture conditions, increasing the on-feed totals earlier than normal. The August 1, 2021 on-feed total was up 11 per cent from a year ago at 920,982 head. Placements through July were up 98 per cent to total 140,309 head. 

Fed slaughter is larger than a year ago. Steers kill is 10 per cent ahead of last year at 1,031,652 head while heifer slaughter is 620,492 head, up 15 per cent from a year ago. Live fed cattle exports including cows are still under a year ago, down 21 per cent at 235,358 head, cumulative, to the end of July. 

Deb’s outlook for fed cattle: In the near term, the number of market-ready cattle is large and feed costs motivate sellers, leaving the packers with additional leverage. Although the basis has weakened, U.S. buyer interest has not picked up yet. Prices will likely remain mostly steady while front-end supplies work through the system. Strong export demand coupled with growing restaurant demand and tightening supplies will support prices in the longer term. Cut-out values are strong and fed cattle prices should increase seasonally by the end of the fourth quarter. 

Feeder cattle

Extreme drought has left many pastures crisp and winter feed stocks tight. This state of emergency in many areas has producers running out of summer pasture and in desperate shape for fall and winter forage. Cattle numbers have increased at auction and markets that do not typically operate this time of year have been offering special sales to meet the need. Lightweight calves coming to town alongside their mothers are often being split and sold separately. Many light, weaned calves and early-pulled grass yearlings are moving already due to dry and hot conditions. Buyers have been cautious while procuring lightweight calves and although large lots of quality calves saw premiums, the average overall is lower. Steer calves at 550 lbs. dropped $9.75/cwt over four weeks to a mid-August average of $220.83/cwt. Compared to a year ago, the calf price is still $4.20/cwt higher in 2021. 

Demand has remained good from feeders targeted for early 2022, with 850-lb. feeder steer prices averaging $191.50/cwt in mid-August. The 850-lb. feeder basis negative position remained. The mid-August basis was -$7.37/cwt, compared to -$0.17/cwt as the five-year average for the same week. 

Harvest is well underway across the Prairies and feed grain yields continue to dis- appoint. Record high feed costs in Canada have Canadian feedlots considering importing feed or exporting feeders to find cheaper feed sources. Exports have not started to pick up yet. To the end of July, exports of feeder cattle remained 27 per cent below a year ago at 55,757 head.

Deb’s outlook for feeder cattle: Feed grain cost and availability are huge concerns as we move into fall run. Some optimism around live cattle futures into early 2022 should support select weight classes of feeders. However, buyers’ willingness to purchase calves offside will be limited. The cost of gain advantage favours the U.S., which will likely move more feeders across the border, either with U.S. ownership or exported by local buyers to be fed in the U.S. Feeder numbers will increase in the coming weeks. These increased numbers will be met with hesitant buyers offering less money. Hopefully an export floor, strong fed market and beef demand will lead to some stability as we move through the bulk of the calves in the feeder run. 

Non-fed cattle

More cull cows are moving due to deteriorating pastures. Domestic cow slaughter was up eight per cent as of August 7, totalling 263,758 head. Cow sales will increase even with emergency funding announcements from provincial and federal governments, as feed is still unavailable or unaffordable. D1,2 cow prices dropped over $14/cwt in five weeks to a mid-August average in Western Canada of $80.50/ cwt. That average is $8.40/cwt lower than a year ago and over $13/cwt lower than the five-year average. 

Bull prices were also lower, at $106.40/cwt. Bull slaughter in Canada is up 85 per cent to 10,869 head while slaughter bull exports are down 16 per cent at 19,484 head. 

Deb’s outlook for non-fed cattle: Drought-forced sales will pick up as producers make hard decisions in the coming weeks. While beef demand is strong for grinding and trim meat, the volumes of available non-fed cattle are going to outpace the number required in the coming weeks. The start of 2021 saw the cow price above U.S. equivalents. However, over the summer, the U.S. cow price has been outpacing local prices, which should set an export floor price, giving some stability. Nevertheless, increased volumes due to normal seasonality as well as increased drought-related movement will pressure cull cattle prices lower in the coming weeks. 


For more content related to drought management visit The Dry Times, where you can find a collection of stories from our family of publications as well as links to external resources to support your decisions through these difficult times.

About the author

Contributor

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

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