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Good beef demand in 2019 supports fed cattle prices

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

Fed Cattle

Demand has been key in 2019. Good beef demand in both Canada and the U.S. has supported fed cattle prices throughout the year. Fed prices rallied again in November and early December in Western Canada.

Support coming from tighter front-end supply and growing holiday demand led to a 13 per cent increase in the cash fed price in Western Canada since the low in September. At the start of December, the average fed price in Western Canada was $154.14/cwt, compared to $151.06/cwt last year.

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At an average price of $154.14/cwt, the early December fed market was $7.13/cwt higher than two weeks earlier and nearly $11.50/cwt higher than the average price one month earlier. The cash-to-cash fed basis narrowed to -$7.44/cwt.

Weekly fed kill at the end of November was the highest weekly slaughter for November since 2005. Total slaughter was 1,598,708 head of steers and 853,090 head of heifers, which was up seven per cent and four per cent, respectively. Up to the third week of November, fed cattle exports (including cows to the U.S.) were up 22 per cent, at 426,463 head.

Deb’s outlook for fed cattle: Feeder placements through the spring were light, which should mean front-end supplies will remain tight at the start of the new year, before the yearling run starts. Beef demand is good and the export market and reopened border with China are supportive. The Tyson plant that was closed earlier this year due to a fire has also reopened, which will help with timely slaughter and movement in the U.S. Buyers looking to fill holiday orders are aggressively competing for tightening supplies, which is always good for the market. Prices in the near term should be well supported and are expected to have strengthened through December. The fed market should continue to be well supported as we move into 2020.

Feeder Cattle

Feeder cattle prices have been mixed. Strength on lightweight feeder steers was noted while the prices of the same weight classes of heifers have been steady to lower. At the same time, 850-lb. feeder steers have been under pressure, slowly moving lower in the late fall.

An improved fed cattle outlook helped 550-lb. feeder calf prices in early December. The average at $218.75/cwt was $6.83/cwt higher than the same week in 2018.

In contrast to the improvement seen in the 550-lb. feeder price, the 850-lb. steer average dropped by $5/cwt, sitting at an average of $175.41/cwt at the start of December. Even as the market moved lower, the 850-lb. feeder basis strengthened in early December. At +1.54/cwt, the basis level was more than $14/cwt stronger than a year earlier and nearly $10.50/cwt stronger than the five-year average.

Feeder exports lingered below numbers from a year ago, with the total to the third week in November at 180,885 head. That was down two per cent. At the same time, data shows a continued increase of feeder cattle imported into Canada up 34 per cent from the same time in 2018.

Deb’s outlook for feeder cattle: Heavy feeders generally soften towards the end of the year and start of the new year, as their finish dates hover around the sluggish summer fed market. However, the first quarter should start to see buyers gathering lighter-weight feeders for grass, which will be supportive to a typically strong price period. December means the end of special calf sales and the annual winding down of regular feeder sales for the year. Volumes on offer will be low as we close out 2019 and prices may vary. However, quality groups of light cattle will be steady to stronger. Replacement-type heifers will remain strong as buyers look to purchase before the end of the tax year.

Non-Fed Cattle

The lows in the cow market held even as the trim prices were strengthening in November. However, at the start of December, the cow market moved off its annual lows and started to strengthen seasonally again.

The positive move in the fed market, cut-out strength and holiday demand started to affect the non-fed market in Western Canada, as it would appear the lows are now in for 2019. D1,2 cow prices averaged $81.40/cwt as of the first week of December, which is nearly $8/cwt higher than the same week in 2018.

Weekly cow slaughter numbers have been higher in November. The annual total as of November 30 sat at 464,919 head, which was up just one per cent from a year ago.

The butcher bull price was $97.85/cwt in early December, which was down slightly from the previous two weeks. However, this was still stronger compared to the same week a year ago, when the slaughter bull average was $84.75/cwt. Bull slaughter in Canada was down 10 per cent at a total of 14,793 head as of November 30. Meanwhile, slaughter bull exports were up five per cent at 43,164 head as of November 23.

Deb’s outlook for non-fed cattle: Improved beef demand and reduced supply of non-fed cattle will support cull cattle prices through the end of 2019. Volumes at auction will have tapered off throughout December as producers will have already made their culling decisions and sold. Improved feed stocks in many areas allowed producers to hold on to more cows and bet on an improved market in the first quarter. D1,2 cow prices have a very strong seasonal pattern, which suggests the price rally will continue into 2020. Speculative buyers looking for feed cows in the short term are betting on climbing non-fed prices to reach the already stronger trim market. Expect cull cattle prices to strengthen as we start the new year.

About the author

Contributor

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

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