Canadian fed cattle picked up steam over the past few weeks as feedlots remained current and packers had to reach a bit further for inventory. The weaker dollar also contributed to the rally. The week ending Mar. 13, Alberta fed steers jumped $7 from late February to average $92.29. The fed basis has also tightened up since our last press date despite a 38 per cent drop in year-over-year slaughter cattle exports.
The U. S. fed market struggled into March with the falling demand for better cuts but at this writing was poised to take advantage of the positive fundamentals moving into summer. Meat traders have been buying hand-to-mouth, not wanting to get caught with too much product on hand. That made for a long hard winter for feedlots. Losses were upwards of $300 per head. Canadian feeders also experienced negative margins though the winter but were buffered somewhat from the U. S. pain by the weak Canadian dollar.
The cattle on feed in Alberta and Saskatchewan feedlots were up seven per cent from the year before in the CanFax March 1 report. Declining feeder exports and lower feeding costs explain the higher numbers, although February placements were down two per cent year-to-year at 179,038 head. Marketings, both export and slaughter, were also off, by three per cent, at 177, 700 head.
In the midst of calving a producer’s mind tends to wander to what calves may bring come fall. If the year to date trend is any indication of what fall may bring it may make the long hours that accompany a cold calving season worthwhile. To date in 2009 the 850 lb. feeder steers have seen an increase in price from the start of the year totaling $9/cwt. The same period in 2008 saw an increase of less than $1. The mid-March Alberta price on 850 steers was $98.40/cwt, $13.50/cwt more than the same week in 2008, and $1/ cwt more than 2007. Lower feed grain prices are the main driver of the heavy feeder prices.
The lighter end of the calves also rallied in 2009. Since the start of the year Alberta 550 lb. feeder steers have jumped by $17.31/cwt, the largest increase over the first 10 weeks of the year in more than a decade. By mid-March the 550-steers averaged $116/ cwt, more than $12.00/cwt above the same week in 2008.
Although feeder prices have rallied the 850 lb steer basis remains wide. As I write this the basis sits at -$18.20/ cwt, lower than the -$14.30 posted last year at this time. The pre-BSE five-year average basis for this time of the year is closer to -$10/cwt. The added costs in the wake of BSE explain only a portion of the difference we are seeing currently.
This wide basis is reflected in the greater number of feeder cattle moving into Canadian feedlots. Feeder exports to the U. S. are down 46 per cent from last year and by mid March were sitting at a total of 76,100 head. The drop is partly due to competitive feed costs in Canada but the uncertainly around the new final rule covering COOL has also played a role in curbing U. S. demand for live feeder cattle.
The North American cattle inventory is at a 30-year low. In Canada our large cow slaughter in recent years has been supported by strong prices for trim on both sides of the border, the resumption of live cow exports to the U. S., and declining imports of non-NAFTA beef. Prices increased in the past month with Western Canadian D1,2 cows averaging just under $50/ cwt in the first two weeks of March. Last year the average for the same two weeks was $42.70/cwt. Butcher bulls in February averaged $57.70/cwt in
Cattle on-feed numbers in Canada are larger than a year ago but U. S. numbers are down creating tighter North American supplies in the coming months. Moving closer to summer, demand for barbeque products generally drives the market higher. As well, we are in the time of year when basis levels usually tighten. While carcass weights have increased in a contra seasonal manner in recent weeks, the summer demand for beef, the relaxed (official) COOL final rule coming into effect which may send more cattle south and feedlots starting to move younger fed cattle to slaughter may bring the weights down again. Look for fed prices to strengthen assuming the dollar remains weak and economic woes do not trump the North American fundamentals.
Feeder cattle prices experienced a good rally so far in 2009. Cost of gain has made much of this possible. In general the fed market is reflected in the feeder prices. As we move forward feeder buyers will be looking to regain some winter losses on their fed cattle. Demand worries brought on by the recession economy will also keep feedlot buyers cautious. The grass market rallied nicely, but further price strength will depend on the weather, exports and outgoing yearling breakevens.
Cull cattle prices should remain strong, as the numbers available for slaughter fall off over the next month and consumers on both sides of the U. S. border continue to seek out cheaper cuts. Seasonally D1,2 prices are strong through the summer. This year will be no different.
Alberta, which was up from $49.89/ cwt in January and more than $14.50/ cwt higher than Feb. 2008.
Debbie McMillin is a market analyst who ranches at Hanna, Alta.