In the near term, supplies will remain sufficient in North America. The market remained sluggish at the end of 2009 as packing plants were long on inventory and heading into holiday kills. Looking into the first quarter of 2010, a large number of early-placed yearlings that put on gain during a relatively mild fall will be coming to market. The economy continues to be the wild card; any non-stimulus growth in the U.S. will be positive news. Even so, when the economy starts to turn it’s unlikely beef demand will spring back quickly as consumers are reluctant to increase spending too early during the recovery phase of a recession. Fed cattle prices are expected to start the new year steady at best. The Canadian fed cash market needs to see a lower Canadian dollar, smaller carcass weights and increased demand in 2010.
Calf prices generally see a seasonal increase as supplies tighten up and the new calf crop starts to hit the ground. But heading into the first quarter of 2010 we are looking for steady feeder calf prices. The feeder basis is tight and the Canadian market will likely follow moves made in the U.S. On the negative side, the outlook for fed cattle is fairly bleak and that is bound to influence the feeders. Keep a close eye on the Canadian dollar. Any upward movement in the exchange rate would be very negative to prices while a strengthening U.S. dollar could create room for additional feeder exports in the New Year.
As we move into the new year the supplies of cull cows coming to market should tighten, giving some improvement in prices. The economic crisis has driven consumers to eat more meals at home and that is supportive to the cow market. This reinforces the seasonal trend that historically sees cow prices slowly push higher through the first quarter reaching a high in late summer or early spring.
Fed cattle prices continued to struggle in the fourth quarter. October fed steers averaged just shy of $81 per cwt (down $12.40 from 2008) while the November average slipped to $78.76/cwt. Up to press time in December Alberta prices were averaging a disappointing $77.03, a full 21 per cent below a year ago. Cutouts continued to pull the cash trade down. Slow beef movement prevailed heading into the last month of the year as the post-U.S. thanksgiving trade was even slower than normal. This slow trade was easily satisfied with ample supplies on North American markets. Carcass weights continue to run high, by as much as 34 pounds over 2008 in Canada at the start of December. But that is merely a symptom of a market beset by slower beef movement, unstable fed markets, larger domestic kill, a rapid rise in the Canadian dollar and a cheapening cost of gain.
The fed steer basis in early December was -9.00 per cwt, which is the narrowest cash-to-cash basis for that week since 2001. By comparison it was -20 under the U.S. during the same week in 2008 and -12.50 in 2007. Fed cattle exports to the third week of November totalled 485,724, down 22 per cent from the year before.
Alberta calf prices over the past six weeks remained mostly steady trading on either side of $105 per cwt. Despite a struggling fed market and no significant opportunities to hedge profits on live cattle into 2010 feedlot demand has held the feeder market throughout the fall run. The smaller 2009 calf crop had buyers eager to tie up inventory before year-end. At the start of December 550 Alberta feeders averaged $105.08/cwt which was basically unchanged from 2008 and 2007. Heavier feeders bounced between $91 to $93 for the past few months settling at $90.02 in the first week of December which was down more than $4.50 from last year and $2.50 below the price paid in 2007.
The feeder basis remains very tight. At press time feeder prices were running higher than the U.S. if quoted in Canada dollars and the freight is factored in. The average basis in November was -6.39 per cwt, the tightest it has been since 1997. As a result, feeder exports continued to track well below year-before levels. Up to the third week in November we exported 267,060 feeder cattle to U.S. buyers. That’s down 54 per cent from the same point in 2008.
Although the November cow kill in Canada was smaller than a year ago it was still large compared to other years. The same story was unfolding in the U.S. Not surprisingly, large volumes led to seasonally lower prices through the month. Western Canadian D1,2 cows averaged $34.11 per cwt in November, down from $35.55 in October and $4.70 below what cows were bringing in 2008. Butcher bulls in November averaged $44.52, down by $1.44 from the month before and off $7.02 on the year.
Debbie McMillin is a market analyst who ranches at Hanna, Alta.