McMillin: Fed cattle prices slowly improving

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

Fed cattle

Fed cattle prices are slowly improving. The Alberta average climbed $0.50/cwt to $151.20/cwt at the start of February. Since the beginning of the year, the average has climbed nearly four per cent. Packer interest has been solid but larger fed cattle supply has limited seller leverage and high feed costs are encouraging feeders to pull cattle ahead of schedule.

Wholesale beef prices steadily improved through January as beef demand was strong both at the retail and export levels. Slaughter numbers in January outpaced a year ago. The number of fed steers slaughtered domestically was 14 per cent higher at 125,344 head. Meanwhile, the number of heifers killed was up 27 per cent from last January, at a total of 85,718 head.

Carcass weights grew, adding to the total tonnage produced. In early February, the average steer carcass weight increased an additional 15 lbs. to 95 lbs., which is 47 lbs. larger than the same week in 2020. Through January 2021, fed cattle production is 22 per cent larger than in January 2020. Exports of fed cattle, including cows, are reported at 28,550 head through the first three weeks of the year, which is down 15 per cent from the same weeks in 2020.

Cattle-on-feed totals on January 1 in Alberta and Saskatchewan were reported at 1,003,297 head, down 10 per cent from a year ago. However, that is still three per cent higher than the five-year average. Smaller on-feed totals were partially a result of aggressive marketing in December, high grain cost limiting feeder replacements, and good forage supplies encouraging retained feeder ownership. This was particularly evident in heifer placement figures, which were down 35 per cent from December 2019. Steer placements were down five per cent and the total placements down 16 per cent for December at 89,062 head.

Deb’s outlook for fed cattle: Almost a year into the economic disruptions caused by the COVID-19 pandemic, risks to the beef supply chain, such as plant disruptions, remain. However, low case numbers and relaxing restrictions at the time of writing are encouraging. Over the coming weeks and months, staged levels of food service reopenings will be positive for beef movement. Grilling season is just around the corner and wholesale buyers will be looking to secure inventory. Fundamentally, front-end supplies should tighten in the coming month, supporting prices and giving sellers leverage. Pandemic-related challenges need to be monitored, but good demand and talk of economic recovery create cautious optimism.

Feeder cattle

Even as fed cattle prices struggle, the feeder market has held its own to start the new year. Recent strength in forward live cattle futures supported the market up to the first week of February. Light classes of feeder calves have all seen improvement, with 550-lb. steers up $6.50/cwt since the start of January (albeit the volume of feeders that are trading is smaller this time of year). Compared to a year ago, the 550-lb. steer average was down just $1.10/ cwt as of the first week of February.

The increase isn’t as large but the trend is the same in the 850-lb. feeder steers. At an average of $177.45/cwt, the early February price is $3.57/cwt higher than the first week of January and just $0.86/cwt below early February 2020. The 850-lb. feeder basis has widened, going from a positive basis to -$1.53/cwt at the beginning of February. The same week in 2020 saw a basis average at $5.11/cwt.

Feeder cattle exports to the U.S. were down eight per cent in the first three weeks of 2021. A total of 3,151 head were exported.

Deb’s outlook for feeder cattle: Strength in live cattle futures supports lighter classes of cattle while some heavier feeders will be impacted by high cost of gain in the near-term. Further out, forecasted feed grain costs remain high as many farmers lock in fall grain prices well above levels seen at the same time last year. The high feed costs are potentially the largest risk factor for the feeder market. Feedlots need to increase their bottom lines soon to see significant feeder price improvement. In the near-term, demand for grasser-type cattle will be well-supported and these classes should see price improvement in the coming months.

Non-fed cattle

D1,2 cow prices through January did not see the typical rally that the non-fed market generally sees at the start of the year. Instead, they traded at a mostly sideways pattern, between $74.08/cwt and $75.83/ cwt, since late December. The first week of February, the D1,2 cow average was $75.22/cwt, which was down $11.59/cwt from the same week in 2020.

Hook space allocated to non-fed production has been limited as packers work through more market-ready fed cattle. Cow slaughter in January was down three per cent, totalling 37,916 head.

Slaughter bull prices increased slightly in early February. Up $2.00/cwt from the end of January to February 5, they averaged $99.75/cwt. That is down $2.04/cwt from the same week last year. Bull exports to date are higher, up 11 per cent at 1,634 head. Domestic slaughter to the end of January totals 1,117 head, which is up 59 per cent from a year ago.

Deb’s outlook for non-fed cattle: Grilling season will be upon us very soon, which means buyers will be looking forward to hamburgers and supporting the cow market. One factor to watch will be anticipated drought conditions in the U.S. causing heavier sell-off of cows. However, the recent U.S. inventory report confirms further contraction in the U.S. beef herd over the past year already. In the near-term, strong boxed beef prices, limited cull cow availability, typical seasonal price patterns and solid beef demand should support prices to trend upward as we move into the second quarter.

About the author

Contributor

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

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