McMillin: Fed-cattle prices stubborn to move

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

Fed cattle

December is typically a strong month for fed cattle prices and while prices have started moving higher, the rate of increase has been disappointing. Recent foodservice restrictions, cancelled holiday parties, uncertainty around jobs and income all have an impact on beef movement. However, more people working from home and limited restaurant spending has increased retail beef sales. Beef demand through the fall has remained strong.

Stronger cut-out prices and increased slaughter numbers have not moved prices into a typical December rally. The mid-December fed steer average was $139.42/cwt, an increase from the fall low of $133.20/cwt. However, it is still down $15.52/cwt from the average one year ago. After trading below the U.S. price through the fall, the cash-to-cash fed basis is currently $3.58/cwt above the U.S. market.

Fed cattle slaughter rates are impressive as packers maintained increased kill hours through early December. As of December 5, fed steer slaughter is up one per cent to total 1,647,927 head. In recent weeks, the year-over-year slaughter rate has been larger. Early December saw steer slaughter 15 per cent above the same week in 2019. Heifer slaughter is still five per cent below year-ago levels, totalling 827,432 head.

Early November weekly steer carcass weights were down from the peak at 969 lbs. The weekly weight for early December averaged 948 lbs., which is still 17 lbs. above the same week one year ago. Lighter carcass weights indicate fewer pounds needing to work through the pipeline and a more current position.

Fed exports, including fed steers, heifers and cows, are up three per cent, with a total exported to the end of November at 452,359 head.

Deb’s outlook for fed cattle: Recent lockdowns have slowed food service sales. However, increased retail beef sales are expected while restaurant traffic slows. Hopefully our food service industry can hold through the holidays and get back to more normal business in the new year.

Lower estimates for recent beef production spurred optimism in both the fed and feeder markets. However, as 2020 ends, the Canadian dollar and economic uncertainty are still limiting factors. First quarter 2021 should see the economy getting back on track and family schedules returning to a more normal state, supporting beef movement, fed cattle prices and optimism in the cattle industry.

Feeder cattle

Feeder cattle held relatively solid through the fall run as grain prices climbed. A 34 per cent increase in barley price from August to December, coupled with a stronger Canadian dollar and poor feedlot margins, may have led to a sharper drop in feeder prices. The 550-lb. steer calf market picked up from the late October lows of $204/cwt, peaked in November at $217/cwt and settled back to $215.18/cwt in mid-December, which is just $6.88 under the same week in 2019.

Uncertainty around beef movement and the spring economy contributed to a larger year-over-year difference in the heavier feeders. The mid-December 850-lb. feeder price on light volumes is $175.60/cwt, which is $14.05/cwt under the year-ago prices. The 850-lb. feeder basis is showing a premium to the U.S. market at +$0.22/cwt.

Feeder exports have been higher in recent weeks. However, for the year the total exports are still down 39 per cent with a total of 110,686 head.

Bred cattle sales in late 2020 have been strong. Dispersal sales and bred heifers from reputation programs have been topping the market, with crossbreds of high quality reaching prices of $2,800-$3,000. Bred heifer lows are trading closer to $2,000, with average sales at $2,200-$2,400. Lots of interest as producers look to spend tax money and have additional feed supplies this winter.

Deb’s outlook for feeder cattle: Auction market volumes will ease as 2020 specialty calf sales are now behind us. Feedlot costs are high. Currently local grain prices put our local feedlots at a cost-of- gain disadvantage in the market. Feeder cattle prices will likely hold steady while some tax dollars are cautiously spent and feedlots wait to see what 2021 has in store.

Non-fed cattle

Cow supplies at auction remained manageable through the fall run. Demand remains steady for grinding and trim meats, which should continue as increased COVID-19-related lockdowns means more consumers looking for economical beef cuts to prepare at home. Cow prices picked up slightly in mid-December, averaging $70.80/cwt in Western Canada. That is up $2.60/cwt from the fall low but $13.53/cwt under the year-ago average.

Bull prices are also lower, averaging $95.44/cwt in mid-December, which is $4/cwt below the year-ago average.

The weekly cow kill numbers increased in late November and early December. The last two weeks of November marked the first time cow kill numbers climbed over 10,000 head since mid-March. As of December 5, cow slaughter for 2020 has totalled 380,721 head, down 20 per cent from last year. Meanwhile, bull slaughter is also lower at 12,410, down 18 per cent. Bull exports are down 11 per cent to 39,132 head.

Deb’s cull outlook: In general, cull cattle prices pick up as we start a new year. Factors suggesting some improvement include increased beef retail sales and additional at-home meals, additional feed stocks and bred cattle demand keeping cows out of the slaughter mix.

However, the higher Canadian dollar, less kill space devoted to non-fed animals, an uncertain fed market and possibly a larger number of feeder-type cows showing up in the new year are all factors that may limit upside. Cautious optimism suggests that we will see a seasonally stronger cow market in the first quarter of 2021.

About the author

Contributor

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

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