McMillin: Large carcasses weigh on fed market

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

Fed Cattle

As packers worked through backlogged inventory and the seasonal increase, prices were pushed lower. More longer-fed cattle came to market, evident in record-high carcass weights. Carcass weights hit 969 lbs. on November 7, 29 lbs. over last year and an increase of 27 lbs. from the previous month.

The additional tonnage weighs heavily on the market. Alberta’s fed steer average for November 6 was $133.50/cwt, $9.16/cwt below a year ago. Prices were down just over $2/cwt in the previous four weeks. The U.S market responded to holiday demand and rising cut-out values. This has increased U.S. bids in Western Canada.

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Boxed beef exports in September were disappointing in key markets. Overall, the September data showed a month-to-month decrease of four per cent while year-to-date the volume of boxed exports are down seven per cent.

The USDA live fed export data to the end of October shows a five per cent increase; however this figure includes slaughter cow exports, which have been high. The Canfax Alberta and Saskatchewan cattle-on-feed report for November 1 reported the total on-feed number to be 940,248, down over 2,000 head from a year ago. This was the first time in over a year that on-feed inventories were under the year-ago comparison. Placements in October 2020 were down 17 per cent from a year ago, totaling 350,278 head. Much of the difference is attributed to the feeder value drop and increased forage availability, leading to cow-calf producers retaining ownership.

Fed steer slaughter up to November 7 is unchanged from a year ago at 1,489,255 head, while heifer slaughter was down four per cent at 766,281 head.

Deb’s outlook for fed cattle: U.S. market strength, U.S. buyer interest and recent cut-out strength are positive. Typically holiday needs spark demand, supporting a fed cattle market rally. Fed cattle supplies should tighten, supporting a year-end rally.

But COVID-19 concerns plague the market. Canada is in a second wave, threatening more restrictions and lockdowns. Potential COVID-19 outbreaks in the supply chain would be negative. Foodservice sales of middle meats help drive the seasonal rally, so more restrictions would limit beef movement. Retail beef demand has been good but any lockdowns reducing work hours and wages, coupled with Christmas shopping, will leave consumers making hard decisions on their spending.

Feeder Cattle

At the end of October, the largest volume weeks of the fall run met with resistance and prices moved seasonally lower. Feed grain prices are also high and risk management opportunities limited.

Light-weight steer averages dipped to $204/cwt on 550-lb. steers. Then prices did stabilize and start to turn around. The 550-lb. feeder steer price in mid-November was $211.16/cwt, which is down $4.43/cwt from 2019.

Although all classes have seen prices rally, heavier classes remain further back. The 650-lb. feeder steers averaged $192.73/cwt in mid-November, down $15/cwt from a year ago. With an average of 177.66/cwt, 850-lb. steers were up $1.80/cwt from two weeks earlier but still over $16/cwt back from the same week in 2019. The 850-lb. feeder basis was $6.36/cwt under the U.S. market in mid-November. Exports picked up slightly through the fall run but were still 43 per cent below the same time last year.

Deb’s outlook for feeder cattle: In a typical year, feeder cattle price projections can be difficult. There are several new uncertainties when forecasting during a pandemic.

It seems the fall run hit its largest volumes and lowest price points late October. This time of year, sales slow and volumes tighten while the fed market generally strengthens, all positives for the calf market.

But feed barley is 17 per cent higher than a year ago. Also, the market can respond week-to-week based on new COVID-19 restrictions that limit meat movement and affect auction markets. The feeder market fundamentals suggest a solid end to 2020, but much is subject to additional influences this year.

Non-fed Cattle

Cull cattle prices softened through the fall run as packers worked through the fed cattle inventory. It feels like we’ve found the bottom in the D1,2 cow market. The mid-November average cow price was $68.21/cwt, a 26 per cent drop from the spring high and almost $15.00/cwt less than where prices held firm through most of the summer. Compared to a year ago, D1,2 cows are trading down $11.79/cwt.

Many producers opted to retain cows into 2021, looking for a better market or even keeping older cows in the herd. Prices lingering under the U.S. market have boosted cow exports; however, overall cow marketings are still below a year ago. In Canada, cow slaughter is down 19 per cent, totaling 343,946 head.

Butcher bull prices are also under pressure. Mid-November prices averaged $97.25/cwt, which was almost identical to the average in the same week in 2019. Slaughter bull exports to the end of October totalled 35,985 head, nine per cent fewer than last year. Domestic slaughter is down 19 per cent, with a total to November 7 of 11,062 head.

Deb’s outlook for non-fed cattle: Until the slaughter mix changes to a larger percentage of cows in Canada, a large portion of cows will be exported and prices will remain under the U.S. floor. That said, we’ve likely found the cow market’s bottom. Prices should stabilize in coming weeks as supplies tighten, retail demand for trim and grinding meats stays solid and interest for feeder-type cows increases.

About the author

Contributor

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

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