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Pressure ahead for fed-cattle markets

The Markets with Deb McMillin, from the September 30, 2019 issue of Canadian Cattlemen

U.S. feeder cattle prices have been under pressure the last few weeks.

Fed cattle

Seasonal pressure coupled with leverage loss partly due to the U.S. packing plant fire resulted in smaller weekly kill capacity. Locally, demand is softer following the September long weekend, which is generally the case. In addition, front-end supply is building and packer lift times have lengthened. Over the past five weeks, the fed steer average has dropped $6.57/cwt to a current $140.07/cwt, which is also $2.46/cwt lower than the same week last year.

The cash-to-cash basis narrowed in recent weeks as the reduced weekly kill capacity resulting from the Tyson packing plant fire affected the U.S. market more severely than we saw locally. Currently, at a premium to the U.S. market, the basis the first week of September was +5.15/cwt.

Packer margins remain profitable and all three large western Canadian packing plants have been working six days per week. Weekly slaughter numbers were high at the end of August with weekly fed kills the highest seen since the summer of 2010. Year-to-date slaughter is higher for both fed steers and heifers. To the end of August 2019, fed steer kill totaled 1,128,684 head, six per cent higher than last year. Heifer slaughter totaled 633,777, also six per cent higher than a year ago. The total number of fed cattle marketings also continues to be higher than a year ago. As the higher domestic kill is just one part of the equation, fed exports (including cows) are 25 per cent higher, with a total for the year-to-date at 296,803 head.

Deb’s outlook for fed cattle: It’s not uncommon for annual fed steer lows to be realized in September. Expect to see pressure on the fed market as front-end supplies of market-ready cattle increase in the near term. Packers will gain leverage while longer-fed, heavier cattle move through the system. In addition, cut-out value decline over the past couple of weeks will likely cut into packer margins and lead to lower bids. Additional packer kill days have helped to manage front-end supply so far. One hopes beef continues to move through the system and feedlots stay current in the coming weeks. Looking further out, beef demand will pick up and supplies tighten moving into the fourth quarter. Holiday demand should lead to a seasonal increase in the cash market.

Feeder cattle

Feeder cattle prices have performed well through the start of the fall run even as fed prices have been under pressure. The yearling run has seen prices rise and fall over the past month with an overall positive change. In the past two weeks, the 850-lb. steer average gained over $6/cwt to reach an average of $193.58/cwt. This is still $8.30/cwt under where the same weight class was trading last year. Lightweight calves have also strengthened the last couple of weeks, with 550-lb. steers increasing $5.67/cwt to an average of $219.50/cwt. When compared to the 550-lb. steer price last year, the current average is $7.40/cwt lower.

U.S. feeder cattle prices have been under pressure the last few weeks, which is evident in the widening basis. The Canadian 850-lb. feeder basis at the start of September had improved to a positive $15.73/cwt. When compared to just eight weeks ago, this is an improvement of nearly $29/cwt. The five-year average for 850-lb. feeder basis at the start of September is -3.98/cwt. Feeder cattle exports are still running above year-ago levels, up nine per cent to 160,145 head.

Deb’s outlook for feeder cattle: Mid- to late-summer moisture across most of the Prairies has improved pasture conditions. Many producers are choosing to leave pairs to fall graze longer to add pounds to calves before heading to market later in the fall run. Over the next two months, fall run numbers will increase and we’ll see seasonal price pressures. Factors affecting the prices in the fall run will include fed price direction, feed grain cost as harvest continues and Canadian dollar direction. On the positive side, barley prices are at an annual low — eight per cent under last year — which will support all feeder classes, particularly light calves. Yearling sellers need to be aware of the basis risk moving forward. The strong basis level currently seen is often hard to maintain.

Non-fed cattle

The demand for grinding and trim meats has been consistent over the summer, leading to a slower decline in the non-fed cow market in recent weeks. D1,2 cow prices have held relatively strong through the past month. After a rally in August saw prices climb to $92/cwt, the price fell just $2.58/cwt, even as the fed market saw a more significant decline. The current D1,2 cow price is $89.42/cwt.

Non-fed beef production to date is three per cent higher than a year ago, which consists of cow and bull slaughter as well as exports for slaughter. Cow slaughter domestically in 2019 is running four per cent above a year ago at 338,957 head, while butcher bull slaughter is down nine per cent at 10,302 head. Bull exports are also lower, down two per cent at 27,590 head. Butcher bull prices have fallen slightly over the past two weeks to an average in the first week of September of $104.64/cwt.

Deb’s outlook for non-fed cattle: Although cow numbers available for slaughter in the coming month will increase as fall run numbers climb, improved forage and winter feed stocks in many areas relative to a year ago, coupled with large cow marketings over the past few year, will likely keep cow numbers manageable. That said there will be some seasonal pressure on non-fed cattle as we move through the fall. However, that same seasonality would project strength in the market towards the end of the year.

About the author


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



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