Strong futures, tight supplies and good feedlot leverage have created a strong fed cattle market so far in 2011. Week over week increases drove Alberta steers up by $9.71 to $106.80 in the first six weeks of the year. That’s $27.63 per cwt better than last year and $19.93 over two years ago.
While meat buyers pressured U.S. cut-out values lower heading into late winter, a slow sales period for beef, live cattle futures ignored the signal and continued to push higher. Tight Canadian supplies had packers cutting kills to manage prices but sellers still hold the cards and packers continue to bid aggressively.
Strengthening prices in Canada last month at a time when U.S. prices slipped back a little produced a positive cash to cash basis. The mid-February basis was 1.30 per cwt above the U.S. market, compared to a -12.69/cwt a year ago. The last positive fed-cattle basis, in the second week of January when it reached +1.92/cwt, stayed above the line for only one week.
Strong local prices pulled cattle ahead and carcass weights dropped an average 14 pounds in the first half of February, putting them 11 pounds under the weights of a year ago. At the start of February steer slaughter was down 10 per cent on the year at 130,092 head while the heifer kill was up 10 per cent at 96,600. Fed cattle exports to the end of January totalled 39,995 head, down two per cent from a year ago.
The February 1 Canfax cattle on feed report has 916,805 head in Alberta and Saskatchewan feedlots, three per cent fewer than a year ago. The most notable change was the 28 per cent drop in placements compared to January 2010. The 90,005 head placed on feed in January no doubt reflects the shrinking calf crop but it is also due in part to the extreme cold and heavy snowfalls that plagued the Prairies in January.
Feeder cattle prices continue to surge across the board riding strong fed cattle prices and tight supplies. The 550-feeder steers gained $19.63 per cwt since the start of 2011, reaching $153.30 by mid-February. Lightweight calves picked up additional support from buyers looking to lock up grass supplies early in light of the smaller numbers available and a heavy snowpack ensuring green grass this spring. Despite a reported reduction in corn stocks by USDA heavier feeders enjoyed a contra-seasonal bounce in prices from the start of the year, with 850-steers climbing $26.10 over year ago prices to an average $121 in mid-February.
The feeder basis narrowed to -3.36 per cwt, compared to -10.00 last year. The tight basis, strong dollar and small local supplies have limited export volumes which were down two per cent on the year at 5,216 head to the end of January.
The demand for trim and grinding meats coupled with a smaller supply of cows has led to some very good cow prices in North America. D1,2 cows in mid-February averaged $66.70, up $9.04 per cwt from the start of 2011 and $20.14 over the same week in 2010. Cull cow slaughter numbers to date are down 20 per cent compared with a year ago while bull slaughter is up by 21 per cent. Many bulls are being sold as producers are looking to the breeding season and upcoming bull sales and calculating the salvage value versus the cost of new genetics. Slaughter bull price at mid-February averaged $73.69 and ranged from $64 to $89 per cwt. With the smaller number of non-fed cattle in Canada it comes as no surprise that live exports to the end of January were down 34 per cent.
Fed cattle highs are generally posted late in the first quarter or early in the second as weather improves and barbeques fire up. Live cattle futures suggest this seasonal trend is intact. The narrow basis discourages exports but tight supplies should be manageable. Although the market is strong it’s important to watch the Canadian dollar. Historically a premium basis does not last long.
Buyers will continue to look for grassers and feeder replacements near term. Further out live cattle futures support current price levels but cost of gain may put a lid on heavier feeders as feedlots compare feeding costs to past trends in fed supplies and softer third-quarter markets. With breakeven levels inching up, buyers will keep a close watch on the Canadian dollar. Look for the tight supplies of feeder cattle and ample buyers in the market to hold prices as least steady for the near term. The seasonal trend for lighter feeders is to increase through the first quarter and peak in the second.
Cow supplies will drop as calving starts. Seasonally cull prices increase in spring and peak in summer. This trend coupled with the sizzling demand for grinding beef and a shrinking supply of cows should secure a strong cow market in the months to come.