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THE MARKETS – for Nov. 8, 2010

MARKET SUMMARY

Fed Cattle

During this typically sluggish time of year when large front end-supplies normally pressure prices, sellers have been able to pull steady to higher prices for fed cattle in recent weeks. After dipping into the upper ’80s in September Alberta fed steers popped back up to $91.13 by mid-October, $13.30/cwt better than last year. By comparison September fed steers averaged $89.62 in 2009 and $93.42 in 2008. The current fed steer cash-to-cash basis tightened significantly to -5.63/cwt at mid-month, from -12.00 just four weeks before and even tighter than the -7.10/cwt recorded in 2009.

On-feed numbers in Alberta and Saskatchewan totalled 684,275 head on October 1, down six per cent on the year and the smallest October inventory since they started keeping records in 1999. The dropping numbers only confirms the combined impact of the shrinking herd, aggressive marketings, small summer placements and the slow start to the fall run. September placements were down again, by three per cent this time. Meanwhile fed slaughter continues to run ahead of last year. To mid-October steer slaughter was running three per cent ahead of 2009 at 1,257,228 head, while heifer slaughter was larger by eight per cent at 830,980 head. Average carcass weights at mid-month were 863 pounds, three pounds lighter than in 2009 but year–to-date 2010 carcasses are still seven pounds heavier than the year before.

Feeder Cattle

While U.S. feeder prices are trending down in response to higher feed costs Canadian prices continue to climb. The fall run is finally moving into full swing after a late harvest and ample fall grazing kept calves out on grass. But volumes are still small compared to a year ago. Alberta auctions from the start of August to mid-October were running 16 per cent, or nearly 80,000 head behind last year. Demand for these smaller supplies pushed 550-steers in Central Alberta to an average $127 at mid-month, up $3.46/cwt from the start of October, and well above the $103.61 posted last year.

Heavier calves held on nicely into the middle of October with 850-steers trading to an average $108.45, compared to $91 the year before. The 850-weight weekly feeder basis was extremely tight at -0.35 per cwt as U.S. feeders came under pressure.

Non-Fed Cattle

Non-fed cattle prices continue to move along with limited downside. The late harvest put off culling decisions and that has kept volumes small at this writing. D1,2 Alberta cows to mid-October averaged $54.45 per cwt, well above the $35.80 they went for last year. One sign of the sharp demand for cows is the narrowing spread between the D1, 2s and the D3s. In early October D3 cows were averaging $50.50 with a top end of $54. Producers with feed available may opt to carry their culls through the winter and add some inexpensive weight before selling them early in 2011, trying to catch the traditional upswing in this market and push some income into next year. Such a trend would temper the usual rush to sell in the fall, and add some strength to late-fall prices. Butcher bulls slipped back in the past month to an average $66.69, ranging from $58 to $75 per cwt. This is still a good salvage value for a herd bull and from an economic standpoint offers an opportunity to upgrade the herd’s genetics by selling now and eliminating winter feed costs and the risk of injury and mortality by purchasing a replacement for 2011.

Canadian cow slaughter is off five per cent year-to-date while bull slaughter is up 84 per cent.

Deb’s Outlook

Fed Cattle

Beef movement and cutout values generally pick up October through November as meat buyers secure holiday needs and families look for comfort foods in cooler weather. At the same time beef continues to be priced comparably to other protein sources in the stores. Fundamentally the supply situation is positive moving forward. In Canada front-end supplies are poised to tighten while in the U.S. lighter carcass weights, larger beef exports and restricted imports have led to smaller volumes. On the negative side is a Canadian dollar again flirting with parity, which is a threat to fed cattle prices in coming months.

Feeder Cattle

Feeder volumes are low compared to recent years, a trend that will likely continue as ample forage and good weather will keep cattle at home longer. Forage-based back-grounding rations will keep some lightweight feeders out of finishing lots for the rest of 2010. Having smaller numbers available while feedlots have pen space to fill is a positive for the feeder market moving forward.

Unlike the U.S. feed costs are holding in Canada with barley showing some downside and plenty of poor-quality grain becoming available, which supports Canadian feeder prices. However a degree of uncertainty and thus risk remains over feed prices as farmers struggle to wrap up harvest in many areas. The other concern is the dollar, again.

Non-fed Cattle

D1,2 cows will trend lower as more cows come to town although the decline will not be as sharp as typically occurs. The smaller herd will yield fewer cows for sale as producers wean calves and sort their opens and poor-doing females. The high prices seen so far in 2010 will encourage producers to sell cows however if the open fall continues many may choose to keep cows grazing for the time being when surplus forage is available. While current export data continues to be unavailable, the dollar is a risk to prices as it limits export potential for both live and boxed cow beef.

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

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

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