Consumer demand is still the wildcard in the fed cattle outlook. Heading into fall fed cattle supplies were expected to tighten and prices strengthen. However, lower fed prices and cheaper cost of gain have increased carcass weights. In addition to the beef in the market, there is ample pork as well. Shaky consumer confidence has resulted in lower beef demand than expected and downsized protein purchases. Added to all that is a soaring Canadian dollar. The one positive factor in the market remains the dwindling supply of fed cattle. Numbers were expected to tighten further in late October and early November, which hints at better prices. We can only hope a surging Canadian dollar does not undermine any potential upswing in the cash market towards year end.
As the volume of calves picks up seasonally feeder prices will decrease despite the pressure from historical volume trends. The strong Canadian dollar will also limit exports and buyer competition in the market. The struggling fed market is also weighing on feeders as feedlot managers make decisions regarding replacement stocks. While the good news in 2009 continues to be the large grain stocks available and cheapened cost of gain it will not be enough to stop feeder calves from being pressured lower in the coming month.
Over the past three years the drop from the spring/summer high to the fall low in cow prices has been between 28 and 37 per cent. In 2009 the high was $56.00 per cwt and the mid-October average was off by about 32 per cent at $38.33. But that is unlikely to be the low as the bulk of the fall run of cows was still ahead. That and a strong Canadian dollar suggests we will be looking at a larger than historically normal decrease in cow prices for 2009. The weak U.S. economy pushed consumers to buy down on their protein purchases, which is positive for cow markets. Demand remains strong for grinding and trim cuts. However the strong dollar will reduce exports of cattle and beef, limiting the impact of demand on our market.
The fall fed cattle market was projected to be stronger as a result of tighter fed supplies. But at mid-October the market continues to struggle. The expected tighter supplies have been trumped by larger carcass weights and poor beef demand. The average fed price is struggling to hold the $80.00 per cwt range. In the second week of October the Alberta average slipped to $80.17, which is about $11.59 under the same week in 2008. The fed steer basis in September averaged 6.93 per cwt under the U.S. That is a very strong basis level in a historically weak basis month. The average basis in August was -7.04 per cwt, which was the strongest average basis in August since 2000. Exports of fed cattle in 2009 were till running significantly behind a year ago. To the end of September the total number exported for slaughter totalled 394,805 head, 24 per cent fewer than last year.
The October 1 cattle on feed report for Alberta and Saskatchewan came in at 730,013 head. That’s down seven per cent from October 2008. October placements were also down two per cent on the year but 13 per cent larger than 2007. Of the cattle placed, feeders over 800 lb. made up 71 per cent of the total.
With the fall run now underway feeder prices in Western Canada struggled against increased volumes and a strong Canadian dollar. In the past three weeks the 550 lb. feeder market decreased by just over $2.00 per cwt. Mid month 550 lb. steers in Western Canada were averaging $107.50 which was better than $5.00 above year ago levels. Heavier steers were also under pressure, with 850 lb. steers averaging $95.10. The 850 lb. basis remains tight at 3.31 under the U.S. with very limited numbers heading south compared to last year. Total feeder exports to the U.S. in the first nine months of the year totalled 244,000 head, which is 50 per cent fewer than the number shipped in the same nine months of 2008.
Cow prices slipped back seasonally last month as weaning got underway and the volume of culls heading to town rose. While the slide is not as rapid as in 2008 the Canadian cow herd is still in liquidation mode which means large numbers can be expected throughout the fall. High forage costs in many areas will encourage producers to move additional cows out of the herd as culling decisions are made. The D1,2 cow price in mid-October was $38.33 per cwt, about $10 below last year’s market.
Cow slaughter in Canada is down 20 per cent, bull slaughter is down 19 per cent, so total non-fed beef production is currently running 21 per cent behind 2008 which featured very large non-fed slaughter volumes. The average cow carcass weight to date totals 678 lb. compared to 683 lb. last year. Cow and bull exports year-to-date were 135,682 head, which is about six per cent behind last year’s pace.
Debbie McMillin is a market analyst who ranches at Hanna, Alta.