Beef movement and consumer demand tend to increase heading into fall as cooler weather arrives and as fall schedules kick in. In addition, North America fed supplies are expected to tighten through the next two months. Both factors are very supportive to the fed cash market. As long as the Canadian dollar doesn’t further erode the advantage created by the tight supplies the fed market is expected to trend higher as we head into winter.
Feeder cattle prices usually move lower in the fall as volumes pick up but other factors often influence the trend. This year is no exception.
Positives include the feed grain outlook. While Canada’s barley crop is projected to be down 24 per cent from last year, barley stocks are up over the year before, and the U.S. is looking at the second-biggest corn crop in history. So feed availability will be up compared to recent years, and that supports feeder prices. At the same time Canada’s cow herd is the smallest it has been in more than a decade, leaving fewer feeder calves to bid on. The negative factors are headed by an ever-strengthening Canadian dollar, which hurts the fed market and spreads caution into feeder markets. It also limits exports and dampens U.S. interest in our feeders. On balance, an expected upswing in the fed market later this fall should soften the impact of the dollar somewhat, putting a little more strength into the feeder bids.
Cow prices trend lower from August through October and November. This is simply due to the increased volume of cows sold when calves are weaned. The economic situation has lent some support to the cow market by increasing demand for more inexpensive cuts of beef. However it’s not enough support to slow the seasonal decline. Additional cows will be sold this fall as expensive winter feed will force the downsizing of many herds, putting additional pressure on the fall market. As with the other classes of cattle, the export market for cows both live and boxed is negatively impacted by the strong dollar.
A struggling North American economy, sluggish beef movement and a strong Canadian dollar have all been troublesome factors for the fed cattle market over the past few weeks. In the last week of August the CanFax Alberta fed steer average had rallied by $5 from a month earlier to $85.02, then gave half of it back over the next two weeks, settling at $82.07 in mid-September. Last year Alberta fed steers were trading for $94.50, in 2007 they were $87.68. The mid-month cash-to-cash basis was $8.50/cwt under the U.S. Last year during the same week the basis was over -12.
The CanFax Alberta and Saskatchewan cattle on feed report lists 631,415 head on feed on Sept. 1, 2009, down eight per cent from the same month in 2008. August placements were down 10 per cent year to year, and four per cent under 2007. Heavier yearling placements were also down considerably with 23 per cent fewer 800-weight feeders in the pens compared to last year.
Exports of fed cattle for slaughter to date are down 22 per cent, at 353,790 head.
Buyers remained cautious in the opening weeks of the fall run following a summer of negative margins. Yearling markets through August were somewhat disappointing with Alberta 850 steers averaging $98.84, about $5 below last year for the month. Then they slipped again, to $97.30 through the first two weeks of September.
The 850 feeder basis at mid-month was -9.70/cwt, which is considerably tighter than last year’s basis of -16.74 during the same week.
With calf volumes growing at the markets, 550-pound feeders held reasonably steady averaging $108.20 at mid-September compared to $109.02 through August. That was a little better than $3 over last September. Producers might have been looking for more, given the significant drop in the cost of grain compared to last year. But forage costs have remained high, and feeder exports have tumbled, meaning fewer bids from the front row. And, the Canadian dollar remains high. In the first eight months of the year Canada exported only 221,296 head of feeder cattle to the U.S., and the pace of that trade seems to have dried up even more this fall. August feeder exports dropped 79 per cent from the year before to a mere 6,300 head.
Total cow kill in Canada is currently down 21 per cent compared with last year’s very large kill. The downsizing or liquidation of herds is still underway in many areas. Drought-stricken areas have marketed cows aggressively throughout the summer and while late-season rains have alleviated some grazing pressure, winter feed costs will pressure more cows to town in the coming months. Total cow slaughter in Canada to date is 377,183 head. The bull slaughter totals 9,755 head, which is down 24 per cent from last year.
D1,2 cow prices in Western Canada at mid-September were just under $41/ cwt. They averaged $42.83 in August and $47.87 in July. The butcher bull market dropped from an average of $58.92/cwt in July to $54.89 in August, which is almost a full $10 below the average in August 2008. The number of slaughter cows and bulls exported to the end of August is 121,575 head, which is four per cent fewer than the first eight months of 2008.
Debbie McMillin is a market analyst who ranches at Hanna, Alta.