In the near term slower beef movement coupled with large pork inventories and higher beef carcass weights will weigh heavily on the cash market. The higher Canadian dollar has already had a negative effect on fed prices. Some analysts project continuing strength in the currency. If this is accurate the dollar will continue to be a negative factor in fall fed markets.
On the positive side, while fed supplies in North America have been large throughout August numbers are expected to tighten as we head towards fall. Premiums in the October Live Cattle Futures are reflecting the anticipation of a tight fall market. With tighter supplies ahead cattle will be pulled forward which should correct the growing carcass weights and help move cattle through the system.
Several factors will affect the feeder market this fall. Available pen space south of the border should raise buyer interest, however losses in equity across the feedlot sector has been a limiting factor so far. Moreover, as we head into the fall run, feeder prices will be negatively affected by the high Canadian dollar as it will deter interest from U.S. buyers.
Feed costs are always a factor in fall run pricing of feeders. Lower feed costs in 2009 will be very supportive of feedlots placing cattle to fill empty pens. As always it will be important to monitor the feed situation as harvest gets underway. Given the delayed growing season there will be an increased risk of frost before the combine and that would increase feed grain availability.
Recent Prairie rain has taken some of the pressure off the decision to keep or cull. While too late to make hay it will allow for a longer grazing season in many cases. This may keep some cows out of the system for now therefore leaving the market to decrease just seasonally in the coming months.
Fed cattle prices experienced significant pressure in the past several weeks. Seasonally prices in North America tend to decline through late summer as supplies increase but the rise in the Canadian dollar has led to a sharper drop in prices. From the start of July to mid-August average prices fell $7.40 from $88.20 to $80.80 per cwt. Last year the mid-August fed price was just over $96 and in 2007 it was $85.80. Fed basis has narrowed with cattle trading just $6.80-$8.50 per cwt under the U.S. market in recent weeks; typically the basis is wider through August.
Overall in 2009, Canadian steer carcass weights are lighter than last year. The average to date is 830 pounds, compared to 838 last year. More recently though weights have started to climb again, jumping 15 pounds to average 854 in mid-August reflecting the reluctance of feedlots to move cattle at lower prices. As carcass weights increase of course it raises concerns that this additional production will pressure prices as it enters an already slow moving meat system.
According to CanFax the number of cattle on feed in Alberta and Saskatchewan on August 1, 2009 was 649,531 head, down four per cent from the year before and 20 per cent under 2007. Placements in July were down four per cent to 81,718 head. The numbers show a significant decline in the number of calves under 600 pounds being placed in finishing lots.
Marketings of fed cattle from Alberta and Saskatchewan lots for export or domestic slaughter were up seven per cent on the year in July at 201,000 head. More of these likely went to packers here as fed cattle exports by the start of August were down 23 per cent at 315,155 head, compared to 2008.
High feed costs in early summer, a strong Canadian dollar and losses on the fed cattle are all negative factors for the feeder market. Lighter-weight feeder calves have not been placed aggressively as shown in the cattle-on-feed report. Reports of an anticipated record-large corn crop in the U.S. should continue to reduce feeding costs south of the border and in turn help hold feeder cattle close to an export floor. Five hundred and fifty-pound steer prices dropped slightly through late July and the first part of August. By mid-August feeder steer prices in central Alberta averaged $108.33, up from $105.75 per cwt last year when feed costs were extreme but still well below the $114.67 per cwt calves fetched in 2007.
Demand for 850 yearlings is generally strongest in August and September. But by mid-August 850-pound feeders were averaging $98.47/cwt, down from $100.12 two weeks before and nearly $4 under the same week in 2008. While prices were lower, the 850 feeder basis had narrowed to $10.37/cwt under compared to $16.96 for the same time last year. The seasonal trend for the yearling feeder basis is that it tends to narrow in August as supplies of yearling cattle are in demand. The total number of feeder exports to date in 2009 is 214,958 head. This is significantly lower than last year, down 44 per cent.
Drought conditions through the Prairies have played hardball with the cow-calf man this summer. In many areas pasture, water and potential forage to put up for winter feed have been all too scarce. This scenario was leading to some large culling decisions ahead. Recent rains across much of the drought area have been welcome and while not alleviating the situation it will allow for longer grazing, fuller dugouts and possibly more growth on feed-type crops.
Summer saw prices react to increased volumes as D1,2 cow prices started falling since the start of July, losing nearly $5 per cwt down to $44.63 at mid-August. Bull prices in July averaged $58.92 per cwt. Exports of cows and bulls to the U.S. for slaughter at the start of August totalled 108.270 head, three per cent below 2008.
Debbie McMillin is a market analyst who ranches at Hanna, Alta.