The Alberta fed cattle market moved seasonally lower through July. Lower cut-out values and increasing front-end supply pushed the fed steer average in Alberta to $152.19/cwt on July 16, down $12.53/cwt from five weeks earlier. Looking at a five-year average, the July 2021 average is $9/cwt higher.
While basis levels in Alberta have been strong this year, recently the spot basis moved back to par with the U.S. The cash-to-cash basis narrowed more than $19/cwt over five weeks to an average of -$0.08/cwt. A strong basis is part of the reason for fewer live fed cattle exports. The first half of 2021 saw 208,393 head, 22 per cent fewer than a year ago. Even though feed grain prices are at a record high and some cattle have been marketed early to avoid the feed bill, the average steer carcass weights are creeping higher again. Early July saw the steer carcass weight averaging 890 lbs., a 24-lb. increase over five weeks and 19 lbs. heavier than the same week in 2020.
Canadian slaughter data continues to post fed slaughter numbers outpacing a year ago. However, it’s important to remember all the COVID-related slowdowns and shutdowns of 2020 in packing plants. Fed steer slaughter is 12 per cent larger than last year, with a total of 859,429 head killed domestically as of July 10. Heifer slaughter is also larger, at 559,287 head in 2021, up 19 per cent from last year. In all, fed production is running 15 per cent above a year ago.
While domestic slaughter is up, fed cattle exports in 2021 are down in part due to rising domestic and export beef demand. The strong basis position seen through the first half of the year is also a factor. Boxed beef export trade has been strong in 2021, reaching pre-BSE levels. Beef exports to the end of May were up 29 per cent. The largest importer of Canadian beef remains the U.S., accounting for 69 per cent. Japan accounts for 11 per cent, followed by Mexico and SE Asia at five per cent each.
The July 1 cattle-on-feed report showed 961,191 total head on feed in Alberta and Saskatchewan, down six per cent from 2020 but up 11 per cent when compared to the five-year average. Placements were 34 per cent larger in May, due to fewer feeder exports and the Prairie drought. The largest year-over-year changes were seen in the calves placed under 500 lbs. and feeders over 800 lbs. This indicates that cattle are coming off grass earlier than anticipated, either as pairs split at auction or early marketed grass yearlings.
Deb’s outlook for fed cattle: Strong domestic and export demand in Canada and the U.S. will spur demand in coming months. However, in the near term, the packers will still have the upper hand. Seasonally, larger supplies, increased carcass weights and high feed cost weigh heavy on the market. The par basis will improve U.S. buyer interest, creating a floor. However, pressure will continue on fed prices in the coming weeks. Over the past 10 years, a 17 per cent decrease on average has been seen from the spring high to annual low. As of mid-July, the price had decreased eight per cent and while global demand may limit the downside risk, expect the current trend to continue for the near term.
As fed cattle prices declined recently, feeder cattle trade started lower in June but then rallied. Towards late June, the 550-lb. feeder calves peaked at $237.20/ cwt before dropping to $225.50/cwt in early July. The ongoing drought increased cow-calf pairs at auction, leading to growing availability of quality light feeder calves. This sparked buyer interest, rallying prices to $230.58/cwt by mid-July, $1.45/cwt higher than the same week in 2020. Heifer calves in the same 550-lb. weight class are averaging $199/ cwt, over $30/cwt back from the steers.
Movement in drought regions has yearling volumes picking up earlier than normal. So far, early movement has met with good demand. However, given feed costs buyers remain cautious. The 850-lb. feeder price did not follow the other classes with lower prices in early July, instead increasing slowly and steadily to $192.63/ cwt. The mid-July price is $11/cwt higher than the same week last year. The feeder basis in mid-July is -$5.80/cwt, more than $4/cwt narrower than the five-year average of -$10.05/cwt. Feeder exports are still 34 per cent below year-ago levels, with 47,647 head exported as of July 3.
Deb’s outlook for feeder cattle: A lower Canadian dollar and strength in the deferred live cattle futures are positives moving into the yearling run. However, the biggest concern and unknown is how high feed grain prices will get. Looking towards fall, feed cost and availability are concerning. Barley was trading 47 per cent over a year ago as of mid-July, with a further increase expected for fall. Exports may increase as feed advantage in some areas shifts to the U.S.
Deteriorating pasture conditions and poor hay and forage yields have producers scrambling. This has led to more cows at auction, earlier than usual. Coupled with the pressure in the fed market, the D1,2 cow market has trended down. The D1,2 cow price mid-July was $90.50/cwt, down $12.63/cwt from the high posted in June. Compared to last year, the price is up slightly. However, compared with a five-year average, the 2021 price is nearly $3/cwt lower.
Cow slaughter numbers are higher than a year ago when packers were forced to focus on the fed cattle backlog. Cow slaughter is up seven per cent totalling 231,389 head as of July 10. Bull slaughter is 26 per cent lower, totalling 9,076 head slaughtered. Slaughter bull exports are down 21 per cent to 15,076 head. Bull prices in mid-July held steady over the previous few weeks at $114.92/cwt.
Deb’s outlook for non-fed cattle: The hot, dry summer has producers short of pasture and water in many areas. This will cause an early cow run. Winter feed is limited across the Prairies, which will force many producers to cull hard this fall, increasing supply. Although drought-stricken crops are rapidly being redirected into greenfeed, it’s unclear if the additional forage would be enough. Expect larger cow volumes on offer in the coming months that will be met with lower prices.
For more content related to drought management visit The Dry Times, where you can find a collection of stories from our family of publications as well as links to external resources to support your decisions through these difficult times.