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Beef production to increase in 2012

Fed cattle prices softened over the holiday season but the market is expected to percolate higher during the first quarter of 2012. Alberta packers were buying slaughter cattle in the range of $114/cwt to $117 during the last half of December, which was down from the highs of $121 in late November. Fed cattle in Nebraska sold for $119/cwt on a live basis while dressed trades were quoted at $194/cwt. The U.S. fed cattle market reached a high of $128 in early December but the highs were short lived as demand failed to sustain the higher price structure.

Throughout 2011, the increase in retail prices outpaced consumer income. However, at-home food expenditures and restaurant traffic are projected to increase throughout first quarter of 2012.

Cattle-on-feed supplies continue to exceed year-ago levels and higher prices have encouraged cow-calf producers to sell cattle sooner than normal. Canadian beef production will continue to run below year-ago levels as the industry feels the effects of the lower calf crops. Feeder cattle imports into Alberta have increased, but not enough to alter the market. For 2012, U.S. and Canadian cow-calf producers will be in full-fledged expansion therebyshrinkingavailable supplies in the feeder cattle pool.

U.S. placements a surprise

U.S. cattle on feed numbers as of December 1 totalled 12.081 million head, up four per cent from December 1, 2010. November placements came in at 2.039, also up four per cent over last year while fed cattle marketings were 1.770 million head, basically the same as November of 2010.

The placement number was a surprise to the trade and many analysts are questioning where all these feeder cattle are coming from. During the summer of 2010, placements of light weight feeder cattle surged in drought stricken Texas along with parts of Kansas and Oklahoma. Higher placements in summer and early fall would result in lower feeder supplies during the winter. At some point during the first quarter of 2012, placements are expected to drop sharply, thereby lowering the production in the summer and fall periods.

Despite the larger on-feed numbers, the U.S. weekly slaughter pace has been running below year-ago levels in November and December. Carcass weights are also under year ago levels so the USDA continues to project lower beef production for the first quarter of 2012.

Cattle on feed in Alberta and Saskatchewan were reported at 1.034 million head, up six per cent from December 1, 2010. November placements were 0.301 million head, up four per cent over last year while marketings were 0.132 million head, up two per cent over November 2010.

There was no surprise on this report. Western Canadian feeder cattle basis levels improved in November thereby increasing imports from the U.S. Cow-calf producers also took advantage of the higher prices with 500- to 600-pound steer values up as much as 26 per cent over November of 2010. The cost-per-pound gains are also more competitive in Western Canada relative to the U.S. so the stronger feeder market in Alberta has offset lower input costs.

U.S. domestic demand seasonally strengthens in the first quarter and then slightly declines in the second quarter. However, there is potential for counter-seasonal consumptive patterns given the economic environment. Keep in mind a one per cent increase in consumer spending generally equates to a one per cent increase in beef consumption. Therefore, improving GDP numbers and higher consumer confidence should bode well for retail and restaurant beef movement.

Bullish signals

Equity markets have digested the European financial crisis and despite the projections for a EU recession, the media appears to be blowing this out of proportion. The U.S. economy is now on track to move into a full-fledged business-expansion period, which should cause cattle prices to stay very strong. There is always a surge in restaurant spending from February to March. The U.S. was a net exporter of beef during 2011, the first time in 40 years. This was largely currency related as the weaker U.S. dollar stimulated exports and made imports more expensive. However, the U.S. dollar will likely strengthen in the latter half of 2012 which should temper the strength in the Canadian dollar and support cattle prices in Western Canada.

Feeder cattle prices are also expected to trend higher in the first quarter of 2012. The major factor driving bred cow, bred heifer and feeder prices over the next three months will be the buying activity of producers in the U.S. Southern Plains. The drought area is shrinking and Texas and Kansas cattle producers who liquidated cows and feeder cattle earlier in summer are now back in the market looking to rebuild their herds. I continue to project a larger increase in heifer retention across all regions of the U.S. and Canada, which will further shrink the feeder cattle pool. †

About the author

Field Editor

Lee Hart

Lee Hart is editor of Cattleman’s Corner based in Calgary.



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