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Calf Crop Shrinking Since ‘05

Supplies of market ready cattle are down from year ago levels , but the cattle market remains under pressure due to softer demand. Consumer confidence remains at record lows and unemployment numbers continue to grow. Cash cattle prices are expected to remain stable in the short term and then trend lower into June. Values in Alberta were down $2 to $3 for the week ending February 20. Cash trade was reported at $84 to $85. U. S. prices were also down $2 as cattle traded at $80 in the U. S. southern plains. This latest drop in the cash market has U. S. feedlots losing about $250 per head. Packing margins are estimated to be negative $30 per head. Wholesale values were reported at $134/cwt for choice product and $133.50 for select sales. This is down approximately $10/cwt from a month earlier. The industry continues to see pressure on higher end cuts. The beef complex is functioning to encourage demand as values become more competitive relative to pork and chicken. U. S. year-to-date beef production is down five per cent from last year and the number of cattle slaughtered is down 6.3 per cent on a cumulative basis.

The Canadian cattle herd remains in a contraction phase, similar to the U. S. Lower beef cow numbers along with a decline in heifer replacement will result in a smaller calf crop in 2009. The calf crop has been on a declining trend since 2005.

Canfax reported cattle on feed in Alberta and Saskatchewan at 950,679 head, up eight per cent from February 1, 2008. Placements during January were up a whopping 18 per cent from last year; marketings were down an estimated six per cent from last year. The on feed number and placements were higher than expected.

The USDA reported the number of cattle on feed as of February 1 at 11.234 million head, down seven per cent from last year. Placements during January were up four per cent over year ago levels but marketings were down six per cent. There were no real surprises on this report; however, it is important to note the placement number of 1.858 million. The dryer conditions in the U. S. southern plains resulted in these cattle being moved into feedlots sooner than usual. This will add some pressure to the fed cattle market late April and May and decrease available numbers in late summer.

Recent press releases suggest that USDA Secretary Vilsack believes the U. S. consumers should know when a product is all American or not. This policy appears to be more in line with the “buy American” attitude. I feel this will be a major trade issue in upcoming weeks and we should see a more clear policy from the U. S. in March. This will have a major effect on the feeder and fed cattle markets.

Unemployment numbers are growing; the number of people receiving normal unemployment benefits and extended compensation in the U. S. is now 6.54 million. U. S. inflation surged in January to 0.8 per cent, which is not good news for consumers looking to conserve every penny. Equity markets continue to weaken and we will likely see further downside in the short term.

The cattle futures have also received spillover pressure from the energy market. Latest news from OPEC suggests that the demand for oil will contract more than earlier expected. Average oil demand per day will be approximately 85.13 million barrels which is down 580,000 from 2008. More importantly, OPEC members have not cut back on production as per their earlier commitments. It appears they only met 65 per cent of their pledge to cut back nearly 2.2 million barrels per day. Since President Obama took power, the Middle East appears calmer and even on the last round of war activities, the crude oil market failed to maintain any strength.

In conclusion, despite lower available supplies of market ready cattle, beef demand continues to wane. Unemployment numbers are expected to grow and GDP will be down from earlier expectations. Equity and energy markets have potential downside in the short term and this will spill over into the cattle market. The market needs to encourage demand through lower prices. Further contraction is needed in the North American cattle herd given the weaker demand.

Gerald Klassen analyses cattle and hog markets in Winnipeg and also maintains an interest in the family feedlot in Southern Alberta. For questions or comments, he can be reached at [email protected]or 204 287 8268.

The material contained herein is for information purposes only and is not to be construed as an offer for the sale or purchase of securities, options and/or Futures or Futures Options contracts. While the information in this publication cannot be guaranteed, it was obtained from sources believed to be reliable. The risk of loss in futures trading can be substantial. The article is an opinion only and may not be accurate about market direction in the future.

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