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Cattle outlook brightens for 2021

Feeder market influenced by lower overall supplies

Cattle outlook brightens for 2021

During mid-December, Lethbridge-area feedlots were selling fed cattle in the range of $138 to $140, up $2 to $4 from 30 days earlier. While Canadian feedlot operators are contending with a backlog of market-ready supplies, cattle on feed 150 days and longer are actually below year-ago levels south of the border.

The USDA lowered its projections for 2021 first- and second-quarter beef production on the December WASDE report. These lower production estimates come on the heels of two Alberta and Saskatchewan cattle-on-feed reports that showed a sharp year-over-year decline in feedlot placements.

As of mid-December, Canada and the U.S. had approved the Pfizer BioNTech COVID-19 vaccine. The U.S. was in the process of approving a second vaccine from Moderna. Beef demand is expected to resume some type of normalcy during the second quarter of 2021. The seasonal lows are likely in place for feeder cattle. Feed grain prices remain firm but strength in the fed cattle market should underpin replacement values. As of late December, a small group of larger-frame, medium- to lower-flesh steers weighing 920 pounds were valued at $174 in central Alberta. Steer calves weighing 500 to 525 pounds were trading in the range of $225 to $230 across the Canadian Prairies. Lower beef production and strengthening demand bode well for fed and feeder cattle prices.

U.S. feedlot placements were down 900,000 head during March through May of 2020. Cattle on feed 150 days or longer are down from last year and below the three-year average. U.S. market-ready supplies as of Dec. 31, 2020 are expected to be slightly below year-ago levels. U.S. carcass weights are declining and will continue to decrease into the spring due to the higher feed grain prices. U.S. first-quarter beef production is expected to be similar to last year. (February of 2020 had 29 days instead of 28 — if we account for this extra day, beef supplies in the first three months of 2021 will be similar to 2020). During the second quarter, market-ready supplies are expected to marginally decline. U.S. second-quarter beef production is expected to come in at 6.810 billion pounds, down slightly from the 2019 output of 6.814 billion. The fed cattle price structure during the second quarter should be similar to 2019. The latter half of 2021 looks very optimistic. The USDA is projecting a sharp year-over-year decline in 2021 third- and fourth-quarter beef production. Fed cattle prices are expected to be quite strong in the final quarter of 2021.

Cattle numbers in Western Canada

In Western Canada, market-ready supplies will be burdensome through the first quarter 2021. There is no doubt about it; this is a sure thing. There were about 80,000 head placed on the set-aside program in Alberta and Saskatchewan during November and these cattle will come on the market in January. I’m expecting similar volumes to be placed on the program during December and come on the fed market in February. The first quarter will be challenging in Western Canada. However, we’ve seen a sharp year-over-year decrease in feeder cattle placements during October and November. Therefore, the backlog of market-ready supplies will start to be alleviated during the second quarter of 2021. Alberta and Saskatchewan fed cattle supplies should be manageable next summer and may drop below year-ago levels during August of 2021.

The calf crop in Canada has declined for three consecutive years. The U.S. has had two years of contraction and is on pace for a third given the year-over-year increase in the beef cow slaughter. The feeder market is being influenced by lower overall supplies on both sides of the border. Cow-calf producers and backgrounding operators need to look at the beef supply projections to determine their selling timeframe. You want to sell your calves or yearlings so that the feedlot will be marketing these cattle during the final quarter of 2021. Backgrounding operators should not be pushing their calves to gain more than 2.0 to 2.2 pounds per day. Barley stocks at the end of 2020-21 are expected to drop to historic lows. The barley and corn markets will be very sensitive to growing conditions because of the tighter stocks. We may see the coarse grain complex incorporate a severe risk premium if drier conditions develop in the Midwest next summer.

The fed cattle market is expected to slowly trend higher during the first quarter of 2020 and make seasonal highs in late April or early May. We’ll likely see some pressure in June and early July. However, the market will have limited downside during the summer months. I’m looking for U.S. and Canadian fed cattle prices to trade at fresh three-year highs during the final quarter of 2021. Yearling prices are expected to trade sideways during the first quarter of 2021. Feeders weighing 800 pounds-plus are expected to slowly ratchet higher in the second quarter because these cattle will come on the fed cattle market from September through December of 2021. Calves are expected to start the upward trend slightly earlier than yearlings. Grassers are expected to make fresh 52-week highs next spring.

About the author

Columnist

Jerry Klassen

Jerry Klassen is manager of the Canadian office for Swiss-based grain trader GAP SA Grains and Products Ltd. and also president and founder of Resilient Capital, a specialist in commodity futures trading and commodity market analysis. He can be reached at (204) 504-8339 or visit his website at www.resilcapital.com.

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