Fed cattle prices have been quite volatile over the past month due to tighter market-ready supplies and improving demand. Fed cattle prices in the US southern plains jumped $4/cwt to $5/cwt in the last week of August reaching up to the psychological $100/cwt level before pulling back to the $98/cwt by mid September. At the same time, steers in Southern Alberta have also been trending higher reaching up to the $90/ cwt. Feeding margins have come under pressure with prices of DDGS increasing about $30/mt due to the stronger corn values. This has weighed on the feeder market south of the border causing Canadian feeder cattle exports to come in lower than anticipated. Despite the slower exports, the yearling market has been very strong with steers in the 850 to 900 pound category reaching up to $111 to $113. Feedlots operators appear to be fairly optimistic moving forward with the April live cattle futures making new contract highs near $103.
Statistics Canada estimated the total Canadian cattle herd as of July 1, 2010 at 14.011 million head, down 4.9 per cent from July 1, 2009. This is also down nearly 2.9 million head since the peak of 2005 when the herd measured 16.9 million head. July calves under one year old were reported at 4.713 million head, down 4.5 per cent from 4.932 million head last year; the total number of beef cows were 4.355 million, down 5.1 per cent from year ago levels; heifers for beef replacement came in at 623,600 head, down 2.4 per cent from July 1, 2009. Similar to the U. S. situation, the Canadian cattle herd remains in a contraction phase and cow-calf producers show no sign of expansion.
Alberta and Saskatchewan cattle- on-feed numbers drop below year ago levels in August, but are expected to increase above 2009 in the fall period. This is largely due to lower feeder cattle export program, similar to 2009. The U. S. feedlot operator is facing higher feedgrain costs and buying enthusiasm has been tempered due to an increase in placements during the summer months. U. S. second quarter feedlot placements were 14 per cent above year ago levels and we may see fed cattle marketings come in larger than anticipated in the fourth quarter. However, I’m still expecting a three to four per cent drop in overall fourth quarter beef production, which should underpin the fed cattle market on both sides of the border.
Retail demand remains strong for ground beef and we have seen marginal improvement the middle meats and higher valued cuts. U. S. restaurant traffic is expected to increase in the September through December timeframe as unemployment numbers slowly improve and the business traveler comes back on stream now that summer holidays are over. There is a fairly optimistic view in the restaurant sector for the fourth quarter, similar to last year. This appears to be the strongest quarter for retail sales, which spills over into the restaurant business. Improving restaurant demand is the key factor to increase middle meat prices and higher valued cuts. For the U. S. family, away-from-home food expenditures are running five to seven per cent above year ago levels, but at-home food expenditures are slightly below 2009. The fears of a double dip recession are being alleviated with recent economic data. The U. S. economy tends to move in cyclical waves and there is potential for a surge in economic activity in the first quarter of 2011. This will bode well for beef values because consumer incomes is the largest factor influencing beef demand. Expansion cycles in the U. S. economy are generally bullish for fed cattle prices.
The feeder market may soften in October but we should see a stronger trend in November and December. If the U. S. economy bounces back as expected in 2011, the function of the feeder market will be to encourage production through higher prices. Cow-calf producers will likely start holding back on heifers in the latter half of 2011 resulting in below normal feeder cattle supplies.
The corn market has potential strengthen over the winter and become extremely volatile in the spring of 2011. This will temper the strength in the feeder cattle and may postpone expansion plans by the U. S. cow calf operator.
In conclusion, fed cattle prices are expected to stay firm through the fall period and strengthen in the first quarter of 2011 due to lower beef production and growing consumer incomes. Feeder cattle prices in western Canada will be rather stagnant and could be under pressure if the export program does not improve. We should see stronger prices in the first half of 2011 as the market functions to encourage beef production and heifer retention. Strength in the feedgrains will limit the upside.
GeraldKlassenanalysescattleandhogmarkets inWinnipegandalsomaintainsaninterest inthefamilyfeedlotinSouthernAlberta.For commentsorspeakingengagements,hecanbe reachedat [email protected] or2042878268.