During the third week of June, Alberta packers were buying fed cattle on a dressed basis at $415/cwt delivered. Prices f.o.b the feedlot in southern Alberta were averaging $246/cwt.
The U.S cattle herd has been contracting for the past four years. Cattle prices are now functioning to encourage expansion. Wholesale beef prices are also trading near historical highs, with choice product averaging US$340/cwt during June. These are the highest prices since May 2021, when the pandemic caused abnormal supply and demand behaviour.
Despite elevated inflation and higher interest rates, retail beef prices continue to hold. Restaurant traffic has been similar to year-ago levels in Canada and the U.S. Consumer demand has been surprisingly strong. Feeding margins remain in positive territory, which has enhanced demand for replacement cattle.
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In central Alberta, larger-frame quality genetic steers weighing 800 pounds reached the psychological level of $300/cwt in late June. At the same time, steer calves averaging 500 pounds were trading in the range of $380-$400/cwt. We haven’t seen a decline in the heifer slaughter in Canada or the U.S. The beef cow slaughter is running marginally below a year ago. It appears that beef supplies will tighten further but the key will be if demand can sustain the market at the current levels.
Prairie feedlot numbers
Feedlot placements in Alberta and Saskatchewan during the first five months of 2023 were 619,600 head, down 14 per cent from a year ago. Cattle-on-feed inventories during the spring have been down about 10 per cent. Lower placements and lower feedlot inventories will result in lower beef production. Carcass weights have been running sharply below year-ago levels as packers pull cattle forward. Basis levels in Alberta have been very strong. It appears that the Alberta fed market is trading at a premium to U.S. values. The market is rationing demand to curb fed cattle exports to the U.S.
During the first four months of 2023, U.S. feedlot placements were 7.405 million head, down four per cent from the same period in 2023. Cattle on feed for slaughter in the U.S. have been running four per cent below a year ago. Unlike in Western Canada, carcass weights in the U.S. are similar to last year. Cattle are not being pulled forward or marketed sooner than normal. However, the tighter supply situation has caused fed cattle market to make fresh record highs during the spring.
The USDA forecasts U.S. 2023 third-quarter beef production to reach 6.820 billion pounds. Fourth-quarter output is expected to finish near 6.720 billion pounds. Notice this is very similar to the first half of 2023. The market has factored in lower supplies for 2023. Beef supplies are not getting tighter but stabilizing. I’m not expecting further upside in the fed cattle market during 2023.
Canadian first-quarter GDP came in at 3.1 per cent (quarter-over-quarter, annual rate) and second-quarter output will likely reach 2.5 per cent. U.S. GDP was 3.1 per cent in the first quarter and the second quarter is expected to finish just over 2.1 per cent. Central banks started to increase interest rates during the spring of 2023 and it takes about 12-18 months for rate hikes to work through the economy. Beef demand is expected to decrease in the latter half of 2023 and into 2024.
As of mid-June, the U.S. heifer slaughter was running similar to a year ago, while the year-to-date beef cow slaughter was only down 11 per cent from last year. Pasture conditions are favourable in the U.S., but we’re not seeing significant herd expansion. Looking at history, it usually takes one full year of historically high feeder cattle prices before the cow-calf producer starts heifer retention.
It looks like 2023 will be the fifth consecutive year of lower calf crops, which is bullish for feeder cattle longer term. The feeder market needs to encourage production and this will limit the downside in feeder complex. Corn futures in mid-June were incorporating a risk premium due to the uncertainty in production. However, the USDA is factoring in a sharp year-over-year increase in U.S. corn output.
Canadian barley production will be slightly higher than last year. Chinese demand for Canadian barley will be down sharply which should result in lower feed grain prices during the fall. The big picture remains bullish for feeder cattle but keep in mind markets don’t go straight up.
