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Cattle Prices Levelling Off

Cattle prices appear to be consolidating at the higher levels as demand wanes. Retail beef prices have made new record highs over the past month and consumer purchases are starting to slow. Despite slower domestic consumption, offshore exports continue to increase with U.S. sales to South Korea sharply higher over year ago levels. Alberta fed cattle prices hovered in the range of $113/cwt to $116/cwt during the first half of April while U.S. prices made record highs touching $124/cwt. The stronger Canadian dollar has resulted in the Canadian market trading at a discount to cattle in the U.S. Southern Plains but slaughter cattle exports continue to run over 14,000 head, which is relatively high.

Alberta and Saskatchewan cattle on feed numbers have been running three to five per cent below year ago levels while carcass weights are down 15 pounds in comparison to last year. Feedlot operators have been selling cattle sooner than normal to take advantage of the higher prices. Placements have been down approximately 25 per cent during the first quarter of 2011 so we are expecting lower on feed numbers into the summer months.

U.S. cattle on feed numbers are approximately five per cent higher than last year. Placements in the final quarter of 2010 were up 6.7 per cent due to the extreme dry conditions in the Southern Plains region. There was limited small grain pasture causing cattle to enter feedlots sooner than normal. Cattle that usually move into feedlots in late March or early April were placed last fall resulting in the higher on feed numbers and larger beef production. It now appears that cattle on feed numbers will drop below year ago levels during the summer and fall timeframe because placements are expected to be down five to eight per cent during the second quarter of 2011.

U.S. feeder cattle prices have surged higher in April due to this vacuum of demand that I’ve been projecting through the winter. In Green City, MO, 455- lb. steer calves sold for $190.23/ cwt while 565-lb. steers sold for $177.75./cwt. We are now seeing a significant premium in the Nebraska market over Manitoba cattle, despite the strong Canadian dollar. I’m looking for an increase in Canadian feeder cattle exports in April and May as many U.S. buyers are calling up north to see if there are any cattle available. This export factor could add another $5/cwt to $10/cwt on Manitoba feeder cattle prices.

Contrary to the Canadian situation, U.S. dressed weights are up

11 pounds over last year. For the week ending April 8, U.S. year to date beef production was up 1.4 per cent while the number of cattle slaughtered is up 0.5 per cent. The USDA is expecting beef production to drop marginally below year ago levels in the third quarter of 2011 and then decline sharply in the October through December period.

U.S. beef exports for 2011 are now projected to reach 2.475 billion

pounds, up almost 200 million

pounds over 2010. Stronger demand from Southeast Asia, especially from South Korea is setting the stronger pace. I earlier thought North American exports to Japan would decline with rolling electricity blackouts and weaker equity markets. The future exports to Japan are uncertain but export values appear to be fairly stable for the time being.

U.S. packing margins are estimated at negative $30 per head as wholesale prices struggle to move higher. Choice product has traded as high as $191/cwt, up approximately 17 per cent over year ago levels. Ground beef is also up 17 per cent and higher-end steaks are up 12 per cent. Consumer spending has only increased by 10 per cent so we can see the divergence in spending and retail beef prices. Consumer confidence declined during March as North Americans realized higher energy costs and became less optimistic on the overall economic situation. Unrest in the Middle East, ongoing debt problems in Europe along with the potential for additional earthquakes in Japan has world equity markets nervous. All these factors along with the current beef fundamental structure has the industry feeling that the highs in the cattle market have likely been defined. Look for feeder and fed cattle prices to trade sideways to slightly lower into the summer. In the short term, consumer spending has not kept up with the rise in beef and cattle prices. However, we should see gradual increases in at home and away from home food purchases which will keep cattle prices near the historical highs during the fall period.

GeraldKlassenanalyzescattleandhogmarkets inWinnipegandalsomaintainsaninterestin thefamilyfeedlotinsouthernAlberta.For commentsorspeakingengagements,hecan bereachedat [email protected] or2042878268

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