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Cdn Beef Herd Still Contracting

The cattle market appears to be stabilizing after absorbing the burdensome supplies during the summer months. In early September, fed steers in the U. S. southern plains were trading at $85/cwt, which is up from $82 a month earlier. At the same time, market ready cattle were selling in the range of $81 to $82 in southern Alberta. Cattle feeders are trying to hold out for higher prices but the overall environment is quite negative in the short term.

The Canadian dollar continues to ratchet higher and will likely stay strong into the final quarter of 2009. This is tempering offshore exports and slowing movement south of the border. The weaker U. S. dollar is also causing more U. S. beef to be sold into Eastern Canada. Wholesale prices are trending lower and will likely stay soft in the upcoming months causing packer margins to erode. Feeder cattle prices are expected to weaken over the next two months, despite the lower feedgrain prices.

Poor finishing margins during the summer have set a negative tone in the feeder cattle market. COOL is also tempering demand for feeder cattle south of the border. This is causing larger numbers of Manitoba and Eastern Saskatchewan feeder cattle to move into Alberta and Saskatchewan feedlots.

The August cattle on feed report was bearish for nearby and deferred selling positions. U. S. on feed numbers are expected to run three to five per cent below year ago levels for the rest of 2009. The U. S. cattle inventory report was a non-event. U. S. beef cow numbers as of July 1 were 32.2 million head, also down one per cent from July 1, 2008. Heifers for beef cow replacement were down two per cent from last year at 4.5 million head. Similar to Canada, the U. S. does not appear to be holding back enough heifers for herd maintenance and will remain in a contraction phase for the remainder of the year. The USDA estimated the 2009 calf crop at 35.6 million head, down one per cent from last year. According to the USDA, the ratio of heifers to steers and heifers on feed is the highest since July, 2004. Therefore, I do not expect significant heifer retention in the latter half of 2009. I’m expecting reduced feedlot placements over the next two years.

The Statistics Canada cattle inventory report also showed no major surprises. Beef calves as of July 1, were 4.595 million head, down 3.4 per cent from July 1, 2008. The total calf crop from January to June was 4.402 million head, down 2.5 per cent in comparison to the same time last year. Total beef cows as of July 1 were 4.588 million head, down 5.6 per cent from last year and heifers for beef replacement were down 2.5 per cent.

Canadian beef and slaughter cattle exports continue to drag behind last year resulting in larger supplies for the domestic market. Total Canadian beef exported to the U. S. in the first half of 2009 was 137,427 mt, down 7.2 per cent from last year. However, Australian beef exports to the U. S. for the same period were up 49 per cent over last year at 152,196 mt. Australia is exporting more beef to the U. S. than Canada. U. S. beef exports to Canada are down 10 per cent so far this year. Given the current exchange rate, we expect U. S. beef exports to Canada to increase in the third and fourth quarters.

Canadian slaughter cattle exports to the U. S. are down 20 per cent from last year while the slaughter pace is down two per cent. Given the stronger Canadian dollar, the Canadian fed cattle market is functioning to encourage demand through lower prices.

Restaurant traffic in the U. S. has been trending lower for 13 straight months. This has caused the choice/select spread to narrow and increased supplies for retail movement. U. S. retail prices remain under pressure due to lower consumer expenditures, larger supplies of beef and increased pork stocks. The number of people receiving jobless benefits in the U. S. rose to 6.23 million in late August and unemployment is running near 10 per cent. Canadian unemployment is running at 8.7 per cent and growing. Canadian grocery store chains are bracing to cut prices in an effort to increase movement of all products. U. S. consumers are spending 30 per cent less on groceries than last year while Canadian food spending is down nearly 15 per cent. Last half October and November is usually a bearish period for equity markets and export business. Crude oil is holding up fairly well but we expect a major sell off in the energy sector in late October, which would spillover into all commodities. In Canada, there were 7.1 million women in paid employment in August, up 0.6 per cent from last year. More women working outside the home results in lower beef demand. All these factors come into focus when analyzing beef consumption.

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.

About the author


Jerry Klassen is president and founder of Resilient Capital, specializing in proprietary commodity futures trading and market analysis. Jerry consults with feedlots on risk management and writes a weekly cattle market commentary. He can be reached at 204-504-8339 or via his website at



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