In mid-March, Alberta packers were buying fed cattle in the range of $148 to $149 FOB the feedlot, which was down $2 to $3 from the February average.
The fed cattle market appears to be in a transition stage. Fed cattle and beef supplies will tighten in the last half of the year. Beef demand has been larger than anticipated over the past few months as Americans and Canadian adapted to a “stay at home” lifestyle. Restaurant and travel limitations are slowly being lifted. Most Canadians and Americans will have received one vaccination by the end of summer. Disposable income for the average American has surged due to the government stimulus packages.
Supplies are tightening and beef demand is expected to slowly improve, which bodes well for fed and feeder cattle prices. In central Alberta, larger-frame, medium-flesh Simmental-based steers weighing 850 pounds were quoted at $180 during the third week of March. Stronger feed grain prices continue to weigh on the feeder market. Canadian barley and wheat stocks are expected to drop to historical lows at the end of the crop year and this has resulted in a defensive tone on the yearling market.
Prices for grass cattle remain firm although much of Western Canada has received less than 40 per cent of normal precipitation over the past 60 days. Higher-quality steer calves weighing 500 pounds were quoted in the range of $245 to $255 across Alberta and Saskatchewan for the week ending March 13.
Nearby market-ready supplies of fed cattle are somewhat burden- some in the short term. However, carcass weights are slowly declining on both sides of the border, which is a positive signal. Alberta packers are cleaning up the backlog of market-ready supplies. The Canadian year- to-date slaughter for the week ending March 6 was 545,787 head, up nearly 63,000 head or 10 per cent from year-ago levels. In the U.S, the slaughter is lagging year-ago levels and the slaughter during the first two months of 2021 has come in lower than expected. In any case, the backlog of fed cattle market-ready supplies is expected to be cleaned up by the end of April.
Weekly beef production is expected to trend lower into the summer. This is counterseasonal to the traditional pattern. Instead of the fed cattle market trending lower during May through July, we’ll likely see fed cattle prices trade in a sideways pattern.
During the third and fourth quarter of 2021, the USDA is projecting a sharp year-over-year decrease in beef production. The October and December live cattle futures have been trending higher and the market may start to incorporate a risk premium due to the uncertainty in beef production.
During September, we’re going to see Canadians and Americans resume a normal lifestyle. After-school activities will start up and travel restraints will not be as severe. The coronavirus or variant will not spread as fast during the summer. Beef demand may soften in the early fall but it will be short lived. We’ve learned that consumers ate more beef with the COVID restraints, but demand is not as strong when people have a regular lifestyle. It’s important to remember that beef demand makes seasonal highs during November and December. This strong demand will come at a time when supplies are rather snug. The dip in the market in fed cattle market during August and September will be short-lived.
Statistics Canada’s Jan. 1 cattle inventory report had the total number of heifers, steers and calves under one year down 107,500 head from January 1 of 2020. Despite the 2020 calf crop coming in similar to year-ago lev- els, the feeder cattle market is contending with a tighter supply scenario moving into spring. Western Canadian yearling prices have been trading at a premium to U.S. prices in the Midwest and Southern Plains. It’s important to realize that calf values in Alberta are similar to prices in the Mid- west. The year-over-year decline in the U.S. calf crop will likely enhance demand from feeder cattle in the latter half of 2021.
The fed cattle market will likely trade sideways into midsummer, and then soften in August and September but stronger prices are expected in the final quarter of 2021. Yearling prices will likely trade sideways in the short term but the strong fed cattle market and the anticipating of harvest pressure on the feed grain complex will cause replacement values to reach 52-week highs in the summer. Calf prices are expected to stay at the current levels over the next four to six months. We may see seasonal pressure in October as the fall run begins, but the positive longer-term outlook for fed cattle will underpin the calf market during the fall.