Fed cattle prices in Alberta continue to trade between $183 to $185 as the Canadian dollar remains near six-year lows. U.S. beef production appears to be exceeding earlier projections; however, retail and restaurant demand have not slowed as much as expected during the first two months of 2015 and wholesale beef prices are holding value.
Feedlot margins continue to hover in positive territory and it appears barley stocks are not as tight as earlier anticipated. Therefore, feeder cattle prices have been percolating higher throughout February, which is somewhat surprising given the weaker live cattle futures for the late spring and summer timeframe.
In central Alberta, larger-frame exotic steers weighing 800 pounds sold for $264, which is up $10 to $15 from a month earlier. Major feeding operations appear to be stepping forward more aggressively for replacement cattle given the build up in equity over the past year. Feeding margins for the summer are now hovering near breakeven given the price of feeder cattle and projected fed cattle prices.
U.S. meat supplied building
The USDA projected first-quarter beef production to reach 5.9 billion pounds, which is up by 225 million pounds from their January estimate. Earlier in fall, beef production for 2015 was expected to be sharply below 2014, but we now find production levels either exceeding or similar to year-ago levels for each quarter. Beef supplies are not as tight as earlier anticipated. Secondly, pork production is now forecasted to reach 24.1 billion pounds during 2015, up nearly 1.3 billion pounds from 2014. We see a building of U.S. red meat supplies, which could temper Canadian exports of fed cattle and processed beef.
As of early February, Canadian beef production was 107,000 mt, down two per cent from year-ago levels while the slaughter is running six per cent under last year. Cattle-on-feed inventories in Alberta and Saskatchewan have been running nine per cent below 2014 so the lower slaughter pace will likely continue into the summer. Lower on-feed numbers have resulted in lower exports of fed cattle to the U.S. Official data for the month of January had slaughter cattle exports at a meagre 16,400 head, down 51 per cent in comparison to January of 2014.
U.S. choice beef prices were reported at 238/cwt in mid-February, down from the November 2014 highs of $256/cwt. U.S. economic data continues to show positive signals with ongoing job growth and higher wages. The slowdown in restaurant traffic was not as large as anticipated during the first six weeks of 2015, despite adverse weather along the U.S. Eastern Seaboard. However, the seasonal decline in demand has taken a toll given the lower wholesale beef prices.
Demand expected to increase
Looking forward, demand will improve later in March and April, which is bound to be supportive for wholesale beef and fed cattle prices. During 2014, fed cattle prices moved in a counter-seasonal pattern strengthening from May through July. For 2015, the market will probably return to the normal pattern with softer values during the late spring and summer. The market has accounted for current supply situation trading near historical highs. Last year, the market experienced a sharp year-over-year decline in second-quarter beef production and had to ration demand accordingly.
Feeder cattle prices have strengthened in the late winter but are poised to consolidate moving forward. If fed cattle prices soften during May through July, feeding margins will start to move into negative territory, which will stem buying enthusiasm. The recent Statistics Canada Dec. 31 stocks report showed a sharp decline in domestic feed usage and barley supplies are not as tight as earlier anticipated.
While the trend is your friend in the feeder cattle market, I think backgrounding operators and cow-calf producers have to be cautious from May forward. The U.S. and Canadian cattle herds are in the expansion phase. Looking at past patterns, producers can count on the expansion phase lasting two to three years even if feeder cattle prices come off the highs. I don’t feel the market will fall apart but we may see a softer tone later in summer.