Alberta packers were buying fed cattle in the range of $152 to $153 FOB feedlot during the third week of April. Fed cattle prices were up $3 to $4 from 30 days earlier. The market appears to be factoring in tighter supplies in the latter half of the year, along with growing demand.
October and December live cattle futures are trading near 52-week highs and this has supported nearby cash values. The U.S. vaccination pace has been exceeding expectations. The Canadian vaccination pace has been gaining momentum after a few hiccups earlier in spring. Beef demand appears to be coming in larger than expected. The U.S. economy is running in high gear with the recent U.S. stimulus package. Consumers have saved a tremendous amount of money over the past year, which will eventually flow into the economy as well.
Consumer confidence is now at the highest level since the start of the COVID pandemic. The fed cattle and beef market is being led by stronger demand, as supplies are still at higher levels. Feeder cattle prices are balancing stronger deferred live cattle prices with historically high feed grain values.
In central Alberta, higher-quality lower-flesh steers weighing 850 pounds were trading in the range of $183 to $188/cwt in mid-April, up $5 to $8 from the third week of March; higher-quality steers averaging 600 pounds were quoted from $225 to $228/cwt, also up $8 from a month earlier.
U.S. cattle-on-feed inventories have been running approximately five per cent above the five-year average. Year-to-date beef production has been very similar to year-ago levels. If we compare 2021 to 2019, fed cattle supplies are expected to be slightly higher which will result in a marginal increase in production during the second and third quarters.
In Western Canada, Alberta and Saskatchewan cattle-on-feed numbers as of April 1 were 1.011 million head, up five per cent from the five-year average. The Canadian weekly slaughter is running slightly above year-ago levels while fed cattle exports are similar to 2020. Fed cattle supplies and production are expected to remain relatively constant over the next four to six months. Therefore, the focus will be on demand for price direction.
U.S. consumers spending more
A one per cent increase in consumer spending equates to a one per cent increase in beef demand. The two are highly correlated. The U.S. economy is in a unique situation. The Biden administration passed the $1.9 trillion stimulus package in March, providing most Americans with a direct cheque of $1,400. There is potential for another $2 trillion infrastructure package in the near future.
On top of this, Americans have saved an estimated $1.6 trillion over the past year. The COVID pandemic shutdowns and constraints caused people to save money. Equity markets have been trading near historical highs. Consumer confidence is also reached 109.7 at the end of March, up from 90.4 in February. This reflects that consumers feel favourable about economic conditions and plan to spend in the near future. These are leading indicators of future economic activity. Employment is a lagging indicator but has also sharply improved in March after slower gains in the first two months of the year.
The main point is that beef demand will surge during the summer. The U.S. economy will continue to expand over the next year. This should result in higher fed cattle prices. The quarterly production figures show the April 2022 live cattle futures have traded near $132, the highest level since 2019.
As of late April, feed barley was trading in the range of $310-330/tonne delivered Lethbridge; wheat for feed usage was quoted from $310-$320/tonne. Canadian farmers may increase barley acres but wheat acres will be down sharply from last year. The USDA had U.S. corn acres up 325,000 from last year but this is not enough to replenish supplies. The U.S. corn carryout could drop to historically low levels at the end of the 2021/22 crop year.
Don’t expect much downside in the feed grain complex. This is the main factor influencing feeder market direction. When the feeder cattle futures are near contract highs, I’ve been advising producers to buy their price insurance because the U.S. cash market is not moving higher. Despite the optimistic tone in the fed cattle market, don’t expect too much upside in the feeder market. During spring, the feed grains complex tends to incorporate a risk premium due to the uncertainty in production; at the same time, the feeder cattle futures will incorporate a risk discount. Cash feeder prices will probably trade sideways in Western Canada over the next couple of months.
Heading into early May, the fed cattle market is expected to remain flat from now through summer. Feeder cattle prices will have some downside potential between now and the end of the crop year. Once the crop is established, then we could see further upside in the feeder market. I’m bullish on the fed and feeder markets from August onward but there could be some weakness in the short term.