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Cow-Calf Outlook Good For 2011

U.S. feedlot inventories reached three-year highs in November while cattle on feed 120 days or longer remain relatively tight. Stronger demand has resulted in Kansas fed cattle prices trading in the range of $98/cwt to $100/cwt in November while Alberta steers hover between $94/ cwt and $97/cwt. On-feed numbers in Alberta and Saskatchewan are at five-year lows which will enhance the basis for slaughter cattle over the next six months.

The stronger slaughter pace along with steady exports of fed cattle to the U.S. has kept feedlots very current with production. Domestic North American beef demand appears to be improving in line with the seasonal tendency. Projections for lower unemployment numbers along with stronger consumer confidence will bode well for the beef demand during 2011. Calf numbers will be down in 2011 due to the high U.S. cow slaughter. Feeder cattle prices are expected to percolate higher into March but additional strength in the barley market may temper the upside. The function of the feeder market is to encourage expansion but despite trading near historical highs, there is no sign of heifer retention.

U.S. cattle-on-feed numbers as of November 1 were 11.5 million head, up three per cent from November 1 of 2009; October placements came in at 2.50 million head, a year-over-year rise of one per cent while fed cattle marketings were down one per cent at 1.73 million head. Beef production in the first and second quarters may be larger than anticipated. Earlier in summer, the USDA was projecting a sharp drop in beef production in the first half of 2011. The hard red winter wheat region is experiencing very dry conditions resulting in limited grazing of small grain pastures. Feeder cattle are moving into feedlots sooner than normal and at lighter weights. Marketings for October were the second-lowest on record but carcass weights remain five pounds below 2009, which is a positive signal.

Cattle on feed in Alberta and Saskatchewan as of November 1 were reported at 825,620 head, down eight per cent from last year, October placements were down five per cent and marketings were up a whopping seven per cent. The year to date Canadian slaughter is running three per cent above 2009 and overall beef production is up 3.7 per cent. Slaughter cattle exports to the U.S. are up nearly 20 per cent in comparison to 2009 so there is an obvious increase in demand sustaining current price structure.

U.S. choice beef values remain near historical highs at $158, up nearly $17/cwt above last year. U.S. September “away from home food” expenditures were up 13 per cent over 2009. The fourth quarter of 2009 experienced a very sharp contraction in “away from home” food spending but 2010 appears to be back to normal. North American consumer spending on “food for home” is now starting to increase after declining for most of 2010. This will continue to support retail prices and keep supplies in the beef pipeline relatively tight. Consumer spending is expected to increase over the next 6 months which will result in a higher shift in demand. This is the most important factor driving beef and cattle prices and will dictate the upside potential.

April live cattle futures continue to trend higher exceeding $108 at the time of writing this article. Cash fed cattle prices in the March though May timeframe could reach historical highs and feedlots are looking to be full for this period. Calf prices are also ratcheting higher in Canada and the U.S. now that the corn market has

defined upside of $6 per bushel. Barley prices remain under $180 so the western Canadian feedlot has not had to contend with historical high feed grain prices like their U.S. counterparts. Feeder cattle prices are also expected to be very strong in March because

of supply tightness and positive feedlot margins during this time. Above normal placements in the fourth quarter of 2010 will result in lower placements in February through April. While feeder cattle prices will be high during this time, this also translates into lower beef production in the third quarter of 2011.

I see a fairly positive outlook for feedlots and cow-calf producers for 2011. Bred cows are 150 per cent higher than last year but this is probably a good purchase at these levels. Cow/calf producers, who have been reading articles over the past couple years, know that I encouraged expansion through the recessionary period. Those who followed my advice are now in good shape for the next two years.

GeraldKlassenanalysescattleandhogmarkets inWinnipegandalsomaintainsaninterestin thefamilyfeedlotinSouthernAlberta.For commentsorspeakingengagements,hecan bereachedat [email protected] or2042878268

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“I see a fairly positive outlook for feedlots and cow/calf producers for 2011. Bred cows are 150 per cent higher than last year, but this is probably a good purchase at these levels.”

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