Fed steers in Alberta were trading in the range of $86/cwt to $88/cwt in late March. Strong demand from south of the border along with improved beef product prices has helped lift cattle prices to yearly highs. Despite the stronger Canadian dollar, slaughter cattle exports have been averaging 20,000 head per week. Cattle marketing weights have been declining but we still have a ways to go before the finishing sector is current with production. The U. S. market has surged higher with fed cattle trading at $98 in Texas in Oklahoma. These are the highest prices since October of 2008. Adverse feedlot conditions have caused production to come in lower than expected. Record snowfall in the major feedlot regions along with continued rains has resulted in inefficient weight gains. Cattle are being marketed 15 to 25 pounds below normal and this has slaughter plants killing more cattle to satisfy their nearby demand. Wholesale prices are now above pre recession levels and restaurant demand is starting to improve now that the economy is moving into an expansion phase. There is a seasonal tendency for cattle prices to make seasonal highs in March and then soften into the summer period. The extent that demand stays strong will be the main factor sustaining the current price structure. Beef supplies will start to increase in the second quarter as market ready supplies increase and the U. S. feedlot region dries out.
U. S. cattle on feed numbers as of March 1 were 10.9 million head, down three per cent from March 1 of 2009. Placements were reported at 1.67 million head, down one per cent from March of 2009 while marketings were 1.72 million head, up two per cent over year ago levels. The report was considered neutral to slightly bullish as numbers were within pre report estimates.
Cattle bought more cattle in February as weights dropped sharply. This trend will continue into April but then we should see weights stabilize in line with a normal year.
This is called the “pull forward effect” as cattle are sold prior to optimal marketing weight. This gives feedlots the dominant position as the lack of selling causes the market to trend higher.
Canfax reported cattle on feed in Alberta and Saskatchewan at 1.002 million head as of March 1, up five per cent over the same date in 2009. Placements were up a whopping 17 per cent over last year and marketings were down nine per cent. Lower feeder cattle placements this past fall and winter has caused auction market volumes to run 10 to 12 per cent over last year, so this is not really a surprise. The marketing number was on the lower side of estimates because of the higher marketing weights this past winter.
Beef demand is improving with a slight improvement in restaurant traffic and steady retail demand. Consumers are spending more money given recent retail sales. Without going into detail, they are going into additional debt rather than using their savings. There has not been a significant change in overall income levels but monetary fears have subsided. Business spending on conventions and restaurants has increased but individual traffic has not improved. Beef exports have back on stream with the recovery in Southeast Asia. Offal and tallow exports are now back up to pre recession levels adding about $5/cwt to the live cattle price.
Fed cattle prices are feeling somewhat “lofty” at the current levels. Fed prices are jumping $3/ cwt from week to week and this is a signal that the top is almost in place. This erratic price action will likely continue until late April but then look for the market to soften. Feedlot operators are encouraged to be aggressive with sales and use this period to liquidate heavier cattle. There is a tendency to become greedy; the market has rewarded the seller for waiting by providing a higher price each week. Unless retail beef prices increase, it will be difficult to maintain the current wholesale market and this is key to the current live cattle price. Retailers are getting squeezed and increasing prices will start rationing demand at the retail level. The market has gone through a sharp transition stage from burdensome supplies to surprisingly tight in a very short period.
Feeder cattle prices are being pulled higher by the fed cattle market. Improved feedlot margins along with soft feedgrain prices have caused the feeder market to ratchet higher. Demand has been tempered due to the wet conditions in U. S. feedlots but I expect feeder cattle prices to stay firm to higher into the next month. Supplies of feeder cattle will be rather tight from May through August and with stronger fed cattle prices, there has been renewed optimism from the feedlot operator.
Jerry Klassen is a commodity market analyst in Winnipeg and maintains an interest in the family feedlot in southern Alberta. He writes an indepth biweekly commentary called Canadian Feedlot and Cattle Market Analysis for feedlot operators in Western Canada. He can be reached by email at [email protected]or 204-287-8268 for questions or comments.
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